The political economy of underwriting

Iowa’s Senate approved a proposal to allow Wellmark and the Iowa Farm Bureau to sell health benefit plans (let’s  not call them insurance) on an underwritten and limited benefit basis.  The goal is to give healthy people who make too much for strong subsidies cheaper options.

I want to look at the political economy of the play.  And for that, we need to look at the single most important chart in US health finance policy.  This is the 2015 version from AHRQ:

Think hard about this distribution:

The bottom 50% of the population barely touch the medical system in any given year.  Half of the people who make up the top 1% of expenditures are there because of a chronic condition and the other half are there for a one-off event.

Underwritten insurance plans that are aimed at the bottom 50% to 70%  of the population in expected healthcare expenditures need to act as an insurance function for the occasional meteor strike and not as a chronic care management and payment system.  Low premiums are sufficient if paired with even modest deductibles ($500 to $1,000) if an insurer is able  to target a population that it has very strong reasons to believe won’t use many or any services during the contract year.

This is the political angle.  Low premium, limited benefit plans are more than sufficient for most people that can pass underwriting especially if there is a safety net of a comprehensive benefit, guaranteed issued, subsidized plan to catch people who are hit by a meteor in the course of a year.  The failure points can either be blamed on bad luck or on some idiosyncratic personal weakness of the individual who is buried under an avalanche of bills.  The population that retrospectively is a low risk population feels far better off with underwritten plans because they barely touched the system and they don’t want to pour thousands or tens of thousands of dollars into the payment pool when they did not meet their deductible much less actually get the  insurer to pay out significant sums.

People who currently know that they won’t pass underwriting or that if they pass underwriting they will be uprated significantly have protection if they earn between 100% and 400% Federal Poverty Level (FPL) ($12,140-$48,560 for a single individual in the contiguous US for 2018 )

The ACA risk pool will get far worse which means premiums will go up significantly. However the federal government has taken on all premium shock risk so many people will be no worse off if they are subsidy eligible and Bronze buyers may be slightly better off.  Individuals who don’t qualify for subsidies and whose uprated premiums are less than their current ACA premiums may be better off.  The only people who are immediately and visibly hurt are the very few people who don’t qualify for premium tax credits AND who have chronic conditions that lead to underwritten premiums that are their entire income.  These people are screwed as they will bear a significant premium increase for their ACA coverage and they still get no help.

This is just a very small population.  It is sympathetic but small.  Pulling many healthy people out of the pool and letting them buy plans for half or less of their current unsubsidized premiums for ACA plans will produce a lot of happy “winners” from the policy and only a few people who are screaming in new pain.

This is the political angle to the policy.


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