A PUBLIC OPTION MAY WORK: Janeane Garafalo doesn’t think I am a racist anymore!

Mr. Boss had an insurance blog fart last night so I’m publishing it here.  A little note about Mr. B, he is not one of those greedy, rich, insurance executives; however, his job requires him to be an expert in all areas of insurance.  He is also a big nerd and one of the smartest people that also possesses basic common sense that I’ve ever met.  He is certainly more qualified to comment on issues of insurance than any of our congressmen or our president, which is scary.  So here he is.  Again, if anyone ever has a rant they’d like posted, sock it to me.  Blog farts are very gratifying.

A PUBLIC OPTION MAY WORK: Janeane Garafalo doesn’t think I am a racist anymore!

By: Mr.Boss

I continue to be a firm believer in private insurance as the best solution.  But if there simply must be reform, and assuming reform doesn’t consist of overhauling medical malpractice laws, then there may be a solution that could make even the socialists happy.

A public option could work, although it would be far more effective as a state-run public option, rather than a federal behemoth.  The playbook already exists, and exists quite effectively, in the workers compensation system.

Thirty or so states have quasi-governmental agencies called State Funds.  Since workers compensation is mandatory coverage, these State Funds serve the otherwise uninsurable.  Private insurers tend to steer clear of high hazard risks, for obvious reasons.  They also tend to steer clear of smaller businesses, since the premiums are minimal and the administrative costs tend to make these accounts unprofitable.  Recognizing these problems, several states enacted State Funds to serve these employers around the time of World War I.

Most of these were bureaucratic messes, lost tons of money, and ultimately cost taxpayers money.  In the mid-90’s, a number of these Funds were reformed into competitive State Funds.  They were moved out of the state agency system, and were made private insurance companies.  They hired real insurance people to run them, and run them profitably.  They still are the “market of last resort” serving the otherwise uninsured, and they are regulated like crazy.  But in exchange for serving any and all employers in the state, they are often exempt from paying state premium taxes.

Has the lack of premium tax given them an unfair advantage over the private insurers?  Not really, given the cream of the crap the Fund sometimes has to insure.  Plus, their rates are on par with the private market.  In some states, for some classes of business, they are cheaper.  In some states, and for other classes of employers, they are more expensive.

These State Funds can charge actuarially sound rates.  If an employer is a high hazard and does not agree to safety controls, the State Fund can charge accordingly.  They just can’t deny coverage.

The result has been a terrific success.

Employers have access to guaranteed coverage, allowing the business community to thrive.  Injured workers are protected under the benefit delivery system written into the statute, which gets their medical bills paid and their lost time from work compensated.  And the State Funds, oh by the way, have managed to turn an occasional profit.

Things are still a little too political.  A private insurance company is only regulated by each state’s respective insurance department.  A State Fund is regulated by legislators, insurance departments, state finance oversight boards, and often a local newspaper columnist with no knowledge of the system.  And state budget offices often try to raid the policyholder’s equity in the Fund in an attempt to balance state budgets (those raids are usually squelched).

Some states have been more successful than others.  Pennsylvania’s state fund, with a modest 30% market share, is bureaucratically run, not competitive, not profitable, and really just serves the residual market.  Montana’s state fund, on the other hand, has a 70% market share, tends to charge rates on par or lower than the private market, offers employers in the state great services (loss control consulting, for example), and has made a profit.

Market share does not a success make.  Plenty of other states (Missouri, Kentucky, Hawaii, Louisiana, to name a few) have State Funds that have modest market shares, and have done very well.

The model for success in this system can work with health insurance:

    State creates a state fund
    State Fund must take all comers, providing actuarially sound prices to anyone who completes an application
    State Fund is run by insurance people, not gubbament workers
    State Fund should be exempt from paying premium tax
    Feel free to regulate the State Fund by both the insurance department and a government oversight board
    Leave them the hell alone

Public option?  Check.
Guaranteed coverage for all Americans?  Check.
Private insurers can still compete?  Check.
No drain on the currently insured?  Check.
Benefit delivery not compromised by more usage?  Possibly check (TBD)

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