Ronyn Cari Rabin at the New York Times writes about large employers’ “wellness programs,” which include paying people to have check-ups and participate in efforts to quit smoking. Obamacare allows employers and insurers more freedom to vary premiums for people who engage in such activities.
Politicians on both sides get easy applause for well-worn lines about preventing illness before it occurs. The only problem is that the evidence is quite firmly on the other side: More preventive care leads to higher overall health spending, for a number of reasons.
However, political encouragement of “prevention” is very beneficial to insurers in a system where the government has outlawed actuarially accurate premiums, i.e., Obamacare. This is because it allows the insurers to compete by recruiting healthier people. Sick people are less likely to participate in wellness programs, as Ms. Rabin illustrates. So, if an employer or insurer emphasizes such programs, it will attract healthier employees or beneficiaries.
Insurers are very good at doing this. One classic example is to make people show up in person to apply for coverage, but locate the office on the fourth floor of a building with no elevator. Or hand out free passes for a month-long membership at a fitness club. They don’t even have to do this for people who are obviously sick (or pregnant): They can just brush them off when they show up.
(But they don’t have to be ingenious about this. A rule of thumb for health spending is that in a group of 100 people, 50 of them will incur a trivial share of health costs, while the most expensive five patients will account for half the spending. So, an insurer just has to erect disincentives to enrollment for 5 percent of the population to which it’s marketing.)
This kind of behavior will become prevalent in Obamacare’s health-insurance “exchanges” starting in 2014.
Under such “social insurance”, the government needs to establish a risk-adjustment, or re-insurance, mechanism so that the insurers that recruit healthier people transfer money to those that recruit sicker people. This is a devilishly tricky problem.
It’s what they do in Switzerland, for example, and in Medicare Advantage (the part of Medicare run by private insurers, which Obamacare threatens to eliminate). As I have analyzed elsewhere, neither the Swiss health ministry nor the Centers for Medicare & Medicaid Services (CMS) have figured this out perfectly. The insurers are still more clever than the government computers that grind out the risk-adjustment formulae. CMS has decided to address the problem by forbidding insurers to enroll Medicare Advantage beneficiaries directly. Instead, they channel them through a CMS website.
But at least CMS makes an ongoing effort to improve its risk-adjustment method. Obamacare does not even have a provision for risk-adjustment after three years [H.R. 3590 §§ 1341-1343]. From 2014 to 2016, the U.S. Secretary of Health & Human Services is directed to collaborate with the National Association of Insurance Commissioners to determine and execute risk-adjustment transfers between insurers.
After that, nada. Obamacare assumes that risk selection will stabilize within three years. Or (more likely) its creators figure the whole thing will have collapsed by 2016, and they’ll finally be able to bring about their dream — a government-monopoly, single-payer system.
As for me, I plan to stay healthy for the next few years. I don’t want to be short of breath after climbing up a few flights of stairs to apply for coverage in the “exchange.”
– John R. Graham is director of health-care studies at the Pacific Research Institute in San Francisco, Calif.