By John Reichard, CQ HealthBeat Editor
April 28, 2008 -- Purchasing pools play a part in the health overhaul plans of all three of the remaining major presidential candidates, but expectations for the organizations should be kept realistic, representatives of an insurance agents' group and an employer group told congressional aides Monday.
"None have been very successful in lowering cost although they do provide choices for individual employees in small group plans," the representatives said in a summary of their presentation.
The briefing was led by Janet Trautwein, chief executive officer of the National Association of Health Underwriters, and Neil Trautwein, vice president of the National Retail Federation.
The pools are entities that amass buyers and sellers of insurance to create a marketplace of coverage options. Backers say they can offer workers in small enterprises a better deal on health care because expenses associated with "bad risks"—enrollees with high-cost medical conditions—can be absorbed across a larger group of enrollees and because they cut administrative costs to plans, notably marketing expenses, by making it easier for them to reach prospective customers.
But the Trautweins, who are married, said that the pools have not proven to be a good permanent solution because the plans they offer are hit by adverse selection—in other words, they disproportionately attract high-cost patients—and have to drop out.
Defenders of the pools have argued, however that it's too easy for insurers and agents to refer bad risks who have difficulty finding coverage to the pool and to leave good risks out who could help offset their costs.
"Risk adjustment"—technical payment adjustments meant to pay plans more for high-cost enrollees and less for those with low costs—is meant to protect plans from adverse selection but pools haven't really figured out how to do risk adjustment, Janet Trautwein said. More work needs to be done to improve these adjustments, she said.
She added that pools should not be created as the sole place to go for coverage. "I would hate to see the outside market go away and then people have nothing to return to" when the pools disband, she said, adding that it's important to have "good healthy competition" between pools and the outside market.
In their presentations, the Trautweins said that at least 10 state-run purchasing pools have sprung up and then faded away in recent years. They did note recent successes, however, with the "Massachusetts Connector," created under the three-year old Massachusetts law to ensure coverage of virtually all state residents by requiring that they carry health insurance. The Connector offers a source of coverage for the uninsured, including for those who receive state subsidies to help them gain coverage.
Massachusetts state officials credit the Connector with lowering the number of uninsured residents by 300,000, the Trautweins said in their presentation. They noted that the entity was the result of "something rare: broad political collaboration to pass legislation."
In addition, hospitals now have lower costs associated with bad debt and charity care as state residents gain coverage. And the mandate that individuals carry coverage has increased private coverage in the state, the Trautweins noted.
But health care costs associated with the Connector rose 10 to 14 percent last year, and one of its programs, Commonwealth Care, is exceeding its budget by well over $100 million, they said, adding that "the current trend is unsustainable."
Insurance agents played a key role in marshalling opposition to the health insurance purchasing cooperatives proposed by then-President Bill Clinton in his unsuccessful health overhaul plan, popularly known as the Health Security Act of 1993. Agents viewed the cooperatives as a threat to their livelihoods but Janet Trautwein said Monday that later pools had a role for agents. "I don't think it's as much of an issue as it used to be," she said. "I don't think they're making the same mistakes of doing that," she said of more recent pooling proposals.
Defenders of state-run pools say they've been harmed by the power of the insurance industry and many employers to maintain existing marketing arrangements. Critics say it's been too easy because of uneven or non-existent regulation for insurers and their representatives to steer bad risks to purchasing pools and keep good risks for themselves.
With proper and consistent regulation inside and outside the pools, proponents say the pools could do a better job of delivering savings.
Richard Curtis, president of the Washington, D.C.–based Institute for Health Policy Solutions, said that the average premium hike for the four plans offered by Commonwealth Care for fiscal 2009 is 9.9 percent, quoting an estimate by a state official. Those plans originally came in with premiums that were relatively low and their sponsors didn't know how costly their enrollees would be, he said.
Meanwhile, premiums for unsubsidized plans available to small groups and individuals through a Connector program called Commonwealth Choice will only rise about 5 percent in fiscal 2009—and then only after rates for individual coverage came in much lower than before the program was started, Curtis added.
"This is only a 5 percent increase over a pretty dramatic drop," Curtis said.
Pools can offer a better than average track record in controlling costs, he said, pointing to the Wisconsin state employees health insurance program that offers both choice and better than average performance on costs, he said.
If plans have to come to a pool to offer coverage to a large group of people—in Wisconsin, for example, they can't offer state employees coverage outside the state's program—they have to offer a relatively good price to attract enrollees, he suggested.
But in voluntary state-run pools for small groups insurers will not offer pools better prices than they themselves offer to the market directly—"they're not going to do that," Curtis said. Many states have required pools to offer relatively favorable rates and eased access to insurance, making them a magnet for bad risks. Curtis added that market rules must be the same inside and outside pools if they are to foster competition that prods insurers to offer better value.
