This is what John Castellani, President of Business Roundtable, had to say on the subject:

The creation of a Federal Health Board, if done properly, could be one of the more meaningful acts of health care reform that the 111th Congress undertakes.

One of the important lessons learned from the Massachusetts health care reform experience is that no legislative act could ever hope to fully and finally make all the decisions necessary to govern serious health care reform. Legislative bodies are not fluid or nimble enough to quickly and adequately respond to constantly changing health care needs (and state legislative bodies are MUCH more nimble than federal). In a reform effort like in Massachusetts, if the state legislature were required to meet and pass laws every time that the pressures of cost, quality, and coverage required some kind of decision, the program would still be frozen in its embryonic stage. The Connector and its board (created by state legislative action and endowed with clear responsibilities) was much more nimble and has been able to react, adapt, and improve.

National health care reform will face the same types of real-world challenges faced by Massachusetts, and it makes perfect sense to adopt a similar approach. A Federal Health Board could serve a very effective role in making the decisions that Congress cannot. These will have to do with payment policies, standards for quality, pathways to achieve interoperability and health information exchange, and many others. The data and research on issues like comparative effectiveness are still evolving, and relying on Congress to be the last word on reforms will not work. Nor will totally relying on states or the private sector. Both will have very important roles, but neither is well suited to establish and enforce national standards in any of these areas. Clear federal guidance and leadership is necessary.

While simply giving HHS more power may seem to make sense, it is the wrong approach for several reasons. The first is that HHS already has considerable power over health care, but its institutional silos largely prevent truly thoughtful and creative reforms from happening. Case in point is that CMS, the division within HHS that is responsible for both Medicare and Medicaid, is largely incapable of internal communication and collaboration. One of the biggest, yet little appreciated, embarrassments of the current health care system is the fragmented health care delivery system for dual eligibles. It is well within CMS’ power to change this, and despite repeated and urgent calls to actions from their state partners, it has not. Second, unless this newly empowered HHS were to reach across major departmental jurisdictions and assume influence and control over the departments of Justice, Veterans Affairs, Labor, and others, it will never have enough real power to make the types of important decisions that cross these jurisdictions. For example, in the current administration, progress on the adoption of e-prescribing has hit a logjam as the DEA (housed within the Department of Justice) continues to unrealistically insist that prescriptions for controlled substances be made non-electronically, despite the vehement (and absolutely correct) insistences from HHS that you simply cannot reasonably expect providers to operate parallel systems for prescribing (one paper, and one electronic).

It’s impossible to talk about improving health care today without addressing the 46 million people who lack health care coverage. No one knows better than hospitals that the immediate consequence of no health coverage—poor health—is a major roadblock to better health and better health care. Everyone deserves health care coverage that provides the right care, at the right time, in the right place. Health coverage for all, paid for by all is a shared responsibility. And everyone – individuals, business, insurers and governments – must play a role in both expanding and paying for coverage.

Expanding and improving the current insurance market is part of the foundation of better health in America. With more and more people facing economic challenges, the number of people with no health coverage will continue to rise. Those lucky enough to be insured expect that their coverage will meet their health needs, but are all too often surprised regarding what is covered, under what circumstances and with what out-of-pocket costs. The current market simply isn’t working well enough, leaving too many people without access to even the most basic care.

For hospitals, we also see everyday the effects of insurance paperwork and duplicative processes, which eat up our caregivers’ time and keeps them away from the patient’s bedside. Reforming the insurance industry starts with stakeholders identifying what reform should look like.

We believe that any plan to reform insurance must focus on working better for patients and providers. To reach that goal, health insurance reform must include increased access to care and administrative efficiency of insurance, affordable coverage, elimination of pre-existing condition exclusions, community rating, guaranteed issue, protection against high-cost health events and a continued effort to reduce disparities in care based on race, ethnicity and other characteristics.

Congress has already taken an important first step in reforming and improving health care coverage by passing mental health parity. The industry can also take steps to help reduce the challenges and roadblocks faced by patients and providers by:

1. Making information about insurance products, offerings and prices transparent, easily understandable and readily available to the public;
2. Including coverage for prevention and wellness in all policies;
3. Fully adopting a single uniform bill across insurers;
4. Guaranteeing coverage policies will be issued equally to everyone, and;
5. Working with one another to create coverage portability across plans and employers.

We believe insurance reform through thoughtful steps that build on raising awareness and expanding access to both public coverage and private insurance holds the most promise for success and stand ready to work with all stakeholders to achieve the very best in health for all Americans.

Health plans today proposed guaranteed coverage for pre-existing conditions in conjunction with an individual mandate. We believe that no one should be left out of the health care system because of their health, age, income or employment status. Over the summer, we launched a nationwide listening tour and sat down with Americans across the country to hear their priorities for health care reform. People shared their concerns about lack of coverage due to pre-existing conditions, the impact of rising health care costs, and not having access to coverage if they lost their job.

The AHIP Board of Directors responded by proposing a workable solution to ensure that all Americans, including those with pre-existing conditions, have access to high-quality, affordable health care coverage. Previous experience has shown that enacting guarantee issue laws in the absence of a requirement that individuals purchase coverage may incentivize people to defer seeking coverage until they have health problems—a situation which unfairly penalizes those who are currently insured.

This proposal builds upon the comprehensive reform proposals we have offered since November 2006 to expand access, improve quality, and reduce costs. We will continue to offer new ideas and collaborate with a variety of stakeholders to develop workable solutions to the health care challenges facing the nation.

The point of insurance market reform worthy of the name is twofold: to make markets more efficient and more fair for all, not just for some, and to transition the business model of insurers away from risk selection and toward care coordination and high value care. In order to maximize value per premium dollar, we need to align incentives among insurers, consumers, and health providers.

Guaranteed issue and modified community rating (I would allow age, but not health status rating), along with an individual purchase mandate and the subsidies to make that mandate humane, would enable insurance markets to extend the advantages of large group purchasing to the entire nation. Under this scenario, insurers would still make money, but only if they help us organize access to appropriate care efficiently. Economies of scale in administration and risk sharing should lower administrative loads from the very high levels experienced currently in the non-group and small group markets. But the kicker is the mandate and outlawing underwriting. We do not need to continue to make it profitable to exclude high risk Americans. We do, however, need to make it possible to share in the value created through coordinated health management and organized purchase of necessary and effective health services.

Grace-Marie makes a good point about Mark Pauly’s research over the years (some of which I proudly co-authored with him): the non-group market performs better for some people than some commentators allow. But this does not mean the current model of risk selection and aggressive underwriting – as “across state lines” type proposals would encourage and indeed require – is the best way to organize access to good health insurance. Furthermore, a market organized to the satisfaction of the zealous underwriters can never be made functional for all Americans. An underwriting culture will always punish those who behave humanely. In other words, some kind of publicly organized high risk pool or other safety net insurance mechanism will always be a necessary adjunct to this “partial” insurance market. Why prop up the most inefficient portion of our insurance universe, when we could fix it all with smart rules and organized exchanges? I think the objective case for comprehensive insurance market reform is overwhelming.

Marilyn's post makes an important point - one that, all too often, policy wonks ignore.

Remember what Barack Obama said about an individual mandate, back in January of 2008?

"The problem is not that folks are trying to avoid getting health care; the problem is they can't afford it."

How can you mandate something that is so expensive, and has such unpredictable increases in costs? Talk about individual mandates is usually accompanied with the goal of forcing a massive influx of new funds into the health care system. Just as insurance companies would not mind if everyone was forced to buy their products, many policy wonks wouldn't mind if American businesses and working families were locked into paying for the nation's health care.

Where is this new money supposed to come from? Usually, individual mandates are mentioned only in conjunction with big new subsidies and an employer mandate. Forcing employers to purchase health insurance is a dangerous idea - the economic climate is such that Congress needs to be very careful not to cause companies to cut jobs. An employer mandate would inevitably cause some employers to close up shop, and others to cut jobs.

Instead of trying to legislate how insurance companies should operate - which, apparently, is okay with them as long as Congress also forces every American to buy their products - we should focus on bringing down the costs of health care. We should realign money already in the system to drive value, quality, efficiency, and prevention. Investments in wellness and prevention will reap huge dividends later - as will investments in information technology. Changing the way we reimburse providers to reward quality will lead to a healthier America. Taking trial lawyers out of the health care system could help reduce the costs too. And allowing small businesses to purchase cooperatively under federal, not state rules, would help get millions more Americans covered.

There are many simple changes that are not controversial which we could implement to lower the costs of health care. I'm with President-Elect Obama on this one: let's not force people to buy a product they can't afford. Instead, let's find ways to lower the costs of health care.

Market reforms are a critical part of health care reform so that those who want or need to purchase health insurance on the individual market can do so. Insurance market reforms that establish fair ground rules are needed for the market to properly function, so we can protect vulnerable individuals without unduly driving up premiums for the rest of the population. Appropriate health insurance market regulations and federal subsidies based on income and health risk would allow individuals to find affordable coverage in every state. Regulations should also allow market experimentation to find the most attractive combinations of plan benefits, patient cost-sharing and premiums.

The AMA proposal for reform is based on three key pillars – and market reform is one of the three. Physicians see firsthand the negative health impact on those patients who delay care simply because they don’t have insurance. Take a self-employed diabetic as an example: purchasing health insurance on the open market is very likely out of financial reach – assuming an insurer is even willing to provide coverage. As Congress and the new administration look to reform the health care system, market reforms combined with appropriate subsidies for low income and high risk individuals must be part of the solution.

The Consumer group Consumer Watchdog in a news release today called the insurance industry’s support of a mandate for individuals to buy insurance “self-serving.”

According to the group: “The proposal amounts only to a customer delivery system for the fragmented, wasteful private insurance market. It will not solve America's health care problems and will only encourage the industry to charge higher premiums and demand more taxpayer subsidies while providing less health care.

"Insurance companies expect praise because they are 'willing' to sell their policies at whatever price they want to people who are forced to buy? That's like GM agreeing to a bailout plan that requires every American to buy a new Suburban each year, as long as GM gets to set the price and decide whether or not to include the transmission," said Jerry Flanagan of Consumer Watchdog. "If consumers can't afford coverage, or refuse to pay for a junk policy, they'll face tax penalties. Turning the U.S. government into a collection agency for for-profit health insurers is not universal health care, it’s full employment for HMO executives."

As more people lose employer-sponsored coverage, they are turning to individual health insurance plans, which are the weakest link in our health insurance market. The Commonwealth Fund Biennial Health Insurance Survey found that of 58 million adults under age 65 who sought coverage in the individual insurance market over a three year period, nine of 10 did not purchase coverage, either because they were rejected, they were unable to find a plan that met their needs, or they found the coverage too expensive.

A policy establishing minimum requirements on insurers to cover everyone, the sick and healthy alike, at the same premium--could ensure the availability of coverage in all states. And a national insurance connector that builds on the experience of Massachusetts could make quality, affordable insurance choices available to small businesses and individuals who are either uninsured or have inadequate or unstable coverage, or for whom premiums create major financial burdens. Offering a public plan modeled on Medicare through the connector would spur value-added competition among insurers focused on improving quality and efficiency.

Requiring that all individuals obtain insurance, combined with premium assistance so that coverage is affordable for all families, is also an important element of both ensuring that everyone is covered and that healthy as well as sick adults participate. Public programs and private insurers alike need to do more, both independently and in collaboration, to slow the growth in health care costs and transform the delivery of health care services to improve quality and enhance value for the money spent on health care.

Grace Marie is right. The two most important reforms are (1) tax equity and (2) a national market. University of Minnesota economists' studies imply that these two changes alone (ala McCain) would cut the uninsured in half -- at no additional cost to the taxpayers!!!

In general, almost every problem in health insurance -- including the highly dysfunctional small group market -- arises because premiums do not reflect expected health care costs. The reforms suggested by Jon and Paul would make these problems worse.

Finally, the individual market could be used to promote personal and portable insurance, the lack of which is the single biggest health insurance problem we have.

People purchasing health insurance in the individual market face double-jeopardy: Unless they are eligible for the self-employment tax deduction, they must pay for coverage with after-tax dollars, and they also face the full plethora of state insurance mandates and regulations. Despite these encumbrances, the individual market functions much better than conventional wisdom assumes. Lifting burdens on the individual market – rather than adding new ones – could enable it to become an important base for expanded health coverage.

Policy changes that are needed include allowing the purchase of health insurance across state lines to create a more competitive market, strengthened guaranteed renewal protections, and new purchasing arrangements to help those with pre-existing conditions obtain coverage. In addition, new tax subsidies to help the uninsured buy coverage could, if properly structured, power-boost the purchase of more affordable, portable coverage.

A reality test: Before policymakers attempt to fix the individual health insurance market, it is important to get a clearer picture of what is actually happening in this sector where an estimated six percent of privately-insured people obtain coverage. The prevailing wisdom holds, as the opening statement of the blog says, that “there is agreement that the market for buying health insurance as an individual doesn’t work well,” and some argue that this market is hopelessly expensive and dysfunctional.

However, actual research demonstrates otherwise. Mark Pauly and Brad Herring looked not just at hypotheticals, as some surveys have done, but at actual people shopping for and purchasing insurance in the individual market. They find there is more pooling of risk in the individual market than commonly believed: “Analysis of new data…shows that actual premiums paid for individual insurance are much less than proportional to risk, and risk levels have a small effect on obtaining coverage.” They also found that the premiums that higher-risk people actually paid were only, on average, about 1.6 times those of lower-risk people.

Caution ahead: Policymakers should be very cautious about adding more regulatory burdens to this market. We can look at the evidence in states that have tried various levels of regulation of their health insurance markets, especially with community rating and guaranteed issue, to see the impact. Efforts by state legislators to “fix” the individual market often backfire.

Community rating, for example, means that lower-risk purchasers pay a higher price for insurance than people with greater risks. This is a formula for adverse selection, especially in a guaranteed issue environment. People have an incentive to wait to purchase health insurance until they need medical services rather than pay an artificially high price for continuous coverage they may not use. This leads to an increase in the number of people without health insurance, the opposite of the desired result. Pauly finds that, “The effects of adverse selection in nongroup markets are most severe in states with community rating and guaranteed-issue rules for the individual market.” Others argue that these problems could be mitigated if an individual mandate for purchasing health insurance were to be imposed, but that would be a very heavy political lift in the current environment.

Three recommendations to improve the individual health insurance market:

A national market for health insurance: Giving people more options to purchase coverage across state lines would generate a much more competitive market so people are not trapped by the expensive mandates and regulations in their states.

University of Minnesota economist Steve Parente and colleagues showed that opening up competition among the states for health insurance would mean an additional 12 million people could get health insurance without any new spending by the federal government (an important consideration in the current fiscal climate). This would allow people trapped in states with community rating, guaranteed issue, and excessive mandates to shop for policies in other states where premiums are more affordable and policy options are more flexible. Some may select a high-deductible plan, but people should have a range of options to find the ones that best suit their needs.

Critics charge, however, that this would open up the Wild West of unregulated health insurance where people would be faced with policies that don’t cover even the most basic medical needs. But every state regulates its health insurance markets to assure, not only the solvency of companies offering the coverage, but that the policies actually offer responsible insurance coverage.

Allowing interstate commerce in health insurance would lead to larger pools and more competition among companies offering coverage, spreading risk and reducing costs. Health insurance companies are worried about disrupting their current books of business if healthy individuals can opt out of their current pools to find more affordable coverage elsewhere. But bringing millions more people into the market will expand their pools. Further, new programs to give those with higher-health risks better options for coverage will further stabilize the market.

Guaranteed renewal protections: After the initial purchase, almost all individual insurance is “guaranteed renewable” at class-average rates. That means that insurers cannot increase premiums differentially based on health risk for people seeking to renew their policies. Pauly and others have shown that people in individual markets are largely protected against future reclassification risk. Guaranteed renewability stabilizes markets by providing an incentive for people to purchase health insurance when they are healthy and to maintain continuous coverage. This HIPAA protection should remain in force and be strengthened where necessary.

Expanding access: At least two groups have developed plans that would enable people with pre-existing conditions to enter the insurance market and obtain coverage at affordable rates. America’s Health Insurance Plans and the National Association of Health Underwriters have developed plans that would allow more people to obtain private insurance by cross-sharing risk among companies participating in a specified market. In addition, federal funds could supplement state funds to create more functional high risk pools in the states. When properly structured, these risk pools, coupled with a mechanism for guaranteed access to insurance, could produce a more stable health insurance market.

Some people will need special assistance because their health risks are above normal, their incomes are low, or both. A guaranteed access program also could be a mechanism to provide additional subsidies to assist them in purchasing coverage.

The individual market for health insurance is more functional than commonly believed. The challenge for policymakers is not to repeat the mistakes of states that have been overly aggressive in regulating their individual insurance markets. Rather, they should allow more flexibility, more competition, and sensible protections. This means allowing people to buy coverage across state lines, allowing all policies to be guaranteed renewable at reasonable rates, and creating new guaranteed access programs. Combine this with new subsidies to individuals for the purchase of health insurance in the form of refundable tax credits and we could open a new interstate highway to expand access to health insurance in the individual market.

Existing individual insurance markets have an inherent tendency to “fail,” meaning that many people willing to pay a premium that reflects their expected claims costs and competitive margins for administrative costs and profits are not able to obtain such an offer of coverage.

The dynamic behind this failure is adverse selection. People who expect to use a lot of health services are more likely to purchase health insurance. The result is that the pool of people covered in the individual market will have higher-than-average medical costs, leading to higher premiums. In turn, high premiums further discourage healthier people from purchasing insurance. Employer-provided coverage solves this problem by subsidizing coverage sufficiently so that it is attractive to both healthy and sick employees. In other words, employer coverage establishes a pool of people whose expected use of health care is not very different from the average of those who work for the company.

In the individual market, insurers deal with adverse selection by medical underwriting. They collect information on health and previous medical care and use this to adjust premiums to reflect their estimate of the person’s likely medical spending. Some applicants are not offered coverage at any premium, some are offered coverage at a very high premium and others are offered a product that excludes coverage for pre-existing conditions. So today’s individual markets do not work well for people likely to have high medical spending, who either face very high premiums or have no offers of coverage. Some states address this by requiring insurers to accept all applicants without medical underwriting. Although this removes a barrier for those likely to use many services, adverse selection has led to high premiums, discouraging many others from purchasing insurance. The result has been markets that serve few people.

Governments do have the potential to restructure this market--that is prone to failure--so that it performs better. For example, if people can be induced to buy coverage, such as by mandating coverage and subsidizing it on the basis of income, then insurers can be required to sell to everyone without medical underwriting. How rates vary by factors such as age can be a policy decision trading off fairness (older people have higher medical needs but earn more money) and keeping insurance affordable for most people. This is the approach that Massachusetts has used, where all those receiving subsidies to purchase private insurance must obtain it through the Connector. Without an individual mandate, success in limiting adverse selection if insurers are required to sell to everyone is less certain, but at minimum, government can require all of those who receive subsidies to use a Connector-like entity to obtain coverage from a participating health plan.

Governments can take further steps to improve the functioning of individual markets. For example, they can transfer funds from insurers that wind up with healthier-than-average enrollees to those winding up with sicker enrollees—risk adjustment. CMS has extensive experience in using risk adjustment to accomplish this in Medicare Advantage and Prescription Drug Plans. This will reduce risks to insurers of losses due to drawing sicker-than-average enrollees—encouraging participation—as well as inducing them to focus their resources on activities like supporting chronic disease management instead of on attracting healthier-than-average enrollees. Risk adjustment does not increase complexity for consumers, because it does not affect the premium that they pay to enroll in a particular plan.

Insurance market reform is one of the key pieces to any successful health reform in the U.S. Right now, health insurance markets function well for those who work for large firms: insurers can fairly price insurance to reflect the underlying mix of health in the firm. But for smaller firms and particularly for individuals in the non-group market, insurance markets are dysfunctional. Young and healthy individuals are often able to get insurance at very low rates, while sicker and older individuals find themselves facing very high rates or no access at all. States which have tried to resolve this problem in the non-group market by removing underwriting based on health (or even on age in some cases) have seen exactly what economists would have predicted: the exit of young and healthy individuals from the market and an enormous rise in rates. In the recent report by AHIP, five of the eight most expensive states in the nation to buy non-group insurance are the five that have community rating in some form.

There are four directions to go in fixing this problem. The first is to further deregulate non-group markets, for example by allowing national shopping. This would quite frankly have little effect - other than to force the implicit or explicit deregulation of markets in those states that do regulate them. So this would be a good deal for young and healthy folks in states such as New York, but a very bad deal for sicker and older individuals who would see rates go up even further. I don’t see any strong case for recommending this course of action.

The second is to promote nationally the type of modified community rating in place in states such as Massachusetts. The problem with this approach is that you will get the same outcome as Massachusetts did when it tried this in 1996: a rapid rise in non-group rates and a reformed market which serves only the sickest customers.

The third is to accompany these regulatory changes with large subsidies to purchase in those markets. The notion is that if the subsidies are large enough, then the healthy will buy in the market and keep prices from rising. This is a possibility, but it is unclear how large subsidies have to be to offset this adverse selection spiral. Remember, most of the time subsidies are targeted by income – whereas to offset the problems caused by market reform they would really need to be targeted to the healthiest, who suffer the most from price increases in reformed markets. That is an unlikely policy prescription. It is unclear whether purely income-based subsidies would be enough to offset the shock of market reform.

The fourth, and in my view clearly the best, is to incorporate market reform and an individual mandate. If individuals are obligated to buy insurance, then the young and healthy will not exit the market, and rates will remain fair for all. This is naturally matched with subsidies, but in this case the subsidies can focus on affordability, which should be their goal, and not on trying to offset market dynamics.

The bottom line is that market reform, particularly for the non-group market, has to be high on the agenda of health reformers in the coming months. But without a mandate as part of the package, it is hard to guarantee that market reform will do more good than harm.