Networks and the credit card model for health insurance

If you loved credit card companies and how they all were headquartered in South Dakota to take advantage of their very lender friendly laws before the passage of the CARD Act, you will love the health care vision of Rep. Jim Jordan.

The vision is that the House Freedom Caucus/MacArthur Amendment is attached to the AHCA. The AHCA passes the House and Senate without major modification. At least one state opts for the waiver to allow for medical underwriting and gutting essential health benefits by replacing a federal standard with a state standard. A minimal essential health benefit package could still include prescription drugs but only require generic drugs and very common, low cost brand drugs. Specialty drugs including most chemotherapy agents, cystic fibrosis treatments, Hep-C cures and coagulation disorder treatments could be excluded from the minimally required list.

A second bill would also be passed that would allow for insurance to be sold across state lines. And that gets us to the individual health insurance market looking like the pre-CARD Act credit card market. Most states may still require guarantee issue and community rating but the states mandating these restrictions either will not have any in-state insurers offering products in the individual market or their locally regulated individual market effectively work as a high risk pool.

Matthew Fiedler at Brookings has a good analysis on the race to the bottom in an opt-out state:

In brief, healthy people would have a strong incentive to “opt out” of the community-rated pool and instead pay a premium based on health status. With healthy enrollees opting out of the community-rated pool, community-rated premiums would need to be extremely high, forcing sicker individuals—including those with continuous coverage—to choose between paying the extremely high community-rated premium or being underwritten themselves. Either way, people with serious health conditions would face prohibitively high premiums. As a result, community rating would be eviscerated—and with it any meaningful guarantee that seriously ill people can access coverage.

And if a state elects to operate a waiver in an environment where insurers can choose the state of regulation, that state will effectively gut community issue across the country.

But.. but… but… what about networks?

That is a common argument as to why selling across state lines would not be attractive. In the current world of  guarantee issue and community rating, this is a strong defense. Networks are tough to assemble and expensive to build. We know there is a chicken or an egg problem. Large membership is needed to get good provider rates.  Good provider payment levels are needed to offer attractive premiums that leads to large membership numbers.  A new insurer trying to move into a new state has to build a network. And it has to build a network by either going super skinny or by being willing to lose significant money for several years to buy membership.

But that is under guarantee issue/community rating rules. Networks are not a blocking force for cream skimming carriers.

If an insurer wants to expand out of its home region in Rep. Jordan’s vision, they can either build a network organically or they can rent a network. Rental networks are very common. They are how regional carriers offer national emergency room coverage. They are how smaller carriers offer very high end specialty care. The provider are paid at a very high level. Some rental network contracts are full usual and customary, others are full billed charges, some offer a discount on one of those two benchmarks and others are 500% of Medicare. These are expensive networks where regional carriers work very hard to minimize the number of claims paid to that network.

If a minimally viable network can be rented even at an extremely high per unit rate, and the plan can medically underwrite to only offer coverage to people who will never use the skimpy, practically inadequate, high cost network, this works as a business model.

If an individual has a complex medical condition during the contract year, the insurer has significant claims expense but since the network is extremely unattractive to individuals with complex care needs, the one time catastrophic expense will leave the plan at the next open enrollment if they can afford to do so or if they are in a policy that does not have guarantee renewability.

This is effectively the Assurant business model from the pre-ACA status quo. They aggressively underwrote policies to only include healthy people, they offered very low rates and access to a very expensive to them network and seldom payed a claim as their covered population just did not use services.

Networks are not a barrier to entry for carriers that think they can aggressively underwrite.






47 replies
  1. 1
    Baud says:

    Oh wow. This makes a bad bill so much worse. Didn’t realize that they had added this.

  2. 2
    Sab says:

    Ohio needs to get rid of term limits so that idiots like this don’t keep circulating between think tanks and public office while only serving their corporate (Koch) masters.

  3. 3
    Sab says:

    Tried to have my comment deleted but no luck. Oh well. Jim Jordan is in US house so not subject to term limits. I still think he is an idiot, and I still hate term limits, but I can’t blame term limits for him still being in the House.

  4. 4
    Clem says:

    Not sure I’m understanding Tim Jost correctly, but it sounds like interstate sale not allowed for opt out waivers? http://bit.ly/2oJgTzr

    The waivers would not apply to CO-OPs or multi-state plans or to the Basic Health program, 1332 state innovation waivers, the section of the ACA that allows sale of insurance across state lines through interstate compacts, or the provision that requires members of Congress to purchase coverage through the exchanges. Members of Congress are not going to lose essential health benefits or be subject to health status underwriting.

  5. 5
    weaselone says:

    @Clem:

    I’m sure all this would be taken care of in the second bill.

  6. 6
    Elizabelle says:

    They are psychopaths.

  7. 7
    efgoldman says:

    Didn’t they pull this embarrassment of a bill without scheduling a vote, too? I though I saw that very late last night.

    ETA: Yup. Anne Laurie links the story in the previous thread.

  8. 8
    Clem says:

    @weaselone: Forgot about the genius multi-phase plan but it seams specially mental to prohibit in phase 1 only to return in phase 3 and authorize.

  9. 9
    sherparick says:

    B@efgoldman: But it does answer the question about the Republicans and Conservatives. They are both Evil and Stupid.

  10. 10
    WereBear says:

    I wonder how much people’s experience with car insurance influences their attitude towards health insurance?

    In car insurance, it is very common to get a crappy policy as the cost of hitting the road; I wonder if young people, with limited experience, see health insurance as the same thing? When it is not?

  11. 11
    Ohio Mom says:

    @WereBear: That is an interesting idea, I think there is something to it.

    Certainly when I was young, I knew that I had nothing and therefore had nothing to lose.
    Nowadays, I have a lot to lose and I am very aware of the consequences if I were to lose everything.

  12. 12
    efgoldman says:

    @sherparick:

    They are both Evil and Stupid.

    You forgot incompetent.
    We have been really, really fortunate in our enemies.

  13. 13

    @Clem: For this current bill, he is right. It is the future bill/vision of Rep. Jordan that this post applies to as Rep. Jordan wants to allow interstate sales/regulation shopping/race to the bottom

  14. 14
    A Ghost To Most says:

    @Elizabelle:

    They are psychopaths.

    Not psychopaths – greedy spiteful sociopaths. They know better; they just don’t care.

  15. 15
    laura says:

    Stop me if you’ve heard this one before:
    So, I buy an out of state plan and pay all premiums. I develop a condition and seek treatment that is covered under the plan and the plan administrator refuses to pay.
    We have a genuine dispute. A legal dispute.
    Where do I sue? In my state, the plan’s state? Is it a state claim, or a federal claim? Is there preemption do to interstate commerce? What’s the venue?
    What laws apply?
    Do I hire a lawyer in my state, or the plan’s state? Does the lawyer have sufficient experience in this area? Is it a tort due to a harm or a transaction related to the contract?
    Has my condition worsened in the interim and am I on the hook for all medical costs?
    Do I die before I resolve this.
    Has the out of state plan profited off my premiums with little to no medical plan losses.

    Are these people evil or stupid?

  16. 16
    MomSense says:

    @efgoldman:

    I figure it’s best to keep calling our Congress critters anyway. I threw in a when are you going to get an independent counsel in to investigate trump campaign Russian collusion in our election. It’s like I’ve added calling them to my daily hygiene routine. Take a shower, check. Brush teeth, check. Call Congress, check.

  17. 17
    Another Scott says:

    @laura: Oooh. I know, I know. That’s easy.

    You can’t sue them because the contract says any dispute has to be handled by binding arbitration. (And they pay for the arbitrators.)

    Simple!

    :-/

    Cheers,
    Scott.

  18. 18
    Ohio Mom says:

    @laura: Something like that happened to a friend of mine when we were on our late twenties, back in the Eighties. She found a lump in her breast, it turned out to be a cyst, which is very common for younger women.

    The insurance she thought she had turned out to be from a fly-by-night company and the state of Ohio’s insurance commissioner or board or whatever it is, was of next to no use. IIRC, she worked out something with the hospital.

    She’d only needed a relatively small amount of testing, but if she had really had a cancer? (Shudder)

  19. 19
    MattF says:

    We need to get to the point where the default assumption is that Republicans are trying to destroy O-care. That’s assumed here at BJ, but media coverage is based on the assumption that Republicans are, somehow, merely unaware of the inevitable consequences of their various healthcare proposals. Oh, they haven’t really thought that much about it– oh, they’re not experts– oh, they’re just ordinary people trying to grasp an unexpectedly complex subject.

    But, y’know, in point of fact, it ain’t so. And it’s not hard to prove– just observe the constant use of all that carefully developed focus group verbiage to deflect attention from their actual goals.

  20. 20
    amk says:

    @laura: These people are corrupt, evil and greedy but not stupid.

  21. 21
    Ohio Mom says:

    @Sab: You are somewhat on the right track, what Ohio needs is more fairly drawn Congressional districts. We are gerrymandered beyond belief.

    And when things turn out to be not gerrymandered enough for Republicans, they gerrymander some more.

  22. 22
    Feathers says:

    @Another Scott: No. They choose the arbitrators, you pay.

  23. 23
    Ohio Mom says:

    @MattF: I am married into a family with two newspaper reporters. They will give you a lecture on how they can’t say Republicans are out to destroy the ACA because they have no actual source saying so.

    Now, if the Republican Party issued a statement specifically stating “We will not stop until the ACA is totally dismantled,” that they would publish. But as long as Republicans claim they are “improving” the ACA, that is what they will print instead.

    This is why my SIL and I are barely on speaking terms at this point.

  24. 24

    @efgoldman: Yet they keep winning and have the media in their back pocket.

  25. 25

    @Ohio Mom: Ask her how they can hound Hillary non-stop about emails but not T about his tax returns or St Sanders about his tax returns?

  26. 26
    hovercraft says:

    @efgoldman:
    The problem is our sociopathic GOP are not capable of learning. The base really wants this, Twitler wants this.
    Obama is looking happy and healthy, he’s popular, getting paid and his signature legislation is still there and people like it now. How is he still thwarting them when they finally “beat” him, why isn’t he curled up in a ball crying his eyes out?
    Dammit they won, why doesn’t it feel like it!!!!!!!

  27. 27
    Tom says:

    @A Ghost To Most: Reminiscent of Benedict Cumberbatch’s wonderful repartee in the first Sherlock Holmes episode: Police Detective (to Watson): “Watch out for your friend. He’s a real psychopath.” Cumberbatch: “High functioning sociopath. There’s a big difference.”

  28. 28
    hovercraft says:

    @David Anderson:
    Hasn’t that always been the plan? I mean they’ve talked up various smoke and mirror plans but they are all based on theses four basic tenets.

    Tort Reform
    Buy across state lines
    Health Savings Accounts
    High Risk Pools

    And presto insurance is cheaper and affordable and you have the freedom to be denied coverage and have the satisfaction of dying without the burden of a government mandate. WOLVERINES !!!

  29. 29
    D58826 says:

    All I can say is thank the FSM that the people pushing this bill are Good Christians. Imagine how awful it would be if they weren’t.

  30. 30
    MattF says:

    @D58826: I do wonder about that, but I know I shouldn’t. My usual reaction is to push those sorts of questions into the ‘Inscrutable_Gentiles’ folder.

  31. 31
    D58826 says:

    @schrodingers_cat:

    St Sanders about his tax returns?

    Or the newly revealed FBI/DOJ investigation into Jane’s actions at Burlington College.

  32. 32
    laura says:

    @Another Scott: Doh! The AAA-fu. I’ll be sure and include the forced arbitration clause the next time buying a cross state lines rears it’s scuzzy head.

  33. 33
    D58826 says:

    @MattF: I think the theological answer is these folks truly believe that God will provide. So if God wanted you to have medical care he would have seen to it that you had a family member who is a doctor or be born with a silver spoon in your mouth.

  34. 34
    MattF says:

    @D58826: Rather OT, but I can tell you that ‘having a doctor in the family’ normally means that you don’t get systematic healthcare until you leave home.

  35. 35
    Ohio Mom says:

    @schrodingers_cat: Did I ever tell the story about when my kid was about eight and my in-laws were visiting?

    There had been one of those really horrific whole family killed by an ax murderer events in their city and my SIL was relating the story day-by-day, for example, “The day after the police found the weapon, and the whole story was coming together, we sold x amount of papers more than usual!”

    I kept trying to change the topic and finally just said,”I have a kid with an anxiety disorder (turn to my left to look at him), can we talk about something else?” “Oh.”

    So I think her answer would be, Hillary’s emails sold papers/produced clicks. But she’s retired now (BIL is a lifestyles section guy, that’s his excuse).

    Really, being related to them has made me extremely ambivalent about the press. We need them but they don’t deserve us.

  36. 36
    hovercraft says:

    Remember all those people who didn’t want Schumer because he was a corporate democrat beholden to Wall Street, who would sell us all out?

    Schumer refuses to rubber stamp House’s short-term spending bill
    By Joan McCarter
    Friday Apr 28, 2017 · 9:38 AM EST

    With the clock running out on government funding—literally, midnight Friday—Senate Majority Leader Mitch McConnell wanted to make it easy on the Senate. He put forward a unanimous consent request that the Senate just automatically pass whatever the House kicks over to them Friday to keep the government running into next week, while Congress works out the details of a longer-term spending measure. It’s what happening in those spending talks that made Democratic Leader Chuck Schumer block McConnell’s motion.

    Schumer said there were still unresolved “poison pill riders” being worked out on a longer spending deal that would fund the government through Sept. 30.

    “Our position has been clear and it’s nothing new. No poison pill riders. The sooner we can resolve this issue, the quicker we can have an agreement on appropriations for 2017, so I object,” he said from the Senate floor.

    He added that Senate Majority Leader Mitch McConnell (R-Ky.) has been “cooperative and extremely helpful” but Democrats want to work on the remaining hurdles to a long-term deal before they can agree to pass the short-term continuing resolution (CR). […]

    Schumer has pointed to concerns about environmental regulations, Dodd-Frank protections and rolling back healthcare as outstanding issues on the long-term talks.

    Schumer is using all possible leverage to keep those poison pills out of the funding bill, which is smart considering what House Republicans have been up to lately.

  37. 37
    Ohio Mom says:

    My four phone calls are done for today: senator and representative re: ACA, state senator and representative re: state-level proposed cutbacks to disability funding.

    (I only call Sherrod Brown’s office once in a while to say thank you. Sometimes I feel like saying to the others, “Why can’t you be like Senator Brown? I don’t have to call him because he knows how to behave!”)

    Now onto the laundry, not much clean underwear here at the moment.

  38. 38
    ArchTeryx says:

    @hovercraft: You beat me to it. Schumer may be a Wall Street tool, but he’s our Wall Street tool and he’s quite willing to shut it all down to thwart the Vandals in the House. Good. For. Him. The media may cry about how mean Democrats are to the poor, poor innocent Republicans, but Schumer drew some good lessons from the shutdown of 2013: It didn’t influence the midterms of 2014 one whit. The Republicans gained seats and took the Senate, despite being the linchpin of the shutdown.

  39. 39
    hovercraft says:

    @ArchTeryx:
    The stupidity of the entire bought by…… is so stupid, every congresscritter caters to their hometown industries period. They are their constituents so of course you will work with them and try to accommodate them where possible. Last I check Schumer voted for Dodd-Frank despite Wall Street hating it, he may have gotten some things they really hated softened or removed, but so what? As I keep trying to remind people, they are fucking politicians, not saints, they are calculating, Warren was one of the biggest advocates for getting rid of the medical device tax, why? Because that is huge in Massachusetts, they hated it, and in spite of it being important to funding Obamacare she sided with her constituents. Why the hell do you think the entire Utah delegation is against Federal Land and all the restrictions there are about exploring and exploiting natural resources? It’s not that they hate pristine lands, they have constituents who are itching to drill the hell out of them. Schumer may cater to his constituents who generate a shitload of revenue for his sate, but he’s been around, and knows how to play this game. They don’t call him a camera hog for nothing, he’ll get out there and fling shit as well as the next guy.

  40. 40
    MomSense says:

    @Ohio Mom:

    I see you and I have the same attitude about these calls. They are now part of the daily routine. I swear Sen. King’s staff recognize my voice before I give my name.

    Sen. Collins, the &&^%$%^^%E$ $#%^^WWQ^^^WWW**&&T%%$, never has a human being answer her phones. Since the election all calls go straight to voicemail. Woman up, Susan. Stop trying to cowardly play the moderate and avoid your constituents.

  41. 41
    D58826 says:

    @MattF: :-) Kind of like my neighbor when growing up – was a TV repairman (back in the day of vacuum tubes) but THEIR TV never worked

  42. 42
    retr2327 says:

    David, here’s an issue/question for you. On All In last night, a N.Y. Congressman (R, IIRC) told Chris Hayes that he was opposed to the revised AHCA because a provision in the bill barring subsidies for abortion effectively meant that in New York, where coverage for abortion is mandatory, his constituents would not be able to use the AHCA’s subsidies AT ALL to buy insurance in N.Y. It’s worth digging up the video just to see the look of shock and surprise on Chris’ face. Obviously, this issue (if it’s real) had completely escaped the notice of even a fairly serious talking head/wonk like Chris.

    So was the Congressman correct about this?

  43. 43
    Bob Hertz says:

    Great article! I remember how fast Assurant dropped out of the ACA.

    United Health has a national network on its short term plan that works as you describe.

    I have got to think that a state like New York will try to ban their residents from buying the new South Dakota-domiciled plan. Will this work?

  44. 44

    @retr2327: Yes, the Congressman was right. New York mandates that all fully insured products (excluding those sold by religiously affiliated insurers (Fidelis mainly)) must include abortion as a no-cost share service. The AHCA has a provision in it that if there is even a hint of contact of a penny associated with an AHCA tax credit touching abortion, no credits can be used to buy that policy.

  45. 45
    retr2327 says:

    @David Anderson: Thanks for the confirmation! It seems to me that this issue should have gotten (and may in the future need to get) a lot more attention (it’s virtually unknown, it appears.) I’m guessing California has a similar abortion rights law. Google tells me there are 14 Republican Congressmen in California (including House whip McCartney), and 9 in NY; if they vote for the AHCA or the next iteration of it, they are voting to deprive their constituents of every single penny of health care subsidies. Can they really survive doing that?

  46. 46
    Jonathan Siegel says:

    I testified before a subcommittee chaired by Representative Jordan. It was a hearing on the ACA. Towards the end, in response to a comment I made, he asserted that he believed health insurance was a necessity. It makes clear that his notion of necessity is very different from the rest of us. I didn’t, by the way, believe him then, and I sure don’t now.

  47. 47

    I have not worked in managed care and network development since the late 1990s, but one of my tasks were rental networks. We would rent networks for employers with dispersed employees and we also rent out specialty care networks, including HOTT networks. And for our employer plans, we would rent other networks when needed. As noted, the rates offered by these networks were not well priced, often 10-15% off U&C, but they were out there.

    Just thinking about rental networks makes me feel 20 years younger, albeit in a very bizarre way.

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