Paul Krugman
The Plot Against Medicare
New York Times
April 20, 2007

The plot against Social Security failed: President Bush’s attempt to privatize the system crashed and burned when the public realized what he was up to. But the plot against Medicare is faring better: the stealth privatization embedded in the Medicare Modernization Act, which Congress literally passed in the dead of night back in 2003, is proceeding apace.

Worse yet, the forces behind privatization not only continue to have the G.O.P. in their pocket, but they have also been finding useful idiots within the newly powerful Democratic coalition. And it’s not just politicians with an eye on campaign contributions. There’s no nice way to say it: the NAACP and the League of United Latin American Citizens have become patsies for the insurance industry.

To appreciate what’s going on, you need to know what has been happening to Medicare in the last few years.

The 2003 Medicare legislation created Part D, the drug benefit for seniors but unlike the rest of Medicare, Part D isn’t provided directly by the government. Instead, you can get it only through a private drug plan, provided by an insurance company. At the same time, the bill sharply increased payments to Medicare Advantage plans, which also funnel Medicare funds through insurance companies.

As a result, Medicare originally a system in which the government paid people’s medical bills is becoming, instead, a system in which the government pays the insurance industry to provide coverage. And a lot of the money never makes it to the people Medicare is supposed to help.

In the case of the drug benefit, the private drug plans add an extra, costly layer of bureaucracy. Worse yet, they have much less ability to bargain for lower drug prices than government programs like Medicaid and the Veterans Health Administration. Reasonable estimates suggest that if Congress had eliminated the middlemen, it could have created a much better drug plan one without the notorious “doughnut hole,” the gap in coverage once your annual expenses exceed $2,400 per year at no higher cost.

Meanwhile, those Medicare Advantage plans cost taxpayers 12 percent more per recipient than standard Medicare. In the next five years that subsidy will cost more than $50 billion about what it would cost to provide all children in America with health insurance. Some of that $50 billion will be passed on to seniors in extra benefits, but a lot of it will go to overhead, marketing expenses and profits.

With the Democratic victory last fall, you might have expected these things to change. But the political news over the last few days has been grim.

First, the Senate failed to end debate on a bill in effect, killing it that would have allowed Medicare to negotiate over drug prices. The bill was too weak to have allowed Medicare to get large discounts. Still, it would at least have established the principle of using government bargaining power to get a better deal. But in spite of overwhelming public support for price negotiation, 42 senators, all Republicans, voted no on allowing the bill to go forward.

If we can’t even establish the principle of negotiation, a true repair of the damage done in 2003 which would require having Medicare offer seniors the option of getting their drug coverage directly, without involving the insurance companies seems politically far out of reach.

At the same time, attempts to rein in those Medicare Advantage payments seem to be running aground. Everyone knew that reducing payments would be politically tough. What comes as a bitter surprise is the fact that minority advocacy groups are now part of the problem, with both the NAACP and the League of United Latin American Citizens sending letters to Congressional leaders opposing plans to scale back the subsidy.

What seems to have happened is that both groups have been taken in by insurance industry disinformation, which falsely claims that minorities benefit disproportionately from this subsidy. It’s a claim that has been thoroughly debunked in a study by the Center on Budget and Policy Priorities but apparently the truth isn’t getting through.

Public opinion is strongly in favor of universal health care, and for good reason: fear of losing health insurance has become a constant anxiety of the middle class. Yet even as we talk about guaranteeing insurance to all, privatization is undermining Medicare and people who should know better are aiding and abetting the process.

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Ezra Klein
This Time, We Want Healthcare Reform
Los Angeles Times
April 8, 2007

On March 24, every major Democratic presidential candidate - and a handful of minor ones - gathered in Las Vegas to spend a long afternoon getting grilled on the precise details of their healthcare plans. The candidates were enthusiastic, confident and expansive. The mood was not friendly to half-measures and timid triangulations; the disagreements were not over how many Americans to cover but how quickly we would cover them all.What a difference a decade makes. It wasn’t so long ago that President Clinton’s proposed reforms suffered a catastrophic defeat at the hands of moneyed interests and Republican opportunists, setting the stage for the Democratic Party’s historic losses in the 1994 midterm elections. It was an enormous blow to not only the Democratic Party but the thousands of policy wonks, political operatives and congressional staffers involved in the policy’s creation and present for its collapse.

Such traumas leave scars, and for years afterward, Democrats were afraid to reenter the bad room where the scary thing happened, and so they shied away from fully reengaging the healthcare debate, even as the country’s healthcare system continued its slow deterioration.

But the ghosts of 1994 have been largely exorcised from the Democratic psyche, and today, even the most hardened cynics are allowing themselves moments of hope. In the dispiriting years since the Clinton plan’s collapse, Washington’s would-be reformers have comforted themselves with the whispered refrain that healthcare reform was not a matter of if, but when - and now, for the first time in a long time, many are saying that the moment has arrived.

If Democrats are going to muster the courage and unity to finally succeed, though, they are going to have to learn the lessons that 1994’s failure can teach and overcome the legacy of ClintonCare.

The story of the Clinton reforms would be comic were it not so tragic. Everything that could go wrong did; everything that could be handled wrong was. Clinton decided to pursue the passage of NAFTA before healthcare reform, exhausting and angering his liberal allies (such as organized labor) immediately before he would most need their support and strength.

The initiative was placed under the control of Hillary Rodham Clinton and Ira Magaziner, whose primary health policy credentials came from a report on medical spending he’d written for the state of Rhode Island. Neither had the political experience to safely shepherd a reform of this magnitude, and it showed in their procedural missteps, which involved creating more than 30 closed-door task forces with more than 600 members but little to no representation from industry stakeholders such as the insurance industry or healthcare providers.

Worse, the Clinton administration was completely incoherent on how to handle those industry stakeholders and other interested parties, and thus it was unprepared to repel the all-out assault they mounted on the plan. It’s worth saying here that although the U.S. has a very inefficient healthcare system when evaluated with traditional metrics such as the health outcomes of the populace or the costs of care, it is unquestionably the finest in the world at generating profits. There’s a lot of money sloshing around, and quite a bit of profit to protect.

So, the first question for would-be reformers is how you handle the insurance industry, the pharmaceutical industry, the for-profit-hospital lobby and the businesses that don’t want to begin offering comprehensive healthcare for their employees. And here, there is a choice to be made: Do you run over the industry interests that impede reform and that jealously protect the inequities and expenses sustaining their profit margins, or do you resign yourself to their involvement and invite them to the table?

In a classic worst-of-both-worlds compromise, Magaziner and Hillary Clinton did not initially include industry representatives in the process, but then constructed a plan whose famed complexity sprang mostly from their attempts to retain a place for these groups. Thus, they expected a certain degree of buy-in from the medical-industrial complex and were blindsided by the ferocious opposition they actually faced. Worse, their proposal didn’t allow them to effectively counter the opposition. It’s hard to make the malign tendencies of insurers a major issue when your policy proposal preserves their involvement.

And at the same time as the Clinton administration was floundering before the attacks unleashed by the forces of the status quo (the insurance industry alone spent $50 million in ads, lobbying and organizing), the structural pressures pushing toward reform began to ease. As healthcare writer Matthew Holt has persuasively argued, President Clinton’s initial mandate came in the context of the 1991-92 recession, a very deep economic downturn that left the middle class feeling particularly insecure and that marked only the second time in history that health costs rose much faster than economic growth.

But amid the lengthy dithering of the Clinton/Magaziner policy process, the recession lifted, the economy improved, the public’s anxieties eased and the Clinton administration’s inept response to the public relations campaign launched by its opponents left voters unimpressed with the plans for reform. Moreover, the promise of implementing managed care left the right with an alternative policy to organize around, one that didn’t require government intervention or obvious turbulence.

Today, of course, it’s clear that managed care has failed. After cost growth was effectively arrested in the mid-1990s, patients rebelled against being managed, and insurers decided that passing on the costs of unlimited care was less trouble than holding them down. Moreover, the same anxieties over spending growth and the precariousness of coverage that first burst onto the scene during the 1991-92 recession are now constant companions, even in periods of economic expansion. Since 2000, health premiums have shot up by 87%. Wages, of course, have not followed.

That may be why a recent New York Times/CBS poll found that 90% of Americans said they thought that the healthcare system needed either “fundamental changes” or to be “completely rebuilt.” The last time the poll recorded such desire for reform was in January 1994. Indeed, according to the poll, 62% report themselves willing to pay higher taxes for universal coverage.

Such numbers have appeared before, and efforts at reform have failed before. There are differences this time, though. No change-minded president would be so naive about industry opposition, or slow to propose a plan, or secretive about its creation. The pressures that eased after the 1990-91 recession are now enduring.

The progressive coalition is much more mature and effective than it was at the beginning of the Clinton presidency, and it aches to engage the insurers in a debate about how to best run the American healthcare system.

Most telling of all, the American people regret passing up the Clinton plan. A 2005 Democracy Corps poll found that 53% of respondents said they believe that they’d be better off had the Clinton plan passed, while only 28% believe that they’d be worse off. It may be that ghosts of the Clinton plan’s failure have ceased scaring Democratic politicians and begun haunting voters, leaving them afraid not of change but of its absence.
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Lisa Girion
Health Insurance Options Dwindle for Self-Employed. Group Plans Are Being Dropped or Becoming Unaffordable to Many.
Los Angles Times
March 27, 2007

A major source of health insurance for people who work for themselves is disappearing, casting thousands of contractors, freelancers and solo practitioners into the ranks of the uninsured with little hope of obtaining new coverage.

Health plans offered by professional associations were once havens for millions of people who couldn't get coverage anywhere else. But as medical costs have soared, groups representing professions as varied as law and golf have been forced to stop offering the benefit or been dropped by insurers.

More than 8,000 people with coverage through the California Assn. of Realtors could be next if Blue Shield of California succeeds with its plan to cancel the group's health coverage.

"It's a real stab in the heart," said Marcy Garber, 62, an Encino real estate agent whose history of breast cancer makes her an almost-certain reject if she seeks similar coverage on her own.

Although no one tracks association coverage to know how many plans have disappeared, the experience of Marsh Affinity Services is telling. A decade ago, Marsh, which brokers and administers the health plans, had 142 such clients. Today, all but three have shut down.

Over the same period, the nation's uninsured population, now estimated at 45 million, rose dramatically, fueled in part by the dearth of affordable options for the self-employed, experts say. Among uninsured workers, nearly 63% are self-employed or work in small firms, Todd Stottlemyer, president of the National Federation of Independent Business, told Congress recently.

Fewer than a quarter of 1,020 professional and small-business associations surveyed in February offer medical coverage, even though a majority of the groups said they would like to. The American Society of Association Executives, which commissioned the survey, views the issue as a crisis.

In its heyday, association health coverage was so popular that brokers touted it as a membership recruiting tool for professional organizations. The demise of the coverage is particularly problematic in states like California, experts say, where a raft of jobs — including many in the service and entertainment sectors — don't come with health benefits.

"The association business used to be a huge part of the group health insurance business," said Robert Laszewski, a Washington-based health policy consultant and former insurance executive. "Now, it's like the buggy whip business — almost entirely gone."

Insurance carriers began pulling out of association markets about 10 years ago amid mandates requiring the groups — like employers — to offer coverage to all members who wanted to buy it, regardless of preexisting conditions. Unlike employers, however, who typically pick up the much of the premiums for employees, most associations do not share in the costs. Instead, they arrange for their members to purchase coverage at group, rather than individual, rates.

In today's marketplace, that's almost always a better deal for older members and often the only option for people with preexisting conditions. But insurers are eager to sell individual policies to the young and healthy for as little as $100 a month, scooping the cream off the risk pool. That leaves higher-risk older and less-healthy people to the group market, resulting in what is known as adverse selection.

As healthy members leave an association health plan, the concentration of members with higher-than-average medical costs increases. That forces the underwriter to raise premiums. A "death spiral" sets in, when medical costs exceed the plan's ability to raise premiums to cover them.

"The problem with associations is they go into a death spiral because they get the worst risk," said Alan Fox, vice president of plan design for the American Psychological Assn. Insurance Trust, which covered thousands of psychologists and their families for 35 years before discontinuing its health plan in 1999.

The list of casualties also includes health plans once sponsored by the American Bar Assn., which still hopes to resurrect the benefit it dropped last year, and the California Bar Assn., which lost its coverage when its insurer pulled out in the early 1990s.

Before the Professional Golfers' Assn.'s health plan ran into the rough, the group had extended coverage to about 1,000 members. But the plan was discontinued in 1996 as medical costs rose and younger, healthier members bought coverage on their own at lower rates.

"If you can get cheaper coverage through the individual market, that's what you do," said Mila Kofman, an associate research professor at Georgetown University's Health Policy Institute.

But not everybody can buy an individual plan. In many states, including California, insurance companies are allowed to reject applicants for individual policies for any medical reason, including common conditions such as asthma and varicose veins. As a result, many people who lose association coverage in effect become uninsurable.

Insurance options of last resort — COBRA conversion coverage, whose name is an acronym for the federal legislation that created it, and publicly subsidized high-risk pools — are not for everybody because the coverage is insufficient or unaffordable or both.

"If they don't have an opportunity to go to another group and have to go into the individual market, it's a real problem," said Kansas Insurance Commissioner Sandy Praeger, president-elect of the National Assn. of Insurance Commissioners.

That's what worries Garber, the Encino real estate agent. Garber doesn't know what she will do if she loses her coverage, which costs her $596 a month.

"I'm not what I would call every insurer's delight," she said. "I have to be in a group plan or I'm not going to have insurance. It never dawned on me I'd have any problem with this insurance."

Another real estate agent, Hector Aguirre, 39, of Rancho Cucamonga, also thought the group's coverage was safe. He pays nearly $1,000 a month for coverage for himself and his family. His wife has lupus and a daughter needs daily shots of an expensive growth hormone.

"I always thought it had more control and more pull because it's such a huge umbrella under the whole California Assn. of Realtors," Aguirre said.

Realtor Terry Lucoff, 60, of Malibu, who pays a monthly premium of more than $600, fears that if he loses his coverage he will be unable to obtain new coverage that will allow him to continue seeing his regular doctors because he has been diagnosed with a kidney condition.

"If they can do this to the California Realtors association, they can do it to anybody," he said.

The California Assn. of Realtors and its broker, RealCare Insurance Marketing Inc., contend that Blue Shield can't cancel the plan.

"It is against the law for Blue Shield to cherry-pick, i.e., to try to keep only the healthy employees, while cutting off those who need their health insurance most," RealCare alleges in a lawsuit.

Blue Shield says the law allows it to pull the plug if an organization violates the terms of its contract. It says that happened when the real estate group failed to enroll 75% of certain members in the health plan as its contract requires.

But the association and its broker accuse Blue Shield of inventing a way to calculate the enrollment to create a pretext for dumping them and their medical bills. They say that enrollment has been close to 99% for years and that Blue Shield never made an issue of it before.

"What's different about today?" asked Debra Ferrier, the real estate group's assistant general counsel. "I believe they probably looked at the plan, probably saw it wasn't very profitable, and they think they found a reason to cancel it. We disagree that they found a reason."

A court hearing on the dispute is set for April 6 in Los Angeles, and state regulators say they are looking into the matter.

Blue Shield spokesman David Seldin said the company noticed the purported enrollment problem only recently. He declined to discuss the finances of the Realtors' health plan, saying "it was not relevant to our decision, which was simply and completely about the fact that they were not in compliance with their contractual obligations."

Industry experts say the dispute may be symptomatic of the difficult economics and market pressures that have crippled and killed association health plans over the last decade. It also "reveals how fragile access to health coverage is and how easily that security blanket can be ripped away," said Cindy Ehnes, director of the California Department of Managed Health Care.

As havens for people with medical conditions, association health plans are especially vulnerable to rising medical costs, said Janet Trautwein, chief executive of the National Assn. of Health Underwriters.

"Costs are going up everywhere in every type of plan," Trautwein said. Associations "not only have the normal costs going up, but they have this adverse selection at the same time. It's a double whammy."

A few association health plans remain open. But they don't have to go belly up for members to be affected. When the International Institute of Electrical and Electronics Engineers' health plan ran into financial difficulties, for example, Ann McCormick of Glendora lost coverage.

The plan dropped McCormick in February when her husband, Bill, a member of the organization, turned 65 and became eligible for Medicare. Until recently, the plan had allowed such members and their dependents to remain enrolled and use the coverage to supplement the federal government's medical insurance program.

But when expenses outpaced revenue, resulting in a deficit of nearly $6 million, the engineers association decided last year that the option was no longer in its members' best interest.

The problem for Ann McCormick, 64, is she won't qualify for Medicare for several months. But recently diagnosed with diabetes, she discovered she was uninsurable in the private market.

"You plan to be financially independent after retirement, and then all of a sudden you have no insurance," said McCormick, a retired loan auditor. "You didn't plan on that. It's really scary."

Cigna, which carries the engineers organization's plan, also underwrites the group plan of an association of performers, writers and photographers known as TEIGIT. Saying that group's medical expenses were exceeding premium revenue, Cigna raised rates in January as much as 254% for members in California, prompting more than 150 of them — about a quarter of its cadre in the state — to drop the coverage.

"I couldn't afford it, so I quit," said Randy Dotinga, 38, a San Diego freelance writer whose premium was set to rise to $875 from $262.
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Coverage for All
Sacramento Bee Editorial
March 25, 2007

The state regulator of HMOs has fined one of the largest, Blue Cross, $1 million for canceling health policies of enrollees who, among other things, got pregnant. Cancellations like these weren't isolated, according to the California Department of Managed Health Care. Rather, they were systematic, right down to a computer program that scours the system for enrollees seeking certain kinds of care.

Blue Cross denies wrongdoing. That's fine. There is a larger lesson here: This health insurance market, the one for individuals or families who don't automatically get covered through their jobs, is sick. Insurers try to avoid covering people who need care. And many Californians avoid getting insurance until it is in their financial interest to do so. It's a game, and the game must end somehow. That can only happen by blowing up the individual health insurance market that exists today and replacing it with something that makes more sense. And that can only happen with the California Legislature and Gov. Arnold Schwarzenegger.

There are two basic choices here when it comes to health insurance. One is to get rid of private health insurance altogether and replace it with a program in which the government directly pays doctors and hospitals to provide care. That's known as single-payer. It is championed by some Democrats, but opposed by the governor. Single-payer isn't a likely short-term compromise, but the more we look at this mess, single-payer seems to be an increasingly likely long-term solution because of the many ills of the private insurance market.

The second choice is to fix the insurance market. How? Bottom line: It means that health insurers such as Blue Cross have to cover all who apply, even those who are eight months pregnant. On the flipside, everyone -- or just about everyone -- has to have insurance. It can be through his or her company. It can be through a government-sponsored program. What is important is to throw everyone into the pool. Insurance, when it works, is all about spreading risks.

Either the governor and the Legislature somehow create this pool, or they don't. All of the solutions by necessity would impose various mandates -- either on employers, on individual Californians or in some combination. And any solution will require money. Why? If the state were to require everyone to have coverage and require insurance companies to cover anyone who signs up, that would include many low-income Californians who don't have insurance today. Those Californians can't be expected to pay full freight. And they can't be left out of the equation, only to wander later into emergency rooms and expect care.

In any sane health care system, getting pregnant should never be a cause to lose health care.

Paul Krugman
The Health Care Racket
New York Times
February 16, 2007

Is the health insurance business a racket? Yes, literally — or so say two New York hospitals, which have filed a racketeering lawsuit against UnitedHealth Group and several of its affiliates.

I don’t know how the case will turn out. But whatever happens in court, the lawsuit illustrates perfectly the dysfunctional nature of our health insurance system, a system in which resources that could have been used to pay for medical care are instead wasted in a zero-sum struggle over who ends up with the bill.

The two hospitals accuse UnitedHealth of operating a “rogue business plan” designed to avoid paying clients’ medical bills. For example, the suit alleges that patients were falsely told that Flushing Hospital was “not a network provider” so UnitedHealth did not pay the full network rate. UnitedHealth has already settled charges of misleading clients about providers’ status brought by New York’s attorney general: the company paid restitution to plan members, while attributing the problem to computer errors.

The legal outcome will presumably turn on whether there was deception as well as denial — on whether it can be proved that UnitedHealth deliberately misled plan members. But it’s a fact that insurers spend a lot of money looking for ways to reject insurance claims. And health care providers, in turn, spend billions on “denial management,” employing specialist firms — including Ingenix, a subsidiary of, yes, UnitedHealth — to fight the insurers.

So it’s an arms race between insurers, who deploy software and manpower trying to find claims they can reject, and doctors and hospitals, who deploy their own forces in an effort to outsmart or challenge the insurers. And the cost of this arms race ends up being borne by the public, in the form of higher health care prices and higher insurance premiums.

Of course, rejecting claims is a clumsy way to deny coverage. The best way for an insurer to avoid paying medical bills is to avoid selling insurance to people who really need it. An insurance company can accomplish this in two ways, through marketing that targets the healthy, and through underwriting: rejecting the sick or charging them higher premiums.

Like denial management, however, marketing and underwriting cost a lot of money. McKinsey & Company, the consulting firm, recently released an important report dissecting the reasons America spends so much more on health care than other wealthy nations. One major factor is that we spend $98 billion a year in excess administrative costs, with more than half of the total accounted for by marketing and underwriting — costs that don’t exist in single-payer systems.

And this is just part of the story. McKinsey’s estimate of excess administrative costs counts only the costs of insurers. It doesn’t, as the report concedes, include other “important consequences of the multipayor system,” like the extra costs imposed on providers. The sums doctors pay to denial management specialists are just one example.

Incidentally, while insurers are very good at saying no to doctors, hospitals and patients, they’re not very good at saying no to more powerful players. Drug companies, in particular, charge much higher prices in the United States than they do in countries like Canada, where the government health care system does the bargaining. McKinsey estimates that the United States pays $66 billion a year in excess drug costs, and overpays for medical devices like knee and hip implants, too.

To put these numbers in perspective: McKinsey estimates the cost of providing full medical care to all of America’s uninsured at $77 billion a year. Either eliminating the excess administrative costs of private health insurers, or paying what the rest of the world pays for drugs and medical devices, would by itself more or less pay the cost of covering all the uninsured. And that doesn’t count the many other costs imposed by the fragmentation of our health care system.

Which brings us back to the racketeering lawsuit. If UnitedHealth can be shown to have broken the law — and let’s just say that this company, which is America’s second-largest health insurer, has a reputation for playing even rougher than its competitors — by all means, let’s see justice done. But the larger problem isn’t the behavior of any individual company. It’s the ugly incentives provided by a system in which giving care is punished, while denying it is rewarded.

Paul Krugman
Edwards Gets It Right
New York Times
February 9, 2007

What a difference two years makes! At this point in 2005, the only question seemed to be how much of America’s social insurance system — the triumvirate of Social Security, Medicare and Medicaid — the Bush administration would manage to dismantle. Now almost all prominent Democrats and quite a few Republicans pay at least lip service to calls for a major expansion of social insurance, in the form of universal health care.
But fine words, by themselves, mean nothing. Remember “compassionate conservatism?” I won’t trust presidential candidates on health care unless they provide enough specifics to show both that they understand the issues, and that they’re willing to face up to hard choices when necessary.

And former Senator John Edwards has just set a fine example.

At first glance, the Edwards health care plan looks similar to several other proposals out there, including one recently unveiled by Arnold Schwarzenegger in California. But a closer look reveals extra features in the Edwards plan that take it a lot closer to what the country really needs.

Like Mr. Schwarzenegger, Mr. Edwards sets out to cover the uninsured with a combination of regulation and financial aid. Right now, many people are uninsured because, as the Edwards press release puts it, insurance companies “game the system to cover only healthy people.” So the Edwards plan, like Schwarzenegger’s, imposes “community rating” on insurers, basically requiring them to sell insurance to everyone at the same price.

Many other people are uninsured because they simply can’t afford the cost. So the Edwards plan, again like other proposals, offers financial aid to help lower-income families buy insurance. To pay for this aid, he proposes rolling back tax cuts for households with incomes over $200,000 a year.

Finally, some people try to save money by going without coverage, so if they get sick they end up in emergency rooms at public expense. Like other plans, the Edwards plan would “require all American residents to get insurance,” and would require that all employers either provide insurance to their workers or pay a percentage of their payrolls into a government fund used to buy insurance.

But Mr. Edwards goes two steps further.

People who don’t get insurance from their employers wouldn’t have to deal individually with insurance companies: they’d purchase insurance through “Health Markets”: government-run bodies negotiating with insurance companies on the public’s behalf. People would, in effect, be buying insurance from the government, with only the business of paying medical bills — not the function of granting insurance in the first place — outsourced to private insurers.

Why is this such a good idea? As the Edwards press release points out, marketing and underwriting — the process of screening out high-risk clients — are responsible for two-thirds of insurance companies’ overhead. With insurers selling to government-run Health Markets, not directly to individuals, most of these expenses should go away, making insurance considerably cheaper.

Better still, “Health Markets,” the press release says, “will offer a choice between private insurers and a public insurance plan modeled after Medicare.” This would offer a crucial degree of competition. The public insurance plan would almost certainly be cheaper than anything the private sector offers right now — after all, Medicare has very low overhead. Private insurers would either have to match the public plan’s low premiums, or lose the competition.

And Mr. Edwards is O.K. with that. “Over time,” the press release says, “the system may evolve toward a single-payer approach if individuals and businesses prefer the public plan.”

So this is a smart, serious proposal. It addresses both the problem of the uninsured and the waste and inefficiency of our fragmented insurance system. And every candidate should be pressed to come up with something comparable.

Yes, that includes Barack Obama and Hillary Clinton. So far, all we have from Mr. Obama is inspiring rhetoric about universal care — that’s great, but how do we get there? And how do we know whether Mrs. Clinton, who says that she’s “not ready to be specific,” and that she wants to “build the consensus first,” will really be willing to take on this issue again?

To be fair, these are still early days. But America’s crumbling health care system is our most important domestic issue, and I think we have a right to know what those who would be president propose to do about it.
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Robert Pear
Experts See Peril in Bush Health Proposal
New York Times
January 28, 2007

With his proposal to uproot a tax break that has been in place for more than 60 years, President Bush has touched off an impassioned debate over the future of the employer-based system that provides health insurance to more than half of all Americans.

"Changing the tax code is a vital and necessary step to making health care affordable for more Americans," Mr. Bush said in his State of the Union address this week.

Mr. Bush said his proposal would eliminate a bias in the tax code that strongly favored insurance provided by employers over coverage bought by individuals and families outside the workplace.

Paul Fronstin, director of health research at the Employee Benefit Research Institute, a nonpartisan organization, said: “The president’s proposal would mean the end of employer-based benefits as we know them. It gives employers a way out of providing the benefits because their employees could get the same tax break on their own.”

Tony Fratto, a White House spokesman, denied that the president wanted to move people away from the employer-based system and toward the individual insurance market. “We are seriously agnostic on that,” he said.

It might take years for changes to occur. “Large corporate employers could not immediately terminate their health benefits because there is, at present, no reliable place where employees can get coverage they can afford outside the workplace,” said Frank B. McArdle, a health policy expert at Hewitt Associates, a benefits consulting firm.

The economic rationale for Mr. Bush’s proposal is that too many people have “gold-plated, deluxe” health insurance, which encourages them to use excessive amounts of health care, driving up costs for everyone.

Many economists agree. But they doubt that Mr. Bush’s proposal would do much to hold down costs or cover more people.

“The president’s proposal addresses inequities in the tax code that provide an open-ended subsidy for premiums paid by employers,” said Robert D. Reischauer, a former director of the Congressional Budget Office. “If your employer does not provide health insurance and you have to buy it on your own, you get no tax benefit at all. The president’s plan would eliminate that distinction.”

But Mr. Reischauer said, “A glaring problem with the president’s plan is that he did not call for any stronger regulation of the individual insurance market.” In that market as it now exists in most states, insurers can deny coverage or charge higher rates to sick people.

In their desire to achieve universal coverage, some Democrats have also begun to raise questions about the employer-based system. “We have to ask ourselves if the employer-based system of health care is still the best way for providing insurance to all Americans,” said Senator Barack Obama, Democrat of Illinois, noting that workers frequently changed jobs.

The Service Employees International Union negotiates with employers to secure health benefits for its members, but the president of the union, Andrew L. Stern, said, “The current employer-based health care system is not the foundation for 21st-century health care reform.”

Mr. Bush’s proposal differs radically from President Bill Clinton’s plan for universal coverage, but experts on health benefits said they were similar in one respect: In an effort to help the uninsured — about one-sixth of the
population — they would upend the system that covers most Americans.

The Clinton plan would have provided comprehensive health benefits to 39 million uninsured Americans, with more than $400 billion in new federal spending over 10 years. The White House says the tax changes proposed by Mr. Bush would provide coverage for 3 million to 5 million people at no cost to the government over 10 years.

Since Mr. Bush took office in 2001, the number of people without insurance has increased by more than 5 million, to 46.6 million, according to the Census Bureau. Administration officials said they hoped to reverse that trend by helping states that offered basic private insurance policies to their residents. To pay for such help, the administration would take federal money from hospitals that serve large numbers of poor people.

Under Mr. Bush’s proposal, employee health benefits would, for the first time, be treated as income and would be subject to income and payroll taxes, just like wages. At the same time, Mr. Bush would create a tax deduction for health insurance of $15,000 for families and $7,500 for individuals. The same deduction would be available to everyone with coverage, regardless of the source or value of the policy.

A family with coverage worth $18,000 would have to pay taxes on the amount exceeding the $15,000 standard deduction — $3,000, in this example.

Katherine Baicker, a member of the president’s Council of Economic Advisers, said the proposal would increase taxes for 30 million people with the most generous employer-provided health benefits, unless they “change their behavior” and choose less costly coverage. Ms. Baicker said the proposal would cut taxes for more than 100 million people who bought insurance on their own or had employee health benefits worth less than the standard deduction.

Treasury officials said that under the Bush proposal, an uninsured family of four with an annual income of $60,000 would save $4,545 if it bought coverage in the individual market. By contrast, they said, a family that earns $80,000 and has employer-provided coverage worth $20,000 could see a tax increase of about $1,500.

Joel D. Kaplan, deputy chief of staff at the White House, acknowledged that the proposal could accelerate the trend of employers’ dropping health benefits for employees. But he said more people “would be able to buy insurance in the individual market,” so there would be “a net increase in the number of insured.”

Politicians and health care providers are skeptical.

Representative John D. Dingell, the Michigan Democrat who is the chairman of the Committee on Energy and Commerce, said, “The president’s proposal would do little to help the uninsured, but would undermine the employer-based system through which 160 million people get coverage.”

Richard J. Umbdenstock, president of the American Hospital Association, agreed. “The tax proposal would have the effect of driving people to the small-group insurance market — a market that has proved unstable,” Mr.
Umbdenstock said. “For many people, even with a tax break, coverage would remain unaffordable.”

Historically, employers have used benefits as a tool to recruit workers and keep them healthy and productive.

R. Bruce Josten, executive vice president of the United States Chamber of Commerce, praised the general direction of the president’s proposal but said his members had serious concerns.

First, Mr. Josten said, the $15,000 cap on tax-free insurance takes no account of wide geographic variation in the cost of health care and insurance. The same package of benefits typically costs more in Boston than in Minneapolis, for example.

Moreover, Mr. Josten said, a health plan may be expensive because it covers older workers with major medical problems, not because it is “gold-plated.” A single mother, working as a low-paid secretary at a law firm, could be pushed into a higher tax bracket because she participates in an $18,000 health plan covering older men who have had heart attacks and expensive surgery, Mr. Josten said.

Treasury officials acknowledged that some people with costly, comprehensive benefits had modest incomes.

But deluxe health plans are vanishing fast. In recent years, many workers have found themselves paying more for less comprehensive benefits. From 2000 to 2006, premiums for employer-sponsored coverage rose 87 percent, about four times as fast as workers’ earnings, according to the Kaiser Family Foundation.
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The President’s Risky Health Plan
New York Times Editorial
January 26, 2007

The new health care proposals announced by President Bush this week purport to tackle the two toughest problems confronting the American health care system: the rising number of uninsured Americans and the escalating costs of
medical care.

But on both counts, they fall miles short of what is needed to fix a system where — scandalously — 47 million Americans go without health insurance.

The financial sinkhole in Iraq and huge tax cuts for wealthy Americans have left the administration with no money to really address the problem. To keep the program “revenue neutral,” Mr. Bush would instead use tax subsidies to
encourage more people to buy their own health insurance, while imposing additional taxes on people who have what Mr. Bush deems “gold plated” insurance.

It is a formula that would do little to reduce the number of uninsured Americans and would have a high risk of producing pernicious results. Even White House officials acknowledged earlier this week that they expected the number of uninsured to drop by only three million to five million people as a result of Mr. Bush’s proposals. They expect the states to take on most of the burden.

One enlightened element is that the plan would provide equal tax treatment to those who bought their insurance policies on the individual market and those who got coverage through group policies at work, thus ending a longstanding inequity that favors employer-based policies. To level the playing field, the administration proposes to grant everyone who gets qualifying health insurance a standard deduction — $15,000 for family coverage or $7,500 for single coverage — off their income subject to taxation. Those with family policies exceeding $15,000 in value would have to pay taxes on the excess amount.

After the proposed starting date in 2009, the administration estimates, about 80 percent of workers with employer-provided policies would pay lower taxes and 20 percent would pay higher taxes, unless they reduced the value of their health coverage to fit within the standard deduction.

The new standard deduction would almost certainly entice some people to buy health insurance who had previously elected not to. But a tax deduction is of little value to people so poor that they pay little or no income tax. And unfortunately, it is those people who account for the vast majority of the nation’s uninsured.

Instead of trying to fix that fundamental flaw, the administration has decided instead to buck it to the states. The White House has offered few details. But its idea is to allow states to redirect federal money that now helps to finance hospitals that provide charity care and use it instead to subsidize health insurance for the poor.

In an ideal world, it would make good sense to insure people in advance rather than wait for them to show up in a high-cost emergency room. But this plan could quickly cripple the safety-net hospitals. Fortunately, no governor would have to accept the offer to redirect funds. The scheme is mostly a reflection of how the administration is unwilling to accept true responsibility for the uninsured.

If the administration really wanted to help low-income people, it would have proposed a refundable tax credit that would have the same dollar value for everyone — instead of a tax deduction, which primarily helps people in high tax brackets. Even those who do not pay taxes would get a check for the dollar value of the credit, providing them at least some money to help pay for health insurance. Congress ought to recognize that credits are the better approach for even such a limited plan.

As for the tax increases on those “gold plated” health policies, the White House is hoping to discourage people from using high-priced comprehensive health policies that cover everything from routine office visits to costly diagnostic procedures that are not always necessary.

The administration’s goal is to instead encourage people to take out policies that might reduce the use of medical services, like policies with high deductibles or co-payments, or managed care plans. But even “copper plated” policies can exceed $15,000 in cost if they are issued in areas where medical prices are high or to groups with high numbers of older or chronically ill workers.

The whole approach rests on the premise that comprehensive prepaid health policies are a major factor in driving up costs; the theory is that people will tend to use services if they are covered. There is probably some truth in that.

But the main drivers in rising health costs are the costly services, high-priced drugs and hospitalizations for people who are seriously ill with catastrophic diseases or multiple chronic illnesses. Making their health coverage less generous would simply make it harder for them to get the care they need.

The greatest risk in the president’s proposal is that it would seem likely to lead many small- and medium-size employers to stop offering health benefits altogether on the theory that their workers could buy affordable insurance on their own. That would leave many more Americans at the mercy of the dysfunctional individual policy market, where administrative costs are high and insurers strive to avoid covering people who are apt to become sick and need costly care.

For all its fanfare, Mr. Bush’s plan would be unlikely to reduce the ranks of the uninsured very much. And if things went badly, it could actually increase their numbers. That’s not the answer Americans are waiting for and not what they deserve.

Milt Freudenheim
With Health Care Topic A, Some Sketches for a Solution
New York Times
January 25, 2007

Start with the children and work up from there. For corporate America and Washington policy experts, that seems to be the emerging consensus about how to begin tackling the problem of the 47 million people in this country without health insurance: Start with the more than 8 million uninsured children.

Then maybe add four million college students who do not have insurance but might not cost all that much to cover because they tend to be young and healthy.

Next might come the 1.4 million or so uninsured people in households with total income at least $75,000, who are perhaps in a position to purchase insurance — if insurance became mandatory and if a market for affordable personal policies was created.

Those are among the ideas arising from corporate America as change in the nation’s health insurance system seems increasingly to become a political imperative.

Employers, much of the glue holding the nation’s piecemeal health care system together for half a century, have been reluctant to agree to a larger government role in medical coverage. But straining under runaway costs for providing health insurance — partly because of the costs imposed on the medical system by people with no insurance at all — many executives and their representatives see the time as ripe for starting to overhaul the system.

“There is more frustration and less acceptance of the current system among employers than we have ever seen in my 30 years in this field,” said Helen Darling, president of the National Business Group on Health, an organization made up of large companies.

As a starting point, many employers and health care industry executives are pushing for expansion of the federal-state Children’s Health Insurance Program, which covers children from families with incomes too high for Medicaid.

Increasing the funds and expanding eligibility, business leaders say, would be an important start — not only in providing better care for the children, but in reducing the expensive visits to hospital emergency rooms that end up as higher costs for employers who pay for health care for the majority of American workers and their families.

The program, which depends on federal funds with matching grants from states, is up for renewal in Congress this year. The federal contribution is currently $5 billion a year. With the budget deficit a contentious matter, it will not be easy to enact that or any other new spending measure.

But the head of another representative of large corporations said that not taking action was no longer an option for American companies as they compete with foreign businesses whose governments shouldered medical and hospital costs.

“Health costs are the single largest cost pressure that employers face — far exceeding energy, labor, material, even litigation,” said John J. Castellani, president of the Business Roundtable, an association of 165 of the largest companies.

The national grocery chain Safeway, for example, says the $1 billion it spent on employee health care last year exceeded its net income. By next year, that will be true for most large businesses, according to Safeway’s chairman and chief executive, Steven A. Burd, who cited a McKinsey & Company study.

The November election results sent a message that voters want the government to address personal concerns like access to good health care, Mr. Castellani of the Business Roundtable said.

President Bush proposed his own approach in the State of the Union address on Tuesday night, though some Congressional Democrats are deriding it, saying it has no chance of passage.

But Democrats are pushing for new powers for Medicare to have a role in drug pricing, for example. And California has joined the states that are experimenting with mandatory health insurance for individuals and employers as a way to address the problems of the uninsured.

Mr. Burd, whose company is based in California, has urged his counterparts to support Gov. Arnold Schwarzenegger ’s proposal for requiring universal coverage of individuals who can afford it, while providing subsidies for low-income people to purchase policies.

Such requirements would mean creating a market for individual health policies that would resemble the market for car insurance, Mr. Burd said.

WellPoint , the largest health insurer, said it had been signing up about 380,000 previously uninsured people annually by devising new types of lower-price policies.

Jude Thompson, a senior vice president, said the company had made a target of the 18-to-34-year-old group — sometimes called “young invincibles” — attracting them with reduced premiums that are offset by higher annual deductibles of $1,500, and throwing in vision and dental benefits.

The insurance industry has both short- and long-term reasons for wanting market-based approaches to succeed, said Charles Boorady, a health care analyst at Citigroup . Short term, they get more customers. But in the longer run, “their biggest risk is nationalized health care.”

The government already accounts for 40 percent of total health spending — $1.99 trillion in 2005, Mr. Boorady said. “The decision on should we nationalize all of it will be heavily influenced by the outcome of some of these state universal health plans,” he said.

Jack O. Bovender, chief executive of HCA , the hospital company, said that a patchwork of state plans would not work. For one thing, he said, state regulation of health care financing had often been overturned by lawsuits filed under the federal Employee Retirement Income Security Act, which the courts have said was intended to let big companies set up uniform health benefits across the country, rather than navigate state-by-state requirements.

“Ultimately there has to be a federal solution,” Mr. Bovender said. But he cautioned, “I think we need to move quickly but not grab at what appear to be quick easy fixes; things that sound good always have unintended consequences.”

Some business executives said they were reluctant to prescribe solutions. “We certainly don’t have it all figured out,” H. Lee Scott, chief executive of Wal-Mart Stores , said in a statement. The company is the nation’s largest employer.

“We have said all along that it is going to take businesses working with leaders in government, the health care industry and others to come up with health care solutions,” Mr. Scott added.

Charles N. Kahn III, a longtime strategist in the Washington health policy wars, said that the chances for government action were now unusually bright.

But even with a growing political will to tackle the problem, Mr. Kahn, who is president of the Federation of American Hospitals, is not expecting the complicated problems in the health care system to be solved quickly. He cautioned that federal budget deficits made it “hard to visualize major health reform before the 2008 elections.”

Paul Krugman
Gold-Plated Indifference
New York Times
January 22, 2007

President Bush’s Saturday radio address was devoted to health care, and officials have put out the word that the subject will be a major theme in tomorrow’s State of the Union address. Mr. Bush’s proposal won’t go anywhere. But it’s still worth looking at his remarks, because of what they say about him and his advisers.

On the radio, Mr. Bush suggested that we should “treat health insurance more like home ownership.” He went on to say that “the current tax code encourages home ownership by allowing you to deduct the interest on your mortgage from your taxes. We can reform the tax code, so that it provides a similar incentive for you to buy health insurance.”

Wow. Those are the words of someone with no sense of what it’s like to be uninsured.

Going without health insurance isn’t like deciding to rent an apartment instead of buying a house. It’s a terrifying experience, which most people endure only if they have no alternative. The uninsured don’t need an “incentive” to buy insurance; they need something that makes getting insurance possible.

Most people without health insurance have low incomes, and just can’t afford the premiums. And making premiums tax-deductible is almost worthless to workers whose income puts them in a low tax bracket.

Of those uninsured who aren’t low-income, many can’t get coverage because of pre-existing conditions — everything from diabetes to a long-ago case of jock itch. Again, tax deductions won’t solve their problem.

The only people the Bush plan might move out of the ranks of the uninsured are the people we’re least concerned about — affluent, healthy Americans who choose voluntarily not to be insured. At most, the Bush plan might induce some of those people to buy insurance, while in the process — whaddya know — giving many other high-income individuals yet another tax break.

While proposing this high-end tax break, Mr. Bush is also proposing a tax increase — not on the wealthy, but on workers who, he thinks, have too much health insurance. The tax code, he said, “unwisely encourages workers to choose overly expensive, gold-plated plans. The result is that insurance premiums rise, and many Americans cannot afford the coverage they need.”

Again, wow. No economic analysis I’m aware of says that when Peter chooses a good health plan, he raises Paul’s premiums. And look at the condescension. Will all those who think they have “gold plated” health coverage please raise their hands?

According to press reports, the actual plan is to penalize workers with relatively generous insurance coverage. Just to be clear, we’re not talking about the wealthy; we’re talking about ordinary workers who have managed to negotiate better-than-average health plans.

What’s driving all this is the theory, popular in conservative circles but utterly at odds with the evidence, that the big problem with U.S. health care is that people have too much insurance — that there would be large cost savings if people were forced to pay more of their medical expenses out of pocket.

The administration also believes, for some reason, that people should be pushed out of employment-based health insurance — admittedly a deeply flawed system — into the individual insurance market, which is a disaster on all fronts. Insurance companies try to avoid selling policies to people who are likely to use them, so a large fraction of premiums in the individual market goes not to paying medical bills but to bureaucracies dedicated to weeding out “high risk” applicants — and keeping them uninsured.

I’m somewhat skeptical about health care plans, like that proposed by Gov. Arnold Schwarzenegger, that propose covering gaps in the health insurance market with a series of patches, such as requiring that insurers offer policies to everyone at the same rate. But at least the authors of these plans are trying to help those most in need, and recognize that the market needs fixing.

Mr. Bush, on the other hand, is still peddling the fantasy that the free market, with a little help from tax cuts, solves all problems.

What’s really striking about Mr. Bush’s remarks, however, is the tone. The stuff about providing “incentives” to buy insurance, the sneering description of good coverage as “gold plated,” is right-wing think-tank jargon. In the past Mr. Bush’s speechwriters might have found less offensive language; now, they’re not even trying to hide his fundamental indifference to the plight of less-fortunate Americans.
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The Clinic is Open
New York Times Editorial
January 22, 2007

Companies are proving that when it comes to health care, you can re-teach old dogs an old trick. On-site health clinics in the workplace, which had been disappearing since their peak in the 1970s, are staging a comeback. Corporations are waking up to the fact that healthy employees are more productive, while sick workers are a drag on the bottom line. And they’re trying to do something about it.

The sky-high cost of health care in the United States isn’t just a challenge for the families that struggle to pay rising premiums and co-payments. It’s also a serious issue for American companies, whose competitors in other countries often benefit from national health insurance programs.

As Milt Freudenheim reported recently in The Times, some big American-based companies have rediscovered that it’s cheaper in the long run to spend a little more on in-house health clinics. Companies from the Pepsi Bottling Group to Credit Suisse have opened or expanded their clinics. More than a quarter of the nation’s 1,000 largest employers will likely offer some kind of on-site health services by the end of the year.

For employees, a clinic is a major time saver, convenient and cheap (or even free). For companies, spending a relatively small amount of money on early detection and basic preventive care can save on expensive hospital bills down the line. It’s an interesting stopgap solution, provided companies do not abuse their knowledge of employee medical conditions and remain focused on the long-term health of their workers, instead of just steering them away from expensive procedures.

Innovative as they are, office and factory infirmaries will hardly solve the nation’s entrenched health care crisis.

Total health spending reached nearly $2 trillion in 2005, accounting for 16 percent of the economy. It is a bit scary that the 6.9 percent increase in health spending that year — rather than a cause for alarm — is celebrated as the slowest pace of increase in six years. There are 47 million uninsured people in this country. State governments, like those in Massachusetts and California, are trying to chip away at the problem and business groups are lobbying in Washington for help with out-of-control costs.

While it is a welcome sign that businesses and states are trying to come up with answers, health care is a national issue that requires a comprehensive solution.

Paul Krugman
First, Do Less Harm
New York Times
January 5, 2007

Universal health care, much as we need it, won't happen until there's a change of management in the White House. In the meantime, however, Congress can take an important step toward making our health care system less wasteful, by fixing the Medicare Middleman Multiplication Act of 2003.

Officially, of course, it was the Medicare Modernization Act. But as we learned during the debate over Social Security, in Bushspeak "modernize" is a synonym for "privatize." And one of the main features of the legislation was an effort to bring private-sector fragmentation and inefficiency to one of America's most important public programs.

The process actually started in the 1990s, when Medicare began allowing recipients to replace traditional Medicare - in which the government pays doctors and hospitals - with private managed-care plans, in which the government pays a fee to an H.M.O. The magic of the marketplace was supposed
to cut Medicare's costs.

The plan backfired. H.M.O.'s received fees reflecting the medical costs of the average Medicare recipient, but to maximize profits they selectively enrolled only healthier seniors, leaving sicker, more expensive people in traditional Medicare. Once Medicare became aware of this cream-skimming and started adjusting payments to reflect beneficiaries' health, the H.M.O.'s began dropping out: their extra layer of bureaucracy meant that they had higher costs than traditional Medicare and couldn't compete on a financially fair basis.

That should have been the end of the story. But for the Bush administration and its Congressional allies, privatization isn't a way to deliver better government services - it's an end in itself. So the 2003 legislation increased payments to Medicare-supported H.M.O.'s, which were renamed Medicare Advantage plans. These plans are now heavily subsidized.

According to the Medicare Payment Advisory Commission, an independent federal body that advises Congress on Medicare issues, Medicare Advantage now costs 11 percent more per beneficiary than traditional Medicare. According to the Commonwealth Fund, which has a similar estimate of the excess cost, the subsidy to private H.M.O.'s cost Medicare $5.4 billion in 2005.

The inability of private middlemen to win a fair competition against traditional Medicare was embarrassing to those who sing the praises of privatization. Maybe that's why the Bush administration made sure that there is no competition at all in Part D, the drug program. There's no traditional Medicare version of Part D, in which the government pays drug costs
directly. Instead, the elderly must get coverage from a private insurance company, which then receives a government subsidy.

As a result, Part D is highly confusing. It's also needlessly expensive, for two reasons: the insurance companies add an extra layer of bureaucracy, and they have limited ability to bargain with drug companies for lower prices (and Medicare is prohibited from bargaining on their behalf). One indicator of how much Medicare is overspending is the sharp rise in prices paid by millions of low-income seniors whose drug coverage has been switched from Medicaid, which doesn't rely on middlemen and does bargain over prices, to the new Medicare program.

The costs imposed on Medicare by gratuitous privatization are almost certainly higher than the cost of providing health insurance to the eight million children in the United States who lack coverage. But recent news analyses have suggested that Democrats may not be able to guarantee coverage to all children because this would conflict with their pledge to be fiscally responsible. Isn't it strange how fiscal responsibility is a big concern when Congress is trying to help children, but a nonissue when Congress is subsidizing drug and insurance companies?

What should Congress do? The new Democratic majority is poised to reduce drug prices by allowing - and, probably, requiring - Medicare to negotiate prices on behalf of the private drug plans. But it should go further, and force Medicare to offer direct drug coverage that competes on a financially fair basis with the private plans. And it should end the subsidy to Medicare Advantage, forcing H.M.O.'s to engage in fair competition with traditional Medicare.

Conservatives will fight fiercely against these moves. They say they believe in competition - but they're against competition that might show the public sector doing a better job than the private sector. Progressives should support these moves for the same reason. Ending the subsidies to middlemen, in addition to saving a lot of money, would point the way to broader health care reform.

 

Lisa Girion
Health insurers deny policies in some jobs
Common medications also can be deemed too risky in California.
Los Angeles Times
January 8, 2007

Health insurers in California refuse to sell individual coverage to people simply because of their occupations or use of certain medicines, according to documents obtained by The Times.

Entire categories of workers — including roofers, pro athletes, dockworkers, migrant workers and firefighters — are turned down for insurance even if they are in good health and can afford coverage, according to the confidential underwriting guidelines of four health plans.

Although Blue Cross of California, the state's top seller of individual policies, does not exclude applicants based on occupation, three others do: Blue Shield of California, PacifiCare Health Systems Inc. and Health Net Inc. Actuarially speaking, they say, certain workers pose too big a risk.

All four health plans look at prescription drug use to decide to whom they will sell individual policies. Dozens of widely prescribed medications — including Allegra, Celebrex and Prevacid — may lead to rejection, according to the underwriting guidelines that the health plans provide to insurance brokers but not to the public.

In fact, eight of the 20 top-selling prescription drugs in the U.S., including No. 1 Lipitor, a cholesterol fighter that racked up $12.9 billion in global sales in 2005, make the lists of two health plans.

Such restrictions are legal in California, and state regulators have no authority to stop them. Health plans defend their restrictions as necessary to keep premiums down.

"This is something that has been actuarially determined to keep insurance affordable for a very, very broad range of people," said David Olson, a spokesman for Woodland Hills-based Health Net.

But at a time when Gov. Arnold Schwarzenegger and state lawmakers are seeking ways to expand coverage to many of the 6.6 million uninsured Californians, consumer advocates said such policies were too restrictive.

"This isn't cherry picking; this is ignoring whole orchards of people," said Jamie Court, president of the Foundation for Consumer and Taxpayer Rights.

Underwriting in question

At issue is individual insurance, the type of coverage purchased by people who do not have job-based group health benefits. Unlike group coverage, individual insurance is granted case by case, meaning in effect that health plans are free to choose whom to cover and what to charge them.

The broker guidelines shed new light on the array of considerations that go into those decisions. It had not been widely known outside the industry that occupation and a list of prescription drugs were key determinants in who gets health insurance and who does not — regardless of an applicant's willingness to pay.

As employers cut back on health benefits, many policymakers view individual coverage as an increasingly important part of the mix. Some states already promote individual coverage by requiring insurers to offer it to all comers through what are known as guarantee-issue laws.

Schwarzenegger, poised to unveil his proposal for expanding coverage today, has not said what role, if any, individual insurance might play in that effort.

"Everything is on the table," said Sabrina Lockhart, a spokeswoman for the governor. "And the governor recognizes healthcare reform is complicated."

Schwarzenegger has said he favors requiring individuals to obtain health insurance in the same way drivers must carry automobile coverage. People familiar with the development of his ideas say he also seems to understand that such a mandate wouldn't work if insurers were allowed to exclude all but the healthiest customers.

Still, the governor also sees affordability as key to expanding coverage, but insurers say loosening their underwriting policies would only drive prices up.

Studies show "guaranteed issue can price people out of the market, and, as public policy, it achieves the opposite goal of getting more people insured," said Shannon Troughton, a spokeswoman for WellPoint Inc., the Indianapolis-based parent company of Blue Cross of California.

One health plan believes that private insurers ought to share the risk and that selective underwriting ought to be abolished.

"We think it's a bad system," said David Seldin, a spokesman for Blue Shield of California, a nonprofit health plan that favors universal coverage but nonetheless currently underwrites based on medical condition, prescription use and occupation.

"We operate the same way as everybody else in the marketplace does, using the same actuarial data that everyone else in the marketplace does, because it's the only way to remain economically viable," he said. "But we would really like to see the system changed."

The Times was unable to obtain the underwriting guidelines of Kaiser Foundation Health Plans Inc., the state's largest health maintenance organization, but those familiar with its practices say the guidelines are at least as restrictive as those of other health plans.

Some state lawmakers and consumer advocates say the health plans' confidential underwriting documents help explain why the ranks of the uninsured have expanded over the last decade.

Health plans are engaging in a form of redlining, said state Sen. Sheila Kuehl (D-Santa Monica), who last week became chairwoman of the Senate Health Committee. She was referring to the now-banned practice by home and auto insurers of refusing customers based on where they live.

"We've seen that in every area of insurance; the companies engage in redlining unless we pass a law that says they can't do that," Kuehl said. "So it's not surprising at all that health insurance companies who have been showing very healthy profits have engaged in very serious risk avoidance."

Kuehl said she planned to reintroduce her bill, vetoed by Schwarzenegger last session, that calls for universal coverage in a so-called single-payer system under which one entity — a government-run organization — would collect all healthcare fees and manage all healthcare claims.

Senate President Pro Tem Don Perata (D-Oakland) has proposed a bill that would extend coverage by creating a purchasing pool that would require participating plans to offer coverage to people with preexisting conditions or who are priced out of the market.

"The current system is broken and getting worse," Perata said. "Instead of competing on the basis of cost and quality, we're seeing health insurers denying coverage to the people who need it the most. This is scandalous."

Screening out risk

The health plans' underwriting guidelines are designed to help their commissioned sales agents find the right clients for their products. The documents range from a few pages to more than 50.

They all have tables that run several pages long outlining the probable decision — accept, accept with a premium surcharge or decline — for scores of conditions, from acne to varicose veins, with caveats for severity and other factors. All include a height and weight table. The under- and overweight need not apply.

Blue Cross, the only health plan of the four that does not make decisions based on occupation, declined to say why.

Blue Shield considers occupation only in applications for its short-term, nonrenewable health coverage sold for periods of a few months or less and aimed at people between jobs or in some other transition. Ineligible occupations include workers in heavy construction, iron and steel workers, telecommunications installers and furniture makers.

PacifiCare and HealthNet include pyrotechnicians, crop dusters and stunt pilots on their lists of occupations that are ineligible for individual coverage. PacifiCare's no-sell list also includes police officers and firefighters.

The problem with adding even one high-risk member to an insurance plan is that the costs go up for everybody, said Tyler Mason, a spokesman for PacifiCare, a division of Minneapolis-based UnitedHealth Group Inc. "It's the whole risk-pool thing, and one affecting the hundreds."

Though many firefighters are covered through their jobs, thousands are volunteers and many work as ranchers, farmers and small-business operators. Some of them have had a hard time finding affordable coverage, said Richard Reed, who is on the board of the California State Firefighters' Assn.

Reed said he was surprised to learn that denying them coverage was a written policy.

Workers' compensation would cover firefighting-related injuries, such as a hernia from carrying someone out of a burning building, he said. Beyond that type of condition, he said, he couldn't understand how a firefighter posed a bigger risk than someone else.

"I'd really be curious to see what the grounds are, why they are denying them," Reed said. "What's the rationale that someone is doing a community service and gets nothing for doing it?"

The health plans' actuarial determinations are not always the same. In the case of firefighters, PacifiCare lists them as ineligible, but HealthNet recently agreed to sell them coverage through the state firefighters association.

"This is one of the features of our polyglot system of health insurance," Health Net's Olson said. Health plans "have different approaches. Our view would be that's a good thing."

Prescription medications used by millions of people also are a potential stumbling block. All of the health plans' guidelines warn brokers that prescription drug use could render an individual uninsurable, and some of the plans list about four dozen problematic medications by brand name.

In some cases, individuals are denied coverage because a drug they are using costs more than the premium an insurer charges for the coverage.

In other cases, a prescription medication — and even the dosage and length of use — are clues for underwriters on the nature, persistence and severity of an underlying condition that could result in more-expensive treatment, such as hospitalization. And in other cases, the potential side effects of the drugs themselves are more risk than the insurers are willing to take on.

Patt Morrison
Insurance is enough to make you sick; Private health insurance is a drag on the economy the government must fix.
Los Angeles Times
January 4, 2007

IT'S A GOOD thing I have health insurance, because I thought my ticker was going to give out when I read this: Health insurance companies will not sell policies, at any price, to hale and healthy people who have, or had, some pretty trifling ailments. Hemorrhoids. Varicose veins.

A woman who'd gone to a psychologist after breaking up with her honey was denied. So was a guy with jock itch, and a 40-year-old man with asthma.

Lisa Girion's front-page Times article the last day of 2006 leaped off the page and grabbed me by the throat, which is pretty much what health insurers are doing to millions of Americans — strangling them. If they don't work for a company with health benefits and they want individual health policies, they pay huge premiums for skimpy benefits, if they can get a policy at all. For health insurers, it's a seller's market, and they ain't selling.

Congress and the state Legislature settle down to business this week, and that business had better include some solution, finally, for the healthcare crisis. We aren't dumb enough today to fall for the boogeyman phrase "socialized medicine" that's been used to scare the public for decades. In the first Times article I found using that phrase, in June 1934, the American Medical Assn. told "advocates of socialized medicine" to keep their hands off the system. (At the same time, the AMA condemned free hospital care for veterans but refused to condemn free medical care for "Cabinet members, congressmen, senators, their families and their servants.")

Business, which has a firm grip on the legislative joystick, hits the panic button at talk of single-payer healthcare or universal healthcare, and it hauls out its own boogeyman phrases, such as "job-killer" and "drag on the economy."

I'll tell you what's a drag on the economy. Healthcare insurance that's impossibly expensive, or impossible to get. If the United States wants a vital economy of personal enterprise and risk-taking, then it needs to guarantee health coverage, period. Americans are willing to take chances in business and careers, but not with their families' health, or their own.

Dan Luke is an Oregon insurance broker. He told me that he runs into this "all the time — people staying in jobs they don't like. People have dreams about going into business for themselves that they can't fulfill because they don't want to lose medical coverage, and they can't pay a lot of money for [individual policies] even if they are healthy."

I gave him a professional for instance: Say there's a man who wants to switch careers, start something on his own. He's 59, married, four kids, comes to you for health insurance. He smokes cigars. ("Mmmmm," I heard Luke say.) And he had heart-valve surgery almost 10 years ago.

Luke stopped me right there. The man would never get coverage. I didn't even get to ask Luke about the risk factors of riding motorcycles and skiing.

My "for instance" is Arnold Schwarzenegger. If the governor weren't a rich man, if he were just a guy with a bold idea who wanted to give it a shot, as Schwarzenegger did when he abandoned acting for governing, he couldn't get health insurance. He'd be stuck in his old job instead of bringing something new to the economy and to his life.

A 2004 health industry survey Girion cited said 12% of applicants for individual policies were turned down. Luke believes it's closer to 40%. "I can't think of any other business," he said, "where people have money in their hand to buy a product, and you can't sell it to them."

Girion's story generated e-mail from people such as Shari, a consultant in Ventura County who couldn't get an individual policy. She's not taking meds, has no health problems, but she did have bunion surgery once. She can only guess that's the reason she couldn't get insurance because, like the FAA's "no-fly" list, the insurance companies told her no but refused to tell her why.

When Jennifer, in Santa Barbara, wanted to start her own bookkeeping business, she checked on whether she could get healthcare coverage. She has a tendency to get benign ovarian cysts, but that's her only health issue. She found out nobody would cover her — unless she'd have a hysterectomy. She stayed at her old job.

This year, the state will spend about $10 billion on healthcare for the 6 million or so uninsured Californians. And what's the worst-case state budget deficit predicted for the coming years? About $10 billion. Some coincidence. The uninsured are nobody's bargain. Businesses, individuals — we all pay, one way or another.

Schwarzenegger — on crutches because of his broken leg — gives his State of the State speech Tuesday. In October, at a meeting at The Times, I asked him what he'd do in a new term, and what he said then is what, it turns out, he'll be promoting next week: "Find a way of providing healthcare for the people of California." Now, with screws and cables holding his leg together, he can contemplate the pickle he'd be in if he were just Arnie S., a desk jockey dreaming of making something more of himself — and uninsurable at any price.

Paul Krugman
A Healthy New Year
The New York Times
January 1, 2007  

The U. S. health care system is a scandal and a disgrace. But maybe, just maybe, 2007 will be the year we start the move toward universal coverage.

 In 2005, almost 47 million Americans  — including more than 8 million children — were uninsured, and many more had inadequate insurance.

Apologists for our system try to minimize the significance of these numbers. Many of the uninsured, asserted the 2004 Economic Report of the President, “remain uninsured as a matter of choice.”

And then you wake up. A scathing article in yesterday’s Los Angeles Times described how insurers refuse to cover anyone with even the slightest hint of a pre-existing condition. People have been denied insurance for reasons that range from childhood asthma to a “past bout of jock itch.”

Some say that we can’t afford universal health care, even though every year lack of insurance plunges millions of Americans into severe financial distress and sends thousands to an early grave. But every other advanced country somehow manages to provide all its citizens with essential care. The only reason universal coverage seems hard to achieve here is the spectacular inefficiency of the U.S. health care system.

Americans spend more on health care per person than anyone else — almost twice as much as the French, whose medical care is among the best in the world. Yet we have the highest infant mortality and close to the lowest life expectancy of any wealthy nation. How do we do it?

Part of the answer is that our fragmented system has much higher administrative costs than the straightforward government insurance systems prevalent in the rest of the advanced world. As Anna Bernasek pointed out in yesterday’s New York Times, besides the overhead of private insurance companies, “there’s an enormous amount of paperwork required of American doctors and hospitals that simply doesn’t exist in countries like Canada or Britain.”

In addition, insurers often refuse to pay for preventive care, even though such care saves a lot of money in the long run, because those long-run savings won’t necessarily redound to their benefit. And the fragmentation of the American system explains why we lag far behind other nations in the use of electronic medical records, which both reduce costs and save lives by preventing many medical errors.

The truth is that we can afford to cover the uninsured. What we can’t afford is to keep going without a universal health care system.

If it were up to me, we’d have a Medicare-like system for everyone, paid for by a dedicated tax that for most people would be less than they or their employers currently pay in insurance premiums. This would, at a stroke, cover the uninsured, greatly reduce administrative costs and make it much easier to work on preventive care.

Such a system would leave people with the right to choose their own doctors, and with other choices as well: Medicare currently lets people apply their benefits to H.M.O.’s run by private insurance companies, and there’s no reason why similar options shouldn’t be available in a system of Medicare for all. But everyone would be in the system, one way or another.

Can we get there from here? Health care reform is in the air. Democrats in Congress are talking about providing health insurance to all children. John Edwards began his presidential campaign with a call for universal health care.

And there’s real action at the state level. Inspired by the Massachusetts plan to cover all its uninsured residents, politicians in other states are talking about adopting similar plans. Senator Ron Wyden of Oregon has introduced a Massachusetts-type plan for the nation as a whole.

But now is the time to warn against plans that try to cover the uninsured without taking on the fundamental sources of our health system’s inefficiency. What’s wrong with both the Massachusetts plan and Senator Wyden’s plan is that they don’t operate like Medicare; instead, they funnel the money through private insurance companies.

Everyone knows why: would-be reformers are trying to avoid too strong a backlash from the insurance industry and other players who profit from our current system’s irrationality.

But look at what happened to Bill Clinton. He rejected a single-payer approach, even though he understood its merits, in favor of a complex plan that was supposed to co-opt private insurance companies by giving them a largely gratuitous role. And the reward for this “pragmatism” was that insurance companies went all-out against his plan anyway, with the notorious “Harry and Louise” ads that, yes, mocked the plan’s complexity.

Now we have another chance for fundamental health care reform. Let’s not blow that chance with a pre-emptive surrender to the special interests.

Anna Bernasek
Health care Problem? Check the American Psyche
The New York Times Business Section
December 31, 2006

WHAT is the most pressing problem facing the economy? A good case can be made for the developing health care crisis. Soaring costs, growing ranks of uninsured and a steady erosion of corporate health benefits add up to a
giant drag on the nation’s future prosperity.

While the outlook seems scary, it doesn’t have to be. There is a solution, proven effective for hundreds of millions of people: single-payer health insurance.
 
Yes, single-payer — that much-maligned idea that calls for everyone to pay into one insurer, typically the government or a public agency. The insurer then pays doctors, pharmacists and hospitals at preset rates. Patients who want unapproved procedures and doctors not willing to accept the standard payment remain free to deal with one another directly, outside the system. Such a system makes it much easier to deal with the growing costs of medical care, like administrative expenses and prescription drugs. It could also reduce the mountains of paperwork plaguing the current system and provide insurance coverage for the 46 million Americans now doing without it.
 
What’s more, as demonstrated in France, Britain, Canada, Australia and other countries with functioning single-payer systems, significant savings can come without hurting the overall health of the population.
 
There’s only one catch. Most Americans just don’t believe it can be done. The health care crisis may turn out to be more of a problem of ideology than economics.
 
The economic case for a single-payer system is surprisingly strong. Start with what we already know. Countries with single-payer systems have long records of spending less on health care than the United States does. The United States spent an average of $6,102 a person on it in 2004, according to the Organization for Economic Cooperation and Development, while Canada spent $3,165 a person, France $3,159, Australia $3,120 and Britain just $2,508.
 
At the same time, life expectancy in the United States, a broad measure of health, was slightly lower than it was in those other countries in 2004, the latest year for which complete figures are available. And the United States had a higher rate of infant mortality.
 
To be sure, a single-payer system has plenty of critics. Unattractive features of some such systems, including waiting lists for particular types of care, are often highlighted by skeptics. But supporters note that the overall health of people fares well in those countries.
 
“The story never changes,” said Gerard F. Anderson, a professor at the Johns Hopkins Bloomberg School of Public Health. “The United States is twice as expensive with about the same outcome.“As a consumer, I don’t mind paying more if I’m getting more, but that’s just not the case in the U.S.,” said Professor Anderson, who publishes an annual review comparing the American health care system with those of its peers.
 
What may be less well known is the level of administrative waste in the United States health care system, versus that of well-designed systems elsewhere. Although Americans tend to equate efficiency with private enterprise, that’s not the case with the current system.
 
The American system, based on multiple insurers, builds in more unnecessary costs. Duplicate processing of claims, large numbers of insurance products, complicated bill-paying systems and high marketing costs add up to huge administrative expenses.
 
Then there’s an enormous amount of paperwork required of American doctors and hospitals that simply doesn’t exist in countries like Canada or Britain.
 
“There’s little disagreement among economists today that a single-payer system would lead to lower administrative costs,” said Len Nichols, a health economist with the New America Foundation, a policy research organization in
Washington. But he said that estimates varied widely over how big the savings could be.
 
One of the first major studies to quantify administrative costs in the United States was published in August 2003 in The New England Journal of Medicine by three Harvard researchers, Steffie Woolhandler, Terry Campbell and David U. Himmelstein. It concluded that such costs accounted for 31 percent of all health care expenditures in the United States.
 
More recently, in 2005, a study by the Lewin Group, a health care consulting firm commissioned to examine a proposal to provide universal health coverage in California, estimated that administrative costs consumed 20 percent of total health care expenditures nationwide.
 
Then there’s the test of time. Health care costs tend to rise over time as new technology and procedures are introduced. Yet here, too, government-funded systems appear to help contain long-term costs.
 
Consider Canada’s system. Professor Anderson points out that in the 1960s, Canada and the United States spent roughly the same per person on health care. Some three decades later, though, Canada spent half as much as America. How did Canada manage this? By controlling the use of medical equipment and hospital resources, which statistics show has helped Canadians keep a lid on costs without measurably compromising the overall health of the population.
 
Economic studies also show that a government-funded system could reduce costs while providing coverage for everyone. The Lewin report on the proposal to provide universal health coverage in California calculated that if such a system had been operating in 2006, it would have saved $8 billion, or around 4.3 percent of total health spending in the state. From 2006 to 2015, it estimated, savings would total $343 billion. Currently, California spends about $180 billion a year on health care.
 
Despite everything that is known about the economic benefits of a single-payer system, there’s one big stumbling block: many Americans don’t believe in it. They have heard horror stories from abroad, often spread by partisan advocates, focusing on worst-case examples. Such tales play upon the aversion of many Americans to government involvement in the economy.
 
Victor R. Fuchs, an economics professor at Stanford and a specialist in health care economics, explained it this way: “The Canadian system is a nonstarter for the U.S. even though it’s a good system for Canadians. You’re dealing with two very different countries. We were founded on life, liberty and the pursuit of happiness. They were founded on peace, order and good government. It’s a difference of values.”
 
Others in the field echo his skepticism. But that raises questions about how well Americans understand the system they have, and what the alternatives are.
 
JUDGING from other countries, many features that Americans really like — being able to choose their own doctor, for example — would remain available in a well-designed single-payer system. And a single-payer system need not mean government-provided care: it often means government-provided insurance that encourages competition among providers.
 
Much of the resistance to a single-payer system appears to stem from a lack of confidence in the nation’s ability to make positive change. With all of its prowess in research and technology, can’t the United States match the efficiency of other developed nations, or do even better?
 
Changing the minds of so many millions of people isn’t done overnight. But sooner or later, persuading people to do something that’s in their own economic interest ought to succeed.

Lisa Girion
Healthy? Insurers don't buy it: Minor ailments can thwart applicants for individual policies
Los Angeles Times
December 31, 2006

Scott Svonkin joined the Los Angeles County Commission on Insurance 10 years ago because he was concerned about an emerging problem: people losing health coverage. Since then, the ranks of uninsured Americans have swelled to more than 46 million.

Svonkin almost became one of them.

It happened after he left a comfortable government job as a legislative chief of staff to start his own marketing and public affairs consulting business. Late last year he started shopping around for health insurance for himself, his expectant wife and his young daughter.

He knew he'd pay more without an employer picking up most of the tab. And he knew he'd have to fill out a medical questionnaire because, unlike job-based coverage, individual insurance in California is contingent on an applicant's health. But that didn't concern him because, he said, "I'm healthy as a horse, never smoked and have had no major surgery."

As it turned out, Svonkin was rejected by not just one but three of California's biggest health insurers, which cited his history of asthma, among other things.

"I couldn't buy it at any price," said Svonkin, 40, who lives in Sherman Oaks. "I remember thinking, 'This can't be happening to me.' "

Svonkin is part of what experts say is a largely hidden aspect of the nation's health insurance crisis: the uninsurables, people whom insurance companies won't touch, even though they can afford to pay high premiums.

Some, such as Svonkin, pay steep rates for lean coverage from the state's high-risk insurance pool. Others simply go without.

Insurers have wide latitude to choose among applicants for individual coverage and set premiums based on medical conditions. Insurers say medical underwriting, as the selection process is known, is key to keeping premiums under control.

"Our goal is to extend affordable coverage to as many people as we can,"

said Cheryl Randolph, a spokeswoman for PacifiCare Health Systems Inc., a subsidiary of Minneapolis-based UnitedHealth Group Inc. "But because of the medical underwriting, we do not accept everybody."

Selective insurers

Consumer advocates see the practice as cherry-picking ‹ a legal form of discrimination that is no longer tolerated in schools, public accommodations or workplaces ‹ and a way to guarantee profits.

"The idea is to avoid all risk," said Bryan Liang, executive director of the Institute of Health Law Studies at California Western School of Law in San Diego.

Jerry Flanagan, an advocate with the Foundation for Consumer and Taxpayer Rights, said it wouldn't take much to be left out of the private-insurance market. "A minor asthma condition or a surgery 10 years ago that requires no further medical care is enough to get you blacklisted forever," he said.

As a result, some people forgo treatment so as not to tarnish their health records. Others withhold information from doctors or ask them to leave details out of their records. For those who are uninsurable, healthcare often is the chief reason they stay in or take a certain job.

Claudine Swartz enjoyed running her own consulting business but had been rejected for individual insurance. After a scare over a benign cyst in her breast, the San Francisco resident closed her business and got a job with the University of California's health system, where she enjoys guaranteed coverage.

The episode made her realize that without insurance, she would have been on the hook for catastrophic expenses if her diagnosis had been more serious.

"I wasn't willing to take that risk," said Swartz, 35. "It's a real problem for people trying to be entrepreneurial and work on their own."

Uninsurable individuals pose a significant challenge for the state, which expects to spend more than $10 billion this year on people who lack adequate coverage.

Gov. Arnold Schwarzenegger, preparing to announce a proposal for expanding coverage in his State of the State address, has said he favors a mandate on individuals to buy health insurance ‹ just as drivers must carry auto insurance.

Democrats, who control the Legislature, have favored expansion of employment-based insurance and have signaled their opposition to a mandate on individuals.

Consumer advocates say such a mandate is unworkable unless insurers are required to sell coverage to all comers, as they are in several states, including New York and Massachusetts.

No one knows how many Californians are uninsurable. Blue Cross of California, which dominates the market, declined to disclose its rejection rate, as did its chief competitors. A 2004 industry survey found that health plans said they turned away about 12% of all applicants. But the rejection rate rose with age to 30% for people 59 and older.

A consumer survey this year found that 1 in 5 people who applied for individual coverage was turned away or charged a higher premium because of preexisting conditions. Experts say it is hard to know how many of California's more than 6 million uninsured residents are uninsurable because many people with medical problems don't even bother applying in the belief that they would be rejected.

Insurers tread carefully

The industry contends that individual coverage is widely available. But experts say a wave of consolidation has reduced the number of insurers offering individual coverage, leaving a marketplace that shuns all but the ostensibly healthiest consumers.

Insurers say they are picky because they have to be.

Kaiser Permanente's "fairly generous" benefits require that the health maintenance organization be restrictive to remain solvent, spokesman Jim Anderson said. "We have to be very careful to not enroll a bunch of people who are going to spend all the money on their care."

Insurers declined to disclose the underwriting guidelines that lead to rejection or higher premiums. But a review of public records, as well as rejection letters sent to individuals, shows that California carriers turn people away or charge them higher premiums for conditions that range from the catastrophic to the common. Cancer, epilepsy and AIDS make the list, along with breast implants, ear infections, varicose veins and sleep apnea.

Jeffrey Miles, a vice president of the California Assn. of Health Underwriters, a trade group for independent insurance agents, said one of his clients ‹ a 27-year-old woman "in perfect health with absolutely nothing wrong" ‹ was rejected because she had seen a psychologist for three months after breaking up with a boyfriend.

"I call it hangnail underwriting," Miles said. "If a person has taken virtually any medication, they are going to be turned down. If people have had any psychological counseling at any time in recent history, they are going to get turned down."

Swartz, the consultant, said the reason she couldn't get individual coverage was a condition in her records that she may never have actually had. Her physician had diagnosed ulcerative colitis. But after years without additional symptoms, Swartz said, her doctor decided the initial diagnosis was probably wrong.

Consumer advocates say out-of-date, ambiguous and even erroneous medical information can render people uninsurable. Sometimes the reasons can seem absurd. In a letter to an otherwise healthy recent college graduate, for instance, Blue Cross listed among the reasons it denied coverage a past bout of jock itch, "successfully treated with cream."

A last resort for people turned away by the private market is the state's high-risk pool, in which the state assumes the financial risk but pays private insurers to administer coverage. Enrollees spend as much as one-third of their income on monthly premiums that cost as much as $796. Yet annual benefits are capped at $75,000.

Still, demand perennially outstrips the high-risk pool's capacity, which has been reduced over the years as medical costs have risen and funding has remained largely limited to state tobacco tax revenue and enrollee premiums.

Of 32 states with medical high-risk insurance pools, California's is one of the largest, covering 7,800 people.

"The best estimate is it's only serving about 10% of the people who are medically uninsurable," said Beth Capell, an advocate with the consumer group Health Access California.

Most people in the high-risk pool have been rejected by at least one private insurer. Yet many turn out to be a bargain, paying more in premiums than they cost in medical expenses. In fact, 19% of the enrollees submitted no medical claims at all in 2004, the last year figures were available, and about 80% submitted claims for less than the average annual premium.

Good health, poor risk

High-risk enrollees include people like Scott Svonkin, who makes time for at least one tennis match each week. On a Burbank court after more than an hour of play one recent evening, he scrambled for a ball so far out of reach that most people wouldn't have bothered. After the game, Svonkin's fair skin was ruddy and sweat dripped from his forehead, but he was not out of breath.

After suffering from debilitating bouts of asthma as a child, he clearly relishes the ability he now has to exercise. He credits medications that weren't around when he was growing up. But the very drugs that have allowed him to breathe freely for years may also have cost him his health coverage.

When Svonkin left his job, he picked up the premiums on the Blue Shield HMO his former employer had offered and extended his coverage for three years.

That's the maximum allowed under a federal law known as COBRA and a matching state law, both designed to make health insurance portable. A couple of months before that coverage was to expire, he asked Blue Shield to sell him an individual plan just like the one he was on.

But Blue Shield declined to sell him anything like that HMO plan, which included prescription benefits, he said. Instead, the carrier offered him a plan that did not cover medication.

Blue Shield declined to discuss Svonkin's case, citing patient privacy laws, as did the other insurers that subsequently rejected him, Blue Cross and PacifiCare. Although the rejection notices pointed to various problems ‹ "expectant fatherhood" and swelling from a spider bite ‹ all three blamed his history of asthma, a condition that affects more than 4.5 million Californians.

Svonkin was able to enroll his wife, daughter and baby son in a private plan. But with nowhere else to turn, he reluctantly enrolled himself in the state's high-risk pool. In an ironic twist, the pool assigned him to a plan administered by Blue Shield. His premiums are $479 a month ‹ far more than he figures he has cost the plan. The only medical expenses he has submitted in his first year on the plan have been his prescriptions, which retail for about $100 a month.

Blue Shield "wouldn't take me at their risk, but they took me at the state's risk," he said. "The reasons they won't sell me insurance are ludicrous because they can still make a profit providing me with healthcare."

The ordeal has been an object lesson for Svonkin, who is now chairman of the county commission on insurance, an advisory panel to the Board of Supervisors. He uses his post to focus on the problems of the uninsured as well as the uninsurables. The county does not regulate insurers, but its clinics, hospitals and emergency rooms are overflowing with uninsured residents who have nowhere else to turn.

"Insurance companies are offloading sick people onto the county system,"

Svonkin said. "They want a guarantee that they are going to make money.

That's why they won't take sick people. They are missing the whole point about assuming some risk."

lisa.girion@latimes.com