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Health insurers pull a fast one in proposed reform

The industry says it will treat all people fairly in return for a government requirement that everyone has to buy their product. But they want to charge different prices for different levels of coverage.

March 29, 2009|DAVID LAZARUS

It might have looked as if real progress toward healthcare reform was made last week when leading insurers proposed ending their long-standing practice of charging higher rates to sick people and denying coverage to those with chronic conditions.

But not so fast.

A closer look at the insurance industry's plan reveals a potentially huge loophole that could short-circuit genuine reform.

The insurers are saying that they'll treat all people fairly in return for a government requirement that everyone buy their product.

Yet if you read the fine print in their plan, it turns out that they're reserving the right to charge different prices for different levels of coverage -- a practice that would effectively keep us where we are, with sick (or potentially sick) people paying more for insurance.

The loophole was included -- "hidden" is a more apt word -- in a letter sent to prominent senators from a pair of industry leaders: Karen Ignagni, president of America's Health Plans, an industry group; and Scott P. Serota, president of the Blue Cross Blue Shield Assn.

The letter featured insurers' willingness to adopt a more inclusive coverage policy in return for "an effective, enforceable requirement that all Americans assume responsibility to obtain and maintain health insurance."

In other words, a government mandate that everyone become the industry's customers.

That's not quite as self-serving as it sounds. Universal coverage is feasible only if the insurance risk is spread among the entire population, thus making coverage affordable for everyone. A government mandate will probably be part of any healthcare reform solution.

But Ignagni and Serota go on to say, almost in passing, that "benefit design" will be needed to keep policies affordable.

That's insurance-speak for offering bare-bones coverage at relatively low prices and more complete coverage at higher prices -- basically the same sort of system we have now.

"We're telegraphing that if people are allowed to buy more, then it will cost more," Ignagni told me. "You wouldn't charge the same for a Cadillac as you would for a Ford."

The danger, however, is that younger, healthier people would probably gravitate toward the cheaper basic policies, while older people with more health issues would feel compelled to buy the more comprehensive plans.

"It's a very potent way of segregating sick people from healthy people," said Karen Pollitz, a research professor at Georgetown University's Health Policy Institute. "It's essentially a way of continuing to charge more based on people's health."

Which is exactly what the insurers are saying they won't do in return for that much-desired government mandate.

I'll give the insurance industry credit for coming to the table with something halfway constructive, even if it took them decades to get there. But let's be realistic.

If all Americans were required to purchase health insurance from private companies, the industry would still offer as little coverage as possible for the most amount of money. These people have businesses to run, after all, and their track record speaks for itself.

A mandate would benefit the industry, and it could help address the shameful problem of nearly 46 million people in this country now lacking health insurance.

But it wouldn't guarantee the best possible coverage for the public. Nor would it improve things for the millions of people who have insurance but are still one catastrophic illness away from bankruptcy.

To solve these problems, we'd need clear criteria from the government as to what should be covered and at what prices. And if we're going that far, I have to wonder why private insurers even need to be part of the equation.

President Obama has said he's interested in the idea of the federal government offering some sort of public insurance program that would compete with private insurers.

But in an online town hall Thursday, he said he favors keeping the employer-based system that has provided coverage for most Americans since World War II. "I don't think the best way to fix our healthcare system is to scrap what everybody is accustomed to," he said.

The president should take a closer look at the insurance landscape. More than half of all Americans are already covered by -- and thus accustomed to -- public coverage in the form of Medicare, Medicaid and veterans assistance.

We're already well down the road toward fairly priced universal coverage. We just need to make it the rest of the way.

If private insurers want to be part of that process, they'll need to be a good deal less disingenuous than they were last week.

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David Lazarus' column runs Wednesdays and Sundays. Send your tips or feedback to david.lazarus@latimes.com.

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