Uwe E. Reinhardt: What Price Pluralism in Health Insurance ...

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

?Texas Consumer Health Assistance Program to Close After Losing Federal Funding? was the headline of an article by Sarah Kliff in the Jan. 1 issue of The Washington Post.

The Texas Consumer Health Assistance Program of the Texas Department of Insurance was federally funded in late 2010 as part of the Patient Protection and Affordable Care Act of March 23, 2010, now widely known as the Affordable Care Act, or simply the A.C.A. ? which set aside a total of $30 million for such programs nationwide.

Texas received a $2.8 million grant in late 2010 to start and operate the program. It had nine employees to staff hot lines and traverse the state to make Texans without health insurance aware of their options. More than 6,000 callers were reportedly served by the program during the year.

As it turned out, the A.C.A. authorized this program but left its financing to annual appropriations by Congress. When Congress failed last fall to agree on a budget for the 2012 fiscal year, federal financing of the program dried up, and Texas will terminate it.

If the Texas program actually cost $2.8 million last year alone ? and we cannot be sure it did ? that would amount to about $311,111 per employee and about $460 or so per client served.

Why should it cost that much in consulting fees just to help Americans sort through the maze of private health-insurance offerings? To be sure, the program included start-up costs, and it assisted enrollees not only with information on insurance options but also with complaints about insurers.

Furthermore, it may, in effect, have been aimed mainly at individuals and families with poor or no electronic connectivity and little understanding of health insurance. Some of the program?s outreach literature even seems to have been aimed at small children, which seems odd.

One explanation of the costs, of course, may be that this was a government program and is ipso facto wasteful. For many Americans, that statement seems to be an axiom rather than a hypothesis.

But as I mentioned in an earlier post, the consulting services of private insurance brokers in the individual- and small-group market do not come cheaply, either. Depending on the commission rate as a percentage of the premium ? which can range from 2 percent to 10 percent, and, on occasion, even more ? and the size of the premium, these private consulting services can cost as much as those of the Texas program or more.

So to anyone familiar with other nations that rely mainly or wholly on private health insurers ? e.g., Germany, the Netherlands, Switzerland ? the question remains, why is it so much more difficult and expensive, in time and money, to choose among health-insurance options in America?

All residents in Switzerland, for example, are mandated to procure health-insurance coverage for a federally specified benefit package. The system relies fully on 62 private health-insurance companies that compete for enrollees on a well-organized and government-regulated, federal, electronic health-insurance exchange for individually purchased health insurance. The smallest company, the Krankenkasse of the village Zeneggen, has only 170 insured people; the largest, CSS Krankenversicherer, insures 858,000.

Premium shopping among insurers is easy, because the standard benefit package is common to all. Prospective enrollees, however, can choose from several annual deductibles ranging from a stipulated minimum of 300 Swiss francs (about $318) to a maximum of 2,500 Swiss francs (about $2,654). Furthermore, they can purchase supplemental insurance on top of the basic package, mainly for superior amenities.

It can be doubted that many people in Switzerland need to bear the high time and money costs Americans must bear in choosing health-insurance coverage in the market for individually purchased coverage. Public and private Web sites in Switzerland help prospective enrollees easily navigate the national insurance exchange with user-friendly information, including calculated premium differentials between one?s current insurer and competitors.

Readers may want to play around with a hypothetical choice on the English version of the private Web site Comparis.ch. Enter, for example, the postal code 3000 for the city of Bern and make yourself born in, say, 1965. (You will notice, however, premiums do not vary by age.)

The closest counterpart in the United States is probably the Web site of the Federal Employee Benefit Program operated by the Office of Personnel Management for federal employees and members of Congress. It is well constructed, but readers who play with it will realize how complicated choice is in the United States, even on one of the best-organized electronic exchanges. One has to examine the fine print of every offering.

Another good government Web site is offered by the Department of Health and Human Services for the general public. It is very helpful in guiding families toward potential solutions for problems they encounter in the health-insurance market, but again illustrates the complexity of choices Americans must make.

There are numerous other such public or private Web sites of this sort. A fairly well-established one in the private sector is eHealthInsurance.com.

Finally, the personnel department of every large American employer operates for its employees an organized health-insurance exchange regulated by the company, typically an electronic one. Although these Web sites are user friendly, the choices they offer are usually not simple.

Furthermore, how much employer-operated insurance exchanges cost per employee or as a percentage of the premium is not well known, because those costs would be part of the cost of administering all benefits, not only health insurance, which in turn is part of the overall cost of the personnel department.

Evidently there is a trade-off between the degree of uniformity in a health-insurance system and the time and money costs of operating such a system.

Choice among private health insurers in Germany, the Netherlands and Switzerland is straightforward and relatively inexpensive in terms of time and money, because price comparisons are based on a common benefit package. More customized coverage can be purchased, but only in the form of supplements to the common package.

Choice in the United States is expensive, because it requires prospective enrollees to do near-Talmudic studies of the fine print of each insurer?s offerings ? many times multiple distinct offerings per insurer.

Although the A.C.A. originally sought to prescribe a national common benefits package, defining that package has now been delegated to the states. It is anyone?s guess how much pluralism there will be in ?basic benefit packages? under whatever segments of the A.C.A. actually survive to implementation.

One must assume that Americans view this pluralism as worth the extra transaction costs they bear. Apparently, Europeans think otherwise.

Source: http://economix.blogs.nytimes.com/2012/01/06/what-price-pluralism-in-health-insurance/

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