Wednesday, March 19, 2008

Mandatory Insurance: Are We There Yet?

[Welcome Industry Radar readers!]

I've been thinking about one of the "givens" in the universal coverage debate, and wanted to share some of that with our readers. We operate under a few assumptions here at IB and, although we obviously don't think in "lock step," I'm pretty comfortable in stating that, for the most part, we all agree that:
■ Health insurance costs rise primarily because health care costs do
■ Mandatory benefits impact premiums
■ Personal responsibility and accountability are desirable

None of the legislative initiatives currently on the table substantively address these issues. Which is not to say that there's nothing of value to be gleaned from them.
But first, a slight digression (which I'll then tie back in):
So-called "mandatory insurance" simply posits that citizens be required to purchase (and maintain) health insurance coverage. Leaving aside underwriting considerations (we'll get to those), the question arises: is this a good idea?
One of the arguments that proponents of mandatory coverage espouse is that health insurance should be treated like auto insurance; that is, one is required to have some kind of insurance in order to operate a car. We've touched on this before: health insurance is indeed similar to Property/Casualty in that both are based on the concept of indemnification. Mandatory auto insurance requires some minimum amount of liability cover. The idea is that this protects those whom one may injure in an at-fault accident; it does not, however, pay for repairs to one's own vehicle (that would be "physical damage").
Nor does that "physical damage" coverage (a.k.a.comprehensive/collision) pay for routine maintenance, blown tires, gas, and the like. Those are solely the owner's responsibility. As Bob would say, "there's no co-pay for new windshield wipers."
But the state (the "public") is well served by requiring drivers to protect the interests of others, so there's a net positive social benefit to mandatory auto insurance. Could the same argument be applied to health insurance?
I'm beginning to believe so.
The challenge has always been balance; that is, the inherent conflict between personal responsibility ("you should carry health insurance") and the public good ("you must carry health insurance"). From a practical standpoint, the analogy between auto and health breaks down over what the requirements are. As noted, mandatory auto coverage is pretty simple, and relatively modest: bodily injury and property damage, usually with very low thresholds. So the question becomes: can we fashion a health insurance plan with just a few moving parts (i.e. a minimum of mandatory coverages), thus rendering it more affordable?
The second piece goes to underwriting (see, I told ya we'd get to that): good drivers pay less for insurance than those with (for example) multiple DUI's and speeding tickets. Could we fashion a "minimum" health plan that mimics that (i.e. takes folks' health history into account)?
It seems to me that we can do both, by using a model that's already beginning to find more widespread acceptance: limited benefit ("mini-med") plans. These are relatively inexpensive, and can take into account a more diverse range of underwriting classes. By setting the "minimums" at a realistic level (drug discounts into of co-pays, for example), it seems to me that these could be made readily available, and affordable, to a large percent of the chronically uninsured. And just as folks with Jaguars can "upgrade" their policies to include rental reimbursement and GAP coverage, those who want "more bang for the buck" can opt instead for regular major medical plans (although I certainly hope that more folks will at least consider HSA's).
Is this a "perfect" solution? Of course not. But it's pretty well established that Americans prefer incremental changes to drastic and immediate ones, and this seems to me to be a more "doable" solution.
By the way, I'm not the only one who's giving this some thought of late: both Jason Shafrin at the Healthcare Economist and Amy Tenderich at Diabetes Mine have some intriguing ideas on the subject, as well.
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