Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
Obamacare’s “Essential Health Benefits” Rules an Obstacle to Innovation
The latest healthcare battleground is the Affordable Care Act’s “essential health benefits” provision, the rules that say what exchange-based health insurance plans must cover. From the New York Times:
Scrambling to nail down votes for the health care overhaul legislation, Republicans are considering ways to ease federal requirements that insurers cover such basic services as prescription drugs, maternity care and substance abuse treatment. Lawmakers emerging from a meeting late Wednesday of the conservative Freedom Caucus said “essential health benefits” are in play as party leaders and the White House explore ways to advance the bill. But undermining the Affordable Care Act’s (ACA) benefits is likely to trigger a backlash from patient groups and doctors.Conservatives in the House are upset that the AHCA doesn’t do enough to remove insurance regulations imposed by Obamacare, and therefore doesn’t do enough to lower premiums. So they want to eliminate the “Essential Health Benefits” (EHB) rules that say what health insurance plans have to cover, in hopes this will make insurance more customized and less expensive.
Well, eliminating the rules is one thing, reforming them another. And they should be reformed. Now the point of the EHB rules is that what the insurance consumers buy on the exchanges should be comprehensive, that it’s not “junk” insurance. On the other hand, argued by Ben Wanamaker and Devin Bean in the 2014 report “Seize the ACA: The innovator’s guide to the Affordable Care Act” from the Christensen Institute, these requirements “discourages disruptive innovation perhaps more than any other section” of the ACA. And by “disruptive innovation,” the authors mean the process where by new firms provide goods and services — in this case healthcare insurance — that are are less expensive and more accessible, and eventually replace the offering of incumbent competitors.
More from the report:
Essential health benefit requirements use existing health care plans as a benchmark, legally requiring that health plans and providers imitate the current offerings, effectively putting a floor in the market. This prevents the type of low-end competition needed for disruptive innovation to occur. For example, antibiotic tuberculosis treatment displaced sanatorium care in the 1940s. If the ACA and modern insurance plans had existed then, insurers would have been required to cover sanatorium care, even when antibiotics were a more effective treatment at much lower cost. Even if an individual realized that they did not need sanatorium care, they could not have purchased a less expansive plan without sanatorium coverage.
Similarly, the essential health benefits provision locks customers into outdated, expensive treatment options, even when lowercost, more convenient solutions exist. In addition, by virtue of the benefits they cover, most care under exchange-based health plans will be funneled to traditional venues of care—the hospital and doctor’s office. Regulators could encourage disruptive innovation by leaving the low end of the market open to innovation, allowing reimbursement for care delivered in lower-cost venues outside of the hospital or through new technologies like telemedicine and monitoring devices. This would allow innovators to develop novel, focused business models that could offer high quality, more affordable care to all patients.
Retail clinics are one example of a focused business model. These businesses take the most routine procedures and offer them in a more convenient setting with lower overhead costs and less expensive clinicians. Enabling focused business models like retail clinics frees up the most routine diagnoses and procedures from the undue complexity and cost of the general hospital business model—and allows more specialized practitioners to treat more complicated problems. In summary, essential health benefit requirements hinders disruptive innovation in two ways. First, essential health benefits are legally required to mimic the current market, limiting low-end disruptive innovation. Second, they require health plans to provide too much coverage, conflating insurance and reimbursement models and encouraging costly overconsumption of medical care. Thus, “essential health benefits” as laid out in the ACA hinders disruptive innovation and keeps costs of care high.
So rather than looking at these benefits as big government mandates that must be swept away, how about thinking of ways to modify them in a pro-innovation manner? Is it possible to regulate these products so there isn’t some “race to the bottom” among insurers, while also allowing more room for innovation to create more appealing products? This seems worth exploring. As health insurance Bob Laszwerski has put it: “The Obamacare product just isn’t worth buying if you have to pay anything more than a poor person has to pay for it. Or, if you are sick and will easily make your money back.”
Published in Economics
Coverage mandates–on all levels–are the main cause of increased costs and inflexibility in state-line crossing. Each state has arcane mandates, often thanks to lobbying of state insurance boards by interest groups from patient to provider, all of whom want their needs met by third party payment. The more these services are mandated to be covered, the higher the cost of insurance. Of course once one group (chiropractic, say) gets coverage (and some might say, legitimacy) the next group (accupuncture, say…) wants and sees an opening to be included. As long as there isn’t an option for low cost catastrophic REAL insurance that only mandates coverage of emergencies and hospitalization, there isn’t much hope for real reform.
What I would like to see mandated is that the insurance company comply with its simple contract with clear guidance on what constitutes an emergency (and thus, what is covered) and what constitutes hospitalization (and, thus, what is covered). With urgent care centers available at lower cost than emergency rooms and outpatient surgery increasingly being done, it seems that these need to be included in the definitions process. The contract process mandate should also limit the ability of the insurer to drop or increase rates of those who, after years and years of paying premiums without claims, finally need the service.
If my employer offered such insurance, as a benefit (with them paying the premium) or on the open market (around $500 to $1000/person/year, considering what my car/house insurance costs and covers) with a reasonable (also $500 to $1000) deductible, I would happily pay all of my other medical costs every year. As it is, with coverage from my employer, I pay over $3600 (and they claim to pay for another $10K or so) for the premium and a similar amount in deductible before insurance kicks in. They do cover “preventive” visits, which become shorter and cover less every year. If I could pay cash for those visits as well as any others, at the types of per visit prices we paid before so much was covered by insurance, I’d happily do so. And it would cost me less than I pay every year now. Insurance mainly functions as a type of collective bargaining bringing down artificially inflated prices charged by hospitals and physicians to compensate for the contracted discounts.
It’s an absolutely insane system. And given the state and federal mandates and lobbying interest groups, rather corrupt.
James, the word you are looking for is “deregulate”. Is it really the inside-the-thinktankery consensus that innovation is the product of regulation and that markets are nothing more than the starter’s pistol for a race to the bottom?
There’s been no race to the bottom in the housing market, or for purchases of pick-up trucks, bespoke meal delivery services, dental and breast implant surgeries, or college tuitions.
So why health insurance plan choices?
This is what I was going to point out. There can never be a race to the bottom, because that would open a market at the top. It always amazes me that right-ward leaning economists can have so little confidence in markets.
The government should not be mandating anything at all. Let the sellers and the buyers negotiate what is important to them as far as benefits go. The more that is covered, the more expensive the policy is. The government could publish lists of suggested items, perhaps, because no one can know everything, but insurers have lots of experience with which things and mechanisms work the best. If everyone had access to health savings accounts that were tax-free, along with catastrophic coverage, everyone should be able to have affordable minimum coverage.
Anyone who does not trust markets, does not trust his fellow human beings, since markets are simply large groups of people.
The “Essential Health Benefits” are the cause of our old pre-Obamacare insurance (which we liked very much) betting cancelled! Yep. Because of Obamacare we lost our insurance!
We are in our 50’s. Our children are grown, out of the house, full-time employed with health insurance of their own. Our plan had neither maternity care nor pediatric vision&dental. We don’t need them. But because those items are deemed “Essential” our plan was non-Obamacare-compliant and was canceled. So now we have new, much more expensive, insurance that has higher deductibles and out of pocket expenses that offers worse coverage for things we actually need – but by God we have maternity care and pediatric vision and pediatric dental!!!
Completely left out of this discussion is the fact that the “essential benefits mandate” is just a shadow cross-subsidy from the healthy to the sick. People are required to buy services they will never possibly need (i.e. single men required to buy policies that cover maternity care) in order to increase the pool of money available to cover services actually used (i.e. pregnant women getting maternity care). Everything else – at least as far as Obamacare is concerned – is incidental.
This ’11th hour’ demand (from the conservative Freedom Caucus) to get rid of EHB may just have been the reason the bill was killed just now, and maybe it’s a good thing that EHB not be included in healthcare that’s intended to protect people as insurance, at least over the long run. These are not really insurance, they are more like benefits that increase expenses for everyone and something we’d all be paying for for years. On the other hand, one pundit (Medved) had said today that this was something that could be dealt with administratively later. The primary reason for not including removal of EHB from the scope of the bill was because of Democrats’ refusal to negotiate, thus forcing the GOP down the path of reconciliation. I don’t see blame falling exclusively on the Republicans if this bill can’t go forward, when the intent is to clean up the Democrats messes. ACA is only going to keep imploding, and I don’t see it being put on life support by this administration and this Congress.
Well, if it makes you crazy or drives you to drink you also have mandated unlimited psych and substance abuse benefits too.
I have a bridge you might be interested in buying.
Seriously, the media will hammer this as exclusively a Republican failure.