Sam Friedman of National Underwriter asked, as I did in an issue of Zalma’s Insurance Fraud Letter: “Why not mandate that each state create an assigned risk plan?” Sam believes the idea could salvage President Obama’s dream of reforming health care in our lifetime, without destroying the private insurance market. He is probably more optimistic than the facts warrant. Mr. Friedman said:
The idea would be to pool all those unable to get health insurance through their employers or on their own, and assign those policyholders out according to each private insurer’s market share in that particular state. If a carrier writes 40 percent of a particular private health insurance market, they would take 40 percent of the pool, randomly assigned to them. That way, everyone gets covered without creating a public plan that could underprice and drive all the private carriers out of business.
Sam, thinking as clearly as possible, noted that the paradox of health care reform is that every time you try to impose a “solution,” it creates new problems. The law of unintended consequences comes into play and the cure becomes worse than the disease.
In my opinion, it is time to keep it simple and resolve the problem. Years ago Heath Maintenance Organizations were created to keep people healthy and thereby reduce the cost of health insurance. They exist and work rather efficiently although they are not loved. Each of the poor who are uninsured could receive a good health insurance policy from an HMO for no more than $5,000 per person and more likely, if bought in volume, much less. If there are 40 million uninsured that are the reason for the change, it would be less expensive if the government entered into a contract with some Health Maintenance Organizations to insure the uninsured. Paying top dollar for HMO coverage would cost $200,000,000,000 or a savings of $800 billion over the present plan. Competition, something the current government does not seem to understand, would reduce the cost.
If any of the 40 million are uninsurable an ‘assigned risk plan’ like that done for auto insurance for those who have bad driving records could be made a requirement of the bill so that the risk of insuring the unhealthy would be spread across the market. Everyone would be insured and the government will need nothing further and the bill would be about two pages long instead of 1,000.
To protect the HMOs and make the cost even less the Congress could make fraud against a health insurance provider a federal felony. Insurance fraud would become too dangerous because federal crimes carry a definite sentence and those who are tempted to commit fraud would go elsewhere. More prosecutors and investigators would be required but they could be funded out of the savings.
Of course, for this to work, the government has to accept the fact that ‘insurance’ is a contract that promises to indemnify against an unknown or contingent event. The assigned risk plan could be considered a cost of doing business. Second, they must take fraud seriously and prosecute it when it is perpetrated. The new bill only seems to want to prosecute insurers although it does increase the penalty under the False Claims Act to 10 years. The U.S. Department of Justice is looking for what Assistant Attorney General Lanny Breuer calls “a superstar” to lead the fraud section. It also plans to add 10 trial attorneys and fill the long vacant job of deputy chief for corporate, securities and investment fraud. That should cover about 0.001% of the insurance fraud if the superstar and the ten attorneys concentrate on insurance fraud. It is a $100 billion a year business today with few successful prosecutions.