On the Third Hand: Gaps

Maybe some of the major Patient Protection and Affordable Care Act (PPACA) battlegrounds will have more to do with the products just outside of PPACA’s reach than traditional major medical products.

My wild guess is that (sorry) PPACA World will at least temporarily be better for poor people and sick people than the current system; that it will be annoying for people like me who now have decent benefits; that it will be horrible for providers and employers because any system we have will be horrible for providers and employers; and that it will be wildly unpredictable for insurers and producers.

One insurer or producer could pick a strategy that seems almost indistinguishable from a competitor’s strategy and end up doing much better or worse than the competitor.

Example: If you can’t compete much based on benefits package, benefit plan design or successful efforts to use careful underwriting to manage risk, and you’re scared to compete aggressively based on price, the distinguishing factors that are left seem to be the size and quality of the provider network; the cleverness of the ads; and, maybe, overall breadth of product offerings.

To me, it seems as if being too wild and crazy about tying the marketing campaign to a plan’s provider network is that using a “narrow, stellar-quality, deeply discounted network” could backfire in a reputation-destroying way, especially if PPACA makes getting in to see the brave, thick-skinned doctors who are still in practice really difficult.

If plan managers try to save money in a small community by including, say, just a few great endocrinologists in the network, and one of the endocrinologist gets fed up with low Medicare and Medicaid reimbursement rates and decides to go into the vending machine restocking business, bye bye 5-star plan quality rating. Hello investigative feature on the local TV news that features the sweetest looking mother with diabetes who ever lived and a terrifying story about how she almost died because it took her almost eight weeks to get in to see an in-network endocrinologist.

Competing based on cleverness of ads seems safer but hard to control. Even if consumers love Healthy Harry, a health plan’s new spokescat, who knows whether consumers will translate love for Healthy Harry into the purchase of the plans Healthy Harry represents. Maybe consumers will just buy stuffed Healthy Harry cats and stick with health insurance from other carriers.

That leaves breadth of product offerings.

One of the famous characteristics of the national health insurance programs outside the United States is that they leave all sorts of coverage gaps, and commercial insurers can make money by filling in the gaps.

Japan, for example, has a government-run major medical insurance program, but the program covers only 70 percent of the cost of non-catastrophic care.

Aflac Inc. (NYSE:AFL), a U.S. company, has created a large business by selling supplemental products, such as cancer insurance, in Japan.

In the United States, it looks as if PPACA could dramatically expand the gaps in health coverage for the sorts of people who already have coverage.

Many people who have good group health benefits have plans that pay either 80 percent or 90 percent of the cost of in-network care once the enrollee has met the plan deductible. 

PPACA will use the threat of a new “shared responsibility” penalty (tax) to push employers with 50 or more full-time employees to offer a minimum level of coverage. An employer can avoid the “play or pay” penalty by providing an employee-only plan that covers at least 60 percent of the actuarial value of a standardized “essential health benefits” package.