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Healthcare for the Healthy

The parceling out of healthcare in America remains a subject of prominence and increasing controversy. Fewer events in the recent past bring the issue to light more conspicuously than the resurgence of what is commonly referred to as "cherry picking" in the insurance industry. A traditional insurance tactic, cherry picking refers to the process whereby insurance companies make efforts to insure only those individuals who are healthy and occupy low risk categories - a practice which amounts to severe partiality toward older individuals. In the highly competitive insurance business, cherry picking makes great economic sense. It has already led to an increase in uninsured older Americans and created an unfavorable climate for those covered by employee policies.

The promise of better health care was embodied in the 1973 federal HMO act, which emphasized a policy of community rating, whereby federally qualifying plans were required to offer flat rates. The idea, at the time, was to emphasize preventative medicine for healthy individuals and fiscal conservatism with regard to sick individuals. A well administered plan would keep finances in check, spread the costs evenly across a community rather than a narrow demographic niche and ensure all members of the conununity adequate coverage.

The model worked with modest success in the early years, when corporate style cost cutting at every level in the so-called health industry was not difficult to achieve, much to the chagrin of many physicians, who felt slighted in the process, both financially and professionally. Many HMOs profited handsomely and grew rapidly. For a time, it seemed that coverage might soon be available to all Americans at reasonable costs, though not without a long list of caveats.

It soon became clear, however, that the HMO model was built on a false economy. In order to gain market share, many HMOs had reduced premiums to levels below cost. Further, growth was primarily a byproduct of cost cutting, not rising revenues, and as the number of areas where cuts were achievable diminished, so did profit margins. From 1990 to 1998, median HMO profit margins dropped from +2. 1 % to -1.2%.

This was largely a result of the fact that the number of HMO enrolled individuals jumped from 6 million in 1976 to more than 70 million in the span of 20 years. No longer could it be said that the bulk of those enrolled were young and healthy individuals, unfazed by many of the restrictions imposed by HMO plans. HMOs now covered a much wider demographic.

The economics precipitated drastic policy changes that amounted to a literal about face as far as the industry goals and values were concerned. From 1990 to 1998, the percentage of HMOs using experience ratings (a euphemism for cherry picking), soared from 33% to 52%. What was once frowned upon by HMOs had become a newly revised and widely embraced business model.

To further complicate matters, recent federal legislation has been all too vague on the stipulations for community ratings, thereby making it easier for HMOs to price policies more arbitrarily. The result: companies whose employees incur substantial health care needs find their premiums rising beyond capacity, forcing many to abandon their policies altogether, leaving employees without the safety net of insurance. The situation worsens for those on fixed incomes or for the millions of older Americans with existing medical conditions. Caught between the high cost of coverage and tight household budgets, many end up uninsured.

Those who benefit most are the young and the healthy, who are eagerly sought out by the HMOs on increasingly favorable terms. The HMOs response to critics of such tactics: if they don't provide the lowest policies, somebody else will.

To curb the tide, some states are turning to more strict flat rate policies, though in several cases, the result has been just the opposite of what was intended as younger individuals drop coverage causing premiums for those left to increase. Other states have established high risk patients. The results of these efforts have been varied.

It is a foregone conclusion that state and federal agencies will have to intercede on some level since self- reform is not a preference of most HMOs. Whether the provisions government propose will create a more effective safety net is yet to be determined. But one thing is clear: if prompt and effectual reform does not take place, widespread and affordable healthcare, especially for the elderly, might just become a thing of the past.

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