Removing Those Artificial Lines

By: Shalom C Stern 1/22/17

Dear Friends,

Plans to publish a monthly article have been in the works for over a year now. The questions were only whether we could properly allocate the time for this endeavor and where to publish. For the time being, we decided to publish on Linkedin, but we are evaluating other venues for future articles. As for the question of time, we felt that with the new administration seemingly committed to repealing the ACA, we had a limited window of opportunity where what we have to say could have an actual impact on the future direction of the industry we love.

Although, I most certainly have strong political views, the purpose of my articles will be to discuss and advocate for/or against policy. I have critical views of both the ACA as well as some of the “plans” that (now) President Trump mentioned on the campaign trail, but the purpose of these articles will be to evaluate and advocate for/or against policy only. Whether you loved Obama or are excited by the new administration, please don’t let the policy discussion be diluted by petty political arguments. Our goal is to identify and advocate for the best policies for future healthcare legislation and the typical left versus right arguments are simply a distraction that we cannot afford.

Without any further ado….

Issue #1

Lines around the States?!?

1/20/17

Remember this? https://www.youtube.com/watch?v=qh3MxVwV1z4

Many pundits felt that this was the night when Americans would finally realize that (then) candidate Trump had a very poor understanding about the actual issues he so passionately campaigned for (or against.) Those who wanted to see his candidacy fail chuckled in delight at (now) President Trump’s lack of understanding of so crucial an issue and the talking heads felt certain that the American people (specifically those who wanted to see the ACA/Obamacare repealed) would now turn their focus to a more “serious” candidate who is better able to articulate both the negative aspects of the ACA as well as a plan to eventually replace Obamacare.

It turned out to be a minor blip on the screen for Mr. Trump. The American people and more specifically Republican voters decided that they preferred a crusader to a policy wonk and the rest is (unfathomably) history.

I linked to the Youtube video not as a knock on our new President, but rather to make a point. When I watched that debate back in March of 2016, I thought to myself “how is this even possible?” How could a man who has been on the periphery of running for president for 6+ years not be prepared to offer at least one serious solution to the healthcare crisis this country faces? The ACA was passed in 2009! This means that anyone who was seriously considering running for president had 7 years to contemplate whether they felt the law was workable and if not, to come up with a couple of good ideas as an alternative to the ACA. Here we were watching the leader of the field in the GOP who was promising to repeal the ACA at every campaign rally and yet 7 months into his campaign he could only talk about “lines around the states”??

I discussed this with a pro Trump colleague the next day and he said “Trump does not like to be embarrassed… Watch!! The next time this topic comes up, he will have a much better response.”

March turned into July and at the convention Mr. Trump was still talking about lines around the states… Then in October while debating Secretary Clinton, we again heard the same promise “we will get rid of the lines around the states and increase competition…”

Ultimately it didn’t matter. Most voters were either hyper partisan and voted for a party or they were so frustrated with the continued erosion of available health plans coupled with the double digit increases, that they decided to vote for the person promising to repeal Obamacare, despite the fact that it didn’t seem that Mr. Trump had an inkling as to how he would do any better.

Getting rid of the “lines around the states” may sound like a great campaign slogan, but in practice it would do very little to increase competition and increase choice. Here’s why:

1)     There are not technically lines around states to begin with. Sure, each state has its own State Insurance Department and to sell a plan in a given state, a carrier would have to apply with that specific State’s Insurance Department, but the fact is that since all plans are required to offer EHB’s (Essential Health Benefits) by Federal Law, it is unlikely that a carrier would be denied access by a given State’s Insurance Department if their plan conforms with Federal requirements. Certainly, some state bureaucracies may be negatively influenced by lobbyists of the existing carriers in their state, but the applying carrier would then have its own lobbyists to counter that. (Lobbying has become somewhat of a dirty word in politics, but the reality is that all industry uses them to advance their cause.)

2)     Having spoken to executives of various carriers over the years, it is my understanding that if a carrier doesn’t operate in a specific state; it is because they simply don’t want to, not because they are unable to because of “lines”. They have come to a determination that the state in question would not be profitable for their product line due to considerations such as the cost of care, the cost of marketing or demographics etc. of that specific state.

3)    Also, Company A offering a plan in Kentucky cannot simply say “hey we are going to take this plan and sell it for the same price to NY residents.” For one, a plan based in Kentucky would provide little value to a millennial in the Bronx. The premiums might be lower than what is available in the NY market, but when they find out that they need to fly (or walk) to Kentucky for a throat culture, they might decide to stay home instead. Of course, Company A might try to purchase or rent a network of NY providers, but then they couldn’t possibly charge the same premiums that they would charge a Kentuckian for whom they have a cost effective provider Network in place.

I just want to reiterate that this is not an attack on our newly elected president. Like many politicians before him, he used a poll tested line that worked on the campaign trail to get himself elected. Every politician in history has done that!! Contrast it to “if you like your doctor, you can keep your doctor, PERIOD!!!” and it doesn’t look so egregious. The fact is however, that conceptually removing “lines around the states” will have little to no effect on choice, competition and pricing.

This is not the only poll tested healthcare related slogan that has circulated over the past 8 years. We have heard others, such as “Health Savings Accounts” and “Tort Reform”. While we may want to devote more resources to discussing the merits of those ideas in future issues, I will quickly mention that Health Savings Accounts were established in 2003 and while I believe that they were extremely beneficial to the healthcare industry, it has not really resulted in premium stability. As for TORT Reform; I believe it to be a necessary reform, but I also believe it will be extremely difficult to enact effectively and I am not 100% convinced that it will have a long term positive effect on health care costs.

Now that we have determined that removing the “lines around the states” is unlikely to be a very effective solution to the Healthcare problem in our country, we will devote a large chunk of the next couple of issues to evaluate other ideas that might be more effective.

In the interim, we welcome all feedback and comments, but we would like to reiterate that this is not a political forum and political comments bashing or blaming one specific politician or political party will be removed. Not for the purpose of censorship, but rather for the purpose of actually identifying positive policies and affecting positive change for the Healthcare Industry.

Shalom C. Stern

ARK Brokerage LLC.