19Jan2012

On the edge of a new age of healthcare financing

by Ian Duncan, University of California – Santa Barbara

When I entered health actuarial work 31 years ago, the absolute cost of health benefits was much lower (although as a percentage of average nominal income the difference is less than is sometimes recognized).  Plans reimbursed allowable expenses for eligible members without much interference. Insurers employed claims payers and actuaries; medical directors were involved in underwriting, if at all.

All that has changed with managed care.  The managed care revolution was successful in its early days (zero and even negative trends for HMOs in the mid-1990s) but consumers revolted against the limited choice and trend began its rise.  At the same time there was an explosion of new, life-extending devices and drugs which added to cost. I think we have learned a few things along the way, including the fact that providing consumers with insurance increases consumption (hardly surprising but overlooked in the scramble for reform). We stand on the edge of a new age of healthcare financing, in which the old insurance model is effectively outlawed (no longer can we underwrite, exclude pre-existing conditions or charge a rate appropriate for the risk). I don’t believe that this model will be any more successful than prior models at containing costs, and will lead inexorably to a complete government run system. The latest Kaiser Family Foundation poll finds that 41% of Americans favor repeal of the ACA; the latest Rasmussen poll finds the split of likely voters between those who favor and those opposed to repeal at 54%-39%.  So it appears as though, despite rising costs, the American people reject the ACA as a solution.  What do you think?

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Discussion

3 responses to "On the edge of a new age of healthcare financing"

  • Geof Hileman says:

    I think that 95% of the people who responded to that survey don’t have enough information to possibly have a clue about whether the ACA will be a solution. The 41% who favor repeal are probably a pretty similar crowd to the 44% who have determined they will vote Republican in the fall; their candidates have said it should be repealed and thus they believe it.

    Personally, I’m far more interested in your opinion on the potential effectiveness of the ACA than I am in the opinion of the majority of voting Americans!

  • Thomas Doran says:

    Many of the features included in the ACA are worthwhile and make for good health care policy.
    Covering more of the insured via subsidy, elimination of pre-existing conditions etc…

    To date the discussion on the financing of the ACA has been a farce. For example the projected savings in Medicare are very optiistic, if not irrational.

    I think if we were to indentify a flat % of pay for this program (ala Medicare) of enhanced coverage at least there would be an honest discussion on the value. As actuaries for years we’ve been dsicussing the ongoing solvency issues of Medicare.

    Given that back drop how can we afford to expand the promise????

  • As Thomas said, many of the features are worthwhile, but everything is not ok. It’ll be interesting to see how we manage to solve this predicament.

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