Philadelphia Reflections

Direct Premium Payments, Constitutional Issues

In earlier sections I said I like computerizing a health insurance exchange. But confessing does not suggest the difficulties are trivial. To enroll by computer implies access to a computer. Since millions of people are still frightened to touch a computer, it implies an army of instructors to guide newcomers through the process. And since the insurance choices confront applicants with a bewildering set of choices, some person they trust must explain the choices to them. Since no insurance system imaginable could satisfy every reluctant hesitater, a considerable complaint and re-assignment process would probably be necessary for years to come. Many people will choose the wrong policy, regret it, and ask to transfer. To continue, you wouldn't expect a person to trust his private data to a system, without a personal password. Fine, but what do you do with seven million passwords? People will forget them, leave them lying around in public, and disremember them. The crooks in the cyber underground will get seven million opportunities to break into the system and steal things. If insurers of older policies undertake passive resistance, things could get tangled for years. So why undertake all these headaches?

There may be other answers to this question, among which is likely to be a set of imperatives contingent on making it mandatory. We will let others make their own arguments since once the vague mandatory feature is dropped, related conjectural problems diminish or disappear. The Affordable Care Act does not proclaim health insurance is mandatory; it only states a tax is required if you don't meet its requirements. The language really does suggest you have a choice between taking the insurance and paying the penalty tax. The Supreme Court mandates the tax must be small, to avoid being coercive to the states. The Constitution forbids the federal government to regulate the business of insurance, a provision heavily emphasized by the McCarran Ferguson Act. If the Health Savings Account with an attached high deductible is allowed to substitute for minimum requirements, any medical requirement is satisfied if someone has the money, and the HSA provides the money. True, it would allow someone with the money to reject the medical requirements, but what objection can there be to that?

There is a legitimate need to facilitate interstate health insurance. That means a minimal set of information exchange items is useful. The person must be confidently identified, and the terms and limitations of one state's policies must be matched with those of a second state. The credit status must be roughly described, and the current premium payments verified. If there is a current illness, its previously related history must be exchanged. Subsequent communication should be conducted between insurance companies, not between 300 million subscribers. Having established the basics, a communications channel(client to-and-from insurance company) must be provided for later use, particularly for expenses, even diagnoses, which might apply. And while this list may not be complete, it is close to adequate and can be expanded a little. It is nearly enough to get travelers, transferees and money exchanges to be organized. It will be sufficient for current needs and can be supplemented between particular states at conferences. And it would satisfy the Constitutional issue without needlessly inflaming it. If the Obama Administration expresses a willingness to compromise, these are the lines it might follow. On the other hand, if the issue is forced to the Supreme Court, the Court might be persuaded to follow these lines. We present three other liberalizing proposals for Electronic Insurance Exchanges:

One. Let a Thousand Flowers Bloom. The Affordable Care Act provides for selling high-cost health insurance products, meeting certain specifications, on the Electronic Health Insurance Exchanges. It's not obvious why the government has a legitimate interest in promoting one kind of health insurance over another, but perhaps a case can be made. Uniform interstate protocols are legitimate between insurance companies, along with standardized codes. And a website is a legitimate means for citizens of one state to communicate with insurance for sale in another state. Beyond setting standardized definitions, the communication between customer and insurer can be left to the individual companies. The case for excluding many existing types of policies has not been made, and this has particularly infuriated the subscribers of such policies, particularly those cheaper than the preferred variety. So why not enable or even facilitate the construction of such exchanges in every state which wants them, privatize the electronic programming and operations, possibly even subsidize them. And then permit every one of them to set its own rules for the products to be sold across state lines, setting its own prices as long as the prices clearly relate to the same products for every state-licensed insurance client who wants to utilize a particular product. Nobody must use the system, but everyone may use it. If no one uses it, it needs improvement. There could be multiple exchanges in each state, but the state may set limits, and no state is required to have any. In return for federal assistance, the federal government is limited in its involvement in setting rules which guarantee access to every system for every insurance company, and every citizen.

Two. Specify That Health Savings Accounts are Acceptable Options. In fact, if Health Savings Accounts (linked to a matching high deductible), were available as an option among many other options in the Electronic Insurance Exchanges, only the worth of the option would be in dispute. The claim of HSAs to being listed, is they are cheaper than any other option. That's a feature which is certainly desirable for a Law which puts emphasis on helping the poor. It could potentially add tax-free investment funds to a pool which helps fund the program or fund its deficit. Such windfall income could provide revenue for the costs of educating and coaxing people into making better choices, and is much less apt to provoke the irritation of mandating people to do unpleasant things for their own good.

Tenth Amendment

Three. Be brief(in requirements), and let who will be clever(in details). The threat of the Tenth Amendment hangs over all federalizing initiatives, not just the Affordable Care Act. If Electronic Health Insurance Exchanges would limit their scope to the flexible enlargement of interstate insurance sales, the insurance would clearly be part of interstate commerce, and thus safe from any revival of the Court-packing disputes of the 1930s. There is almost no justification for interposing the Federal Government into the middle of most communication between subscriber and insurance company. Permitting smaller states to enlarge their markets might by itself relieve many of the indirect pressures now limiting competition as a force to suppress healthcare prices; and could limit the damage to established insurance carriers, who will probably need time to recover from the changes it would force on their marketing.

Proposal 6: Congress should mandate the licensing to sell health insurance to be widely inclusive, including Health Savings Accounts and Catastrophic Coverage, and subject to regulation in the state of corporate domicile, subject to objection by the state of residence of the insured. When there is conflict, an appeal may be federal.

Furthermore, the spread of computers has reached a point where people are sensitive about being commercially manipulated by computers. Fifty years ago, the department store had a computer and the customers didn't. Nowadays, even children have them, and just about everyone is touchy about the way early-adopters try to bamboozle the innocent, putting their own products on the first page, in big letters, and "all others" under a button that doesn't work. Considering all the compromises needed to satisfy a common denominator, it seems very likely some other products would be more suitable for some people. "Hogging the limelight" and forgetting to mention other alternatives have become such common practices, people are on the lookout for them. The term "user-friendly" is now a part of the English language, people immediately bristle at signs of high-handedness, of which there is great plenty in the computer world. It is no secret businesses will tolerate most taxes or indignities, just so all of their competitors are seen to endure the same. It was once a common experience to have one competitor offer to design a computer program for the industry, quietly slanting the terms of entry to favor its own products. Was this just another example of it?

Therefore, allowing privatized insurance exchanges to become available for all variants of health insurance might have allowed time for discovering other features which might require special adjustments. After all, health insurance would remain half-state and half-federal, and undiscovered problems may yet surface. Even if the President planned to run healthcare like an Egyptian Pharoh, a gradual switch to individually owned and selected life insurance would have-- in time -- eliminated the need for pre-existing condition exclusions. It might even have provided an opportunity to reduce premiums for insurance which protects against the cost of appendices, indirect hernias, cataracts, uteri, prostates, and gall bladders --that have already been removed. Not everyone would want such features, but that's a small price to pay for the freedom to want them. A long-term shift to lifetime health insurance might very well require other adjustments, but it would be best to wait to see what they are. Meanwhile, the public will get the idea, teach each other, and get where it wants to be in a few years. That's at least as quick as a mandatory system can respond to industry lobbying, and still, get wherever it wants to go.

However, after all the uproar about the introduction of computerized direct-pay insurance has subsided, a great many opportunities are probably lost for decades, and any suggestions are probably futile. One thing remains, however, in view of the likelihood the issue of the Tenth Amendment will soon arise. How can we preserve the Constitution and still take advantage of our continent-wide marketplace?

The Argument Against National Uniformity of Prices.

It is abundantly clear the Founding Fathers were concerned with unifying a collection of thirteen sovereign states and had to make concessions. Furthermore, it is also clear no other nation in two hundred years has been able to match the achievement, even with massive wars and millions of casualties. So the instinct is strong to leave our Constitution alone. If it was not originally clear, the Civil War made it so. Nevertheless, the nation is laced with successful interstate corporations, for the most part, regulated by the state, not national, law. It seems to have been accomplished by establishing stock exchanges in a few states, operating under a few states' regulations, and otherwise allowing each corporation to choose a state of domicile, where the corporation can be regulated by the laws and courts of that state. The arrangement lasted for two centuries, and only later is starting to bend, under the pressures of electronic innovation. We seldom hear much uproar about the corporate arrangement under the state-federal problem. Why can't health insurance companies accomplish the same thing without federal oversight?

Well, for one thing, some states are still so sparsely settled, they cannot assemble the actuarial minimum numbers to have more than one viable health insurance company, or more than one HMO (Mrs. Clinton please note). Other states are densely populated enough to have several viable insurance companies, so the two-state sizes resist changes made to accommodate each other. The two have a great many dealings with the major corporations in their states, allowing them to pressure state legislatures into favoring state "champions", or else resisting the power of large insurance companies to dominate one state marketplace.

However, this is all pretty small peanuts, and it would seem fairly simple to separate the buying and selling of insurance companies from the buying and selling of insurance. After a while, one or two state exchanges would come to dominate and cluster in one area; while a handful of companies would start to dominate national health insurance business, and therefore migrate their health insurance operations into some different legal climate. In particular, our history of the migrating frontier made local communities restless about the distribution of doctors and hospitals. They could, of course, pass a law if one cabin is built on Pike's Peak, there must be two neurosurgeons within a hundred feet of it. The futility of such laws was soon apparent, and almost all resorted to some sort of incentives to attract medical resources found to be in short supply. State licensing was sometimes a way to create a local monopoly as a reward for a hospital to locate, or some specialist to open an office. But the development of health insurance provided an ideal way to attract specialists in short supply, by the simple expedient of overpaying them. Naturally, such communities resist the proposal to have national uniform fees, as interfering with the laws of supply and demand. Large cities, on the other hand, see national uniform fees as a way to suppress high fees. Our Founding Fathers recognized what was going on, and responded by letting anything commercial be regulated by the local states, flying the flags of states rights or state sovereignty. Franklin Roosevelt, a big-state resident, thought he could accomplish the big-state goal by calling it "court packing", but the nation soon told him his landslide electoral victory had some limits if it had that kind of result. Although Roosevelt largely accomplished his goal by other means, repeated attempts to make medical care nationally uniform has resulted in some kind of Presidential disaster. Things like medical care should become nationally uniform when the country becomes nationally uniform, but not sooner. Actuarial facts change pretty rapidly, as the discovery of gas shale in the Dakotas recently demonstrated. Any fixed but ideal arrangement will eventually fall victim to an agile and geographically flexible competitor.

Two personal examples have emphasized the point to me. In 1947, the Society for the Study of Internal Secretions (later known as the Endocrine Society) held its international meeting in a single lounge in a Chicago hotel. Nowadays, seven thousand national members meet in three concurrent ballrooms, and the shortage of Endocrinologists is over. To my surprise, a gentleman who looked like a Roman Senator approached me after a speech, and invited me, first to dinner, and then to become a paid consultant in his state which had no Endocrinologist. The other example was being approached by a lady in a pink hospital volunteer's uniform, asking me if I would like to become the sole doctor on a resort island of very rich folk, an hour from New York City. I accepted the first offer and declined the second, but the point is, people, protect their own personal needs when national health insurance is under discussion. And they often do not mean to be thwarted by supposed needs for national uniformity.

Congress and the Supreme Court are urged to view the Tenth Amendment as a compromise between big and small states which still enjoys wide support. Big states desire uniformity in order to suppress prices, while sparsely populated states reject uniformity in order to maintain control of local interests.

Proposal 5: Congress is urged to permit the domicile of health insurance corporations to be in one state chosen by the corporation. But all health insurance should be freely sold interstate, subject to regulation by the state of domicile.(2611)

Originally published: Thursday, January 02, 2014; most-recently modified: Sunday, July 21, 2019