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Hell

Yes, I understand paybacks are hell. But some of the proposed health reforms are simply madness.

By  Joel Wood

Throughout the first half of this year, I predicted that, when the dust settled, health reform would include constructive insurance market reforms coupled with an individual mandate. I apologize for my silliness.

At this writing, the House was poised to enact a very bad bill that gives the lie to the rhetoric that “if you like your insurance, you get to keep it.” The Senate, meanwhile, was preparing for a debate that will spill into 2010 and could well do its own form of violence to the employer-provided group health insurance marketplace.

The Wall Street Journal called the House health reform bill the “worst bill ever,” at least since Smoot-Hawley. It is hard to disagree.

Take just one element. Every sane person agrees that defensive medicine adds unnecessary costs to health transactions. For many physicians, the medical liability crisis represents the largest single threat to their ability to continue practicing and their patients’ ability to access quality healthcare. Even President Obama has given lip service to the idea of medical liability reform, proposing “pilot” state programs of arbitration that would be administered via Health and Human Services Secretary Kathleen Sebelius.

Several key states have addressed the issue. In 2003, Texas enactedcomprehensive liability reformsand passed a constitutional amendment thatassured the legislature’s constitutional authority to cap damages in medical liability cases. The reforms have had a remarkable impact on liability insurance rates, the availability of insurance, the supply of practicing physicians, and the number and size ofmedical liability awards in the state.

With this as a template, and the Obama administration’s willingness to crack the door on the subject, House Speaker Nancy Pelosi decided to include “incentives” for states to enact pilot programs but with a catch: Any state that has enacted liability reforms that cap attorneys’ fees and/or limit punitive damages (including her home state of California) would not be eligible.

So that’s the House’s idea of health reform—to get states to roll back liability reforms, create new rights of action, and increase the costs of defensive medicine. Yes, we recognize that trial lawyers had as much to do with the historic Democratic triumphs of 2008. Yes, I understand paybacks are hell. But this provision is madness in the context of reforms that are professed to lower the cost of health insurance.

Meanwhile, there is one area of malpractice reform the Democratic leadership in both chambers has embraced: repeal of the McCarran Ferguson Act for not only health insurers but writers of medical malpractice insurance. The limited antitrust immunity McCarran affords to the insurance industry provides the framework for state insurance regulation and allows industry organizations, such as ISO, to provide actuarial services, including historic loss data and trending. Democratic leaders exaggerate absurdly when they charge that McCarran protects insurers from prosecution for price-fixing. In October, I spoke to a group of captive insurers. As one executive said, “Whenever I’m thinking about entering a new market, what do I want? I want data. It’s what allows me to compete, and it’s what keeps prices down for clients.” So the McCarran repeal provision—albeit on a limited basis—will discourage competition in the med mal market, not encourage it. The big national players will have no particular problems because they have their own actuarial information on which to base pricing.

Far more insidious are the numerous ways in which health reform legislation would provide an open invitation for employers to drop their plans. Certainly, the “public option” would be disastrous, but so, too, are provisions that would eliminate medical underwriting in groups of all sizes, turning private insurers essentially into public utilities. The only factors allowed for consideration are age and geographic location, and even those factors are limited to a 2:1 ratio, hiking the cost of health insurance for tens of millions.

The proposed reforms that eliminate pre-existing condition restrictions rely on the requirement that all individuals purchase health insurance. The current proposal in Congress may result in health plans that are too expensive for most consumers and may make the $250 penalty for not purchasing insurance the most affordable option. Premiums on all Americans would increase to help shoulder the costs of reforming market regulations.

The ineffectual market reforms will cause massive dislocation and adverse selection. Taxes, fees and subsidies for families making up to $92,000 a year will further undermine the private marketplace. And the public option could well finish the industry off, if not significantly change it.

As Sen. Lindsay Graham, R-S.C., put it in a recent Washington Post interview: “My belief is that no private-sector entity can survive over a long period of time competing against the government…Eventually, the public option will dominate the marketplace because the political forces are different than the economic forces in the private sector. Eventually, the private sector will give way. We already have Medicaid and Medicare. The private sector covers the middle. If a public option becomes part of that mix, you’ll have the whole deal covered by the government. That’s why I’m against it.”

Wood is The Council’s senior vice president of Government Affairs.


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