California to Mandate Maternity Coverage

Today’s Managing Health Care Costs Indicator is $12,320 to $17,093

The Los Angeles Times reports that the California Legislature has just passed a bill that would mandate that individual health insurance cover pregnancy-related expenses. 

California already mandates maternity coverage for health maintenance organizations and for state-regulated employer insurance, but until now insurers have been able to write individual policies that exclude coverage for pregnancy.

The $12,320 to $17,093 is the range of estimates of hospital and obstetrician costs is from the International Federation of Health plans in 2009.  This data is not trended forward from 2009, and does not include costs of anesthesia.  This is also for a vaginal delivery; cost is higher for Caesarian Section, which represents about 35% of deliveries in the US at this point.

Governor Jerry Brown has not yet announced whether he will sign the bill. Should he?

Pregnancy is often planned – so theoretically prospective moms could plan their finances to account for this expense.  However, delivery is just too expensive for most people to be able to pay this out of pocket.  It seems to me that pregnancy is exactly why we should have social insurance and share the cost burden across the larger population.

On the other hand, voluntary individual health insurance premiums will rise substantially if  pregnancy is covered.  Women could sign up after their positive pregnancy test – and thus deprive the insurance pool of their pre-pregnancy premiums.   Hence, the cost of the health insurance premium would need to be very high, to account for adverse selection, the selective recruitment of those likely to have the highest medical bills.  Health insurance which is unattractive to the healthy is unsustainable.

This is the problem of voluntary, ‘guarantee issue’ individual health insurance – it’s in each person’s individual best interest to sign up only when she needs benefits, but this limits the ability of the healthy to subsidize those with health care needs. 

The Affordable Care Act’s individual mandate addresses this issue, although it’s wildly politically unpopular to require that Americans purchase private health insurance to avoid a penalty.

Jerry Brown will find it difficult to veto this bill.  He’ll want to show solidarity with pregnant women, and make it easier for them to obtain proper prenatal care.  The maternity care needs to be paid for one way or another – we’re not going to force women to have their children on kitchen tables.   If Brown  does sign the bill, premiums will rise rapidly in the individual market, making it difficult for many to afford the health care insurance they currently have.  

It’s easy to see why policy experts are much more enthusiastic about the individual mandate than Americans filling out public opinion surveys!

Addendum: LA Times editorial supporting mandate

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Saving Money and Saving Lives

Today’s Managing Health Care Costs Indicator is
$86 Billion

A brief article in yesterday's New York Times notes that California, by having among the highest tobacco taxes around, and by spending significantly on tobacco education and counter-marketing, has the lowest adult smoking rate of any state except Utah, and has seen rats of lung cancer decrease at a rate three times as fast as the rest of the country. All told, the state calculates that it has saved $86 billion in health care costs.  (I can't find the actual report, so I would discount this somewhat). There's more detail at this blog, and here's a link to a press release from September.

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California Provider Leverage Drives Health Care Cost Increases

I blogged yesterday about health plan powerlessness to control cost per unit – the major driver of excess health care costs in the US compared to other developed OECD countries. 

As if on cue, Health Affairs published an article from the Center for Health System Change pointing out that this is exactly what has happened in California.  A combination of public demand for full provider choice and consolidation of hospitals and physicians has left health plans with little power to control overall costs.

A direct quote:

“Physician overlap in two prominent health plan networks was 97–98 percent. This reality weakens the position of health plans. If plans cannot exclude providers from their network because of customers’ demands for broad networks, they cannot credibly threaten network exclusion. That fact undermines their ability to resist providers’ demands for higher payment rates.

Although it doesn’t seem possible that prices could have increased even faster, it turns out that providers sometimes don’t wield all available leverage power in negotiations. In effect, they leave “money on the table” because

-          Hospitals and big physician groups worry that raising prices too high will chase business away from the local geography

-          Hospitals and big physician groups worry that raising prices for smaller health plans might increase health plan concentration

-          Kaiser Permanente in Northern California has large market presence and drives costs down in that market.

I am convinced that more integration of provider groups can lead to higher quality of care – and more cost-effectiveness, too.   This quote from a physician who had moved from Fresno, a non-integrated market, gives me pause:

“The good thing about the systems not being highly integrated and coordinated [in Fresno] is that premiums are lower. Why are those hospitals and physicians [integrating]? It wasn’t for increased coordination of care, disease management, blah, blah, blah—that was not the primary reason. They wanted more money and market share.”

Many observers have commented on the importance of vigorous enforcement of antitrust regulations.  However, this article points out that some characteristics that make a hospital a “must have,” high-leverage facility, such as reputation and provision of unique services, are not addressed by antitrust enforcement. 

The authors conclude that policy makers should consider price caps and all-payer rate setting.  Of course, all-payer rate setting would likely require Medicare and Medicaid to pay substantially higher rates.  Since Medicare is already woefully underfunded and the states are chafing at Medicaid costs, no one will be enthusiastic about an approach which increases Medicare and Medicaid liabilities.

The market helped control prices when hospitals and care delivery systems genuinely competed against each other. In the current environment, where health plans must have a contract with all providers, hospitals (and delivery networks) have become akin to utilities. Utilities are usually subject to price regulation.

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Problems in the Small Group Market - Rates Go Up

Anthem BCBS of California has been hit by a firestorm of protest  over increases as high as 39% for its small group policies.  Kathleen Sebelius and Dianne Feinstein have blasted the company, and Barack Obama mentioned these rate increases during an interview with Katie Couric.   Wellpoint, the parent company, had large profits; why should it increase its rates so much? What has changed?

With the economic downturn, many companies downsized.  The smaller the company the higher the ‘selection’ risk – where the healthiest people opt out of insurance, leaving a sicker group continuing in insurance.   Further, younger (healthier) workers were more likely to be laid off.  A less healthy population leads to higher premiums.

Further, health plans have been able to “underwrite” for these small group plans – where they assess the risk of the group and price accordingly.   That means that a small group with a single person with a catastrophic chronic disease would pay prohibitively high rates.  There is significant threat to the insurers that health care reform would make health insurance “guarantee issue,” where an insurer could not turn down an individual (or a small group), and might not be able to charge more for such a group.   

Guarantee issue (which we have in Massachusetts) is socially good, since the sickest people need insurance the most – and this way they get it.  But guarantee issue works best when (almost) everyone is insured.  The sick get insurance, and underpay for it. The healthy get insurance, and pay more to subsidize the sick.

However, the political climate has changed dramatically.  While there is still support for sticking it to the health plans and forcing them to offer insurance to all, support has waned for individual mandates.  In fact, the Democratic–controlled State in Virginia just passed a bill banning individual mandates.   Even Howard Dean railed against individual mandates (and the Senate health care reform bill in general) on National Public Radio. 

 If there are no mandates to keep the healthy people IN the insurance system, it’s likely that the individual and small group markets will increasingly serve only the sickest of the sick.  If that’s the case, the Anthem rate increases are only the beginning.

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