What's the Cost of Service?

In Response to Ezra Klein’s Washington Post column dated July 29, 2009, “A Market for Health Reform”

The introduction of the concept of an 'exchange' or 'connector' into the proposed legislation exhibits the "audacity" of legislators with no practical experience at acquiring insurance (they are automatically enrolled in a super-deluxe plan) to design a marketplace without any research or independent input.Ezra Klein can be counted among those “elite” that are intellectually biased toward any solution that throws the baby out with the bathwater (and damn the costs), rather than taking the time and effort to evaluate what works and what doesn’t about the existing systems…primarily because they didn’t design it themselves.

Each version of a bill, thus far, has built off of the Massachusetts’ version of an exchange called the [Commonwealth Connector].  The genesis of the Massachusetts exchange was in response to a legislated distribution system in that state that was not a “free market” model.  It was a market dominated by one carrier (a blue) that already had among the most expensive premiums and the lowest unemployment.  It also did not have an effective coordinated simple customer-friendly distribution for individual insurance, in that brokers (independent advisors to small businesses who perform the functions available to large businesses described in the article) were not allowed to sell individual policies in that state.

In virtually every other state, there is a strong network of independent brokers and general agencies that perform a valuable function to small businesses and individuals that an "exchange" can never replicate.  These brokers and agencies are advocates that effectively perform the HR functions and Benefit Administration functions that are performed internally by large businesses.  They perform an assessment of the needs of the group or individual (based on size, and demographics) and canvass the market to provide side-by-side comparisons of costs, coverage levels, networks, physicians in the plans, drug coverages, etc.  They serve as an independent consultant (independent brokers are not "captured" by any one specific carrier or group of carriers), to advise the small group or individual on the best choices and differences among their coverage options.

Further, these brokers and general agents assist in enrolling the group in the new coverage, explaining the coverage and the use of the insurance...the vast majority of issues regarding coverage complaints (for private AND public insurance) arise from a lack of education at enrollment...an issue not satisfied by a Mass-style connector. 

In fact, currently, there is no mandate that small businesses in Massachusetts utilize the connector to purchase qualified insurance.  Through June of '09, there were only 30 small businesses (totaling a sum of about 150 employees) that had purchased insurance through the connector.  The tens of thousands of other small businesses feel better served by the network of independent brokers to advise them on cost and coverage.  Additionally, the coverage offered via the connector is no cheaper, but is oft-times more restrictive, since the small business is left with pretty much a 'one-size-fits all' choice of coverage to choose from.  And, the connector itself is not cheap.  Massachusetts invested $25 million in the initial development of the connector, and it charges insurance providers 4% of premiums in order to fund operating costs, yet it still loses money, which must be financed by taxpayers.  On a per capita basis these costs are roughly equal to, or exceed the cost of the existing distribution network of brokers and agencies that already exist in other states.  A distribution network that provides more value to small businesses and individuals than the Massachusetts connector is ever expected to offer.

In short, there already exists a much more effective (cost-effective and service-effective) distribution channel in nearly every state except Massachusetts.  The naivety and blind-sightedness of a legislative process that borrows from a model developed for a market that is the antithesis of the rest of the country (high per capita earnings, low percentage of uninsured, small choice of carriers, lack of robust distribution channel), without evaluating what works elsewhere, is indicative of a course toward disaster on many fronts of the health reform challenge. 

Why are democrats (and pundits such as Mr. Klein) in such a rush to spend more money than necessary to recreate something that already exists?  Is it simply because they didn’t design it and brand it?

More importantly, why have we completely lost sight of the original issue that started the drive for “reform” in the first place?  The uninsured are NOT without insurance because they don’t have access to insurance…it is because they;

1. are not legally allowed to enroll in public or private plans because they are not legal citizens,
2. they haven’t bothered to sign up for the public plan they are qualified for (it is NOT because there is no connector)
3. they can afford coverage, but decline it because they choose a “pay-as-you-go” strategy, or
4. they can’t afford insurance

None of these groups of people will be better served simply because a “connector” exists.   Nor will any of the Americans who are struggling to pay for the insurance that they do have.  The issue is not the distribution of insurance; rather, it is the cost of insurance.  And, the cost of insurance will not be reduced by the creation of a connector, but the services relied on by individuals and small businesses most definitely will be.

The democratic congress seems committed to implementing a “reform” that does almost nothing to control costs, yet expands the (already) costly programs in place, as is, and adds numerous bureaucracies on top of the system in the "Hope" it will reduce costs and increase coverage, while every fact to date is to the contrary.