I need to spend some more time reporting out the cost containment provisions on the Wyden plan, but since that appears the primary objection, let me go into the underlying strategy of the legislation for a moment: As I explained in my last post, the legislation seeks to tame the insurance industry by imposing community rating, thus ending the competition for healthy individuals and the race to price out the unhealthy. That has a secondary, and possibly greater, impact than simply ending price discrimination. Indeed, it's the foundation of the plan's cost containment strategy.
You often hear that health insurance isn't a market. That's not true. It is a market, only the goods being sought are healthy individuals, and the efficiency gains are aimed at finding ever better methods for separating the well from the sick. The market works precisely as it's supposed to, creating an enormously effective conveyor for industry profits. What it doesn't do is construct a good or just system for health care consumers. The imposition of community rating and an individual mandate fundamentally restructures this market. Suddenly, there's no more competition based on health, no more money spent identifying those who will require care and avoiding them.
Yet the plans must still compete. Aetna still needs to attract customers -- 300 or so million of them -- away from UnitedHealthGroup, who needs to block Kaiser Permanente. So on what grounds do they compete? The easy answer would be they reduce services, offering ever barer packages, hoping to get the healthy applicants who want to pay less. Problem is, the plan mandates insurance packages with benefits that are actuarily equivalent to or greater than the Blue Cross Standard Plan offered to federal employees on January 1st, 2007. They can't reduce their benefit packages.
