Over at Boston ERISA & Insurance Litigation Blog, Stephen Rosenberg discussed a post he found over at the State Policy Blog (SPB). The SPB post suggested that government regulations, such as coverage mandates and guaranteed issue rules, alone make health insurance substantially more expensive in Massachusetts than in Colorado.
In support of its argument, the SPB post gives three examples of monthly health insurance premiums in the individual market for a forty year-old man and three similar examples for a ten year-old child. One of the examples is from an unnamed guaranteed issue (i.e., the plan takes all comers) Massachusetts plan with a $2000 deductible. The monthly premium for the Massachusetts plan is $246.10 for the forty year-old and $193.81 for the ten year-old. The other two examples are from Colorado -- one from an unnamed medically underwritten plan (i.e., the applicants are screened for medical problems) and the other is from a plan referred to as “Cover Colorado guaranteed issue”. The rates for these plans are listed as $172.00 and $250.18, respectively, for the forty year-old and $102.00 and $125.30, respectively, for the ten year old.
Without setting out any other information, the post’s author then suggests that Massachusetts has higher health insurance prices because its health insurance market is more heavily regulated than that of Colorado.
Incredulous, Stephen Rosenberg noted:
The author’s intent is to demonstrate that state mandates and state regulation drive up pricing, but I am not convinced that the simple comparison of pricing demonstrates this at all. Initially, I can’t vouch for the actual data, or for the author’s characterization of the Colorado market in comparison to the Massachusetts market. But even if you take the numbers at face value, they threaten to prove nothing more than the truth of the old saying that there are three kinds of lies - lies, darn lies and statistics. This is because, as discussed in prior posts such as this one, Massachusetts has very high costs of actual medical care compared to other regions of the country, for reasons that may very well be unique to Massachusetts and possibly as well to the few other areas of the country that, like Massachusetts, have a particularly high concentration of major teaching hospitals. Its been years since I have been to Colorado, but I don’t think, to my recollection and on my general reading, that its health care and health insurance market fits that description. As a result, comparing Colorado health insurance pricing to Massachusetts’ health insurance pricing is simply comparing apples to oranges - or maybe, given the states we are talking about, to cranberries - and tells you nothing about the effect on pricing of state mandates such as the one recently enacted in Massachusetts.
Stephen is absolutely correct about the strength of the comparison and the conclusions drawn by the SPB post’s author. Medical cost differences between Boston and Denver will affect premium prices significantly. However, there is an even more fundamental problem with the SPB post’s analysis -- a problem that is seen all to often in the positions taken by so-called (or self-appointed) health policy experts: oversimplification. In this case, no conclusions can be drawn regarding the effects of government regulation solely from the premium amounts set out in the SPB post for the following two reasons:
The three plans are not equivalent. One of the plans is a state-created, state-subsidized high risk pool. The other two are not.
One of the plans used in the comparison is the CoverColorado plan. What the author of the SPB post doesn’t tell you is that CoverColorado is a state subsidized high-risk pool that provides comprehensive health insurance for Colorado’s so-called “uninsurable” residents. These are the folks who are (1) ineligible for public health insurance programs (such as Medicare and Medicaid), (2) do not have access to the group insurance market (because they are self employed, unemployed, or they work for an employer who does not offer health insurance), and (3) have difficulty obtaining or affording insurance in Colorado’s individual insurance market because they have a serious pre-existing medical condition.
Unlike the two other plans listed in the SPB comparison, premiums paid by CoverColorado participants are subsidized by the state. The premiums collected from participants only cover about 60% of the program’s costs. The state funds the remainder of the program costs through allocations from an unclaimed property trust fund, federal grants, premium tax credits, and occasional assessments on insurance carriers. Thus, more rather than less state involvement, is responsible for the rates in that plan. For a recent, complete description of CoverColorado (including support for the facts I’ve set out), see this.
No details are given about the other two plans, other than that they have a $2000 deductible.
The other two plans listed on the SPB post for the forty year-old man are priced at $172.00 for a Colorado $2000 deductible plan and $246.10 for a Massachusetts $2000 deductible plan -- a $74 difference. But is this a fair comparison? Maybe. Maybe not. We simply cannot tell. Both plans have a $2000 deductible, but the rest of the plan details are a mystery. Does this matter? You bet.
Different plans have different benefits. Different benefits result in different costs. Yet, even when two plans offer the same basic set of benefits, the benefits may be offered with different limits, different caps, and different copays. Each of these differences will affect the price of the plan because each difference will create a different incentive (or disincentive) for the use of a particular benefit. In other words, under two different plans with a $2000 deductible, a consumer’s sensitivity to the price of his or her direct healthcare costs will affect how much he or she will consume, all other things remaining the same (such as the consumer’s health status). This price sensitivity has an effect on how much the product will cost the insurer, and in turn, how much a product will cost a consumer.
Want to see a concrete example? Using the Massachusetts connector website, I accessed information about individual health plans. Following the instructions, I submitted the following information on 12/8/2008: zip code 02215, male, dob 1/1/65, industry code 8111 (attorney), and set the effective date of coverage as 1/1/2008.
I then selected “Bronze plans” and chose the two least expensive plans with prescription coverage and a $2000 deductible. The premiums for those plans are $246.10 (for Neighborhood Health Plan’s NHPThree Select) and $300.26 (for Tufts Health Plan’s Advantage HMO Select 2000) -- a difference of $54.16. How can that be? Aren’t they both $2000 deductible plans covering the same person, at the same risk level, from the same geographic pool? Sure, but their premiums vary because their benefits and benefit limits vary. Check it out for yourself.
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The foregoing analysis does not prove that the conclusion of the SPB post -- that higher state regulation alone results in higher premiums -- is incorrect. Instead, it simply demonstrates that the conclusion drawn by the SPB post could not have been drawn from the overly simplistic data set presented.
If the folks over at SPB want to advocate for a particular policy position (e.g., limited government intervention in healthcare financing mechanisms), they should do so in a way that adds something to the public discourse, rather than simply making spurious arguments.
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