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California Shows Futility of GOP Health Reform "Ideas"

The White House is working hard to draw attention to the huge Anthem Blue Cross individual health policy premium increases in California to show that the health care status quo is unsustainable. That's a very smart thing to do.

But as Paul Krugman points out in his latest New York Times column, the situation in California even more graphically shows how ridiculous some of the national Republican Party's "ideas" for health care reform truly are.

[Anthem Blue Cross parent company] WellPoint claims...that it has been forced to raise premiums because of “challenging economic times”: cash-strapped Californians have been dropping their policies or shifting into less-comprehensive plans. Those retaining coverage tend to be people with high current medical expenses. And the result, says the company, is a drastically worsening risk pool: in effect, a death spiral

That makes sense, and helps explain why any effective risk pool should be based on employer and individual mandates to ensure that healthy people don't drop coverage now and then drop back into the risk pool when they grow older or less healthy--or worse yet, show up in emergency rooms to obtain high-cost care at everyone else's expense. But consider this problem in the light of those GOP "ideas":

[S]ome claim that health costs would fall dramatically if only insurance companies were allowed to sell policies across state lines. But California is already a huge market, with much more insurance competition than in other states; unfortunately, insurers compete mainly by trying to excel in the art of denying coverage to those who need it most. And competition hasn’t averted a death spiral. So why would creating a national market make things better?

More broadly, conservatives would have you believe that health insurance suffers from too much government interference. In fact, the real point of the push to allow interstate sales is that it would set off a race to the bottom, effectively eliminating state regulation. But California’s individual insurance market is already notable for its lack of regulation, certainly as compared with states like New York — yet the market is collapsing anyway.

Finally, there have been calls for minimalist health reform that would ban discrimination on the basis of pre-existing conditions and stop there. It’s a popular idea, but as every health economist knows, it’s also nonsense. For a ban on medical discrimination would lead to higher premiums for the healthy, and would, therefore, cause more and bigger death spirals.

There's a reason why health reform needs to be comprehensive to work. "Piecemeal" reforms, much less snake-oil fixes like interstate insurance sales, can make today's anomalies in health insurance actually worse. We're seeing this play out on the ground in California right now, and I'm reasonably confident President Obama will make this point on February 25 when he discusses (with or without their presence) Republicans' much-touted health reform "ideas."