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Health Reform and The Abortion Amendments: Far From a Compromise

Health Reform and The Abortion Amendments: Far From a Compromise

Picture of Alan Katz

We have a guest post today from insurance blogger Alan Katz, past president of both the National and the California Associations of Health Underwriters. His blog is well worth your time if you cover health reform or health insurance.

That abortion has become a make-or-break issue in the battle for health care reform was, perhaps, inevitable. Liberal Democrats have invested considerable political capital and passion in reshaping America's health care system. For progressives, health care reform is the effort too big to fail. As a result, however, they have handed those with different priorities an irresistible tool for moving their agenda forward.

As reconciliation negotiations begin to meld the now-passed House and Senate health reform bills, journalists should be aware of both the political and practical implications for the abortion amendments and how they might play out in the real world. The political issues are relatively straightforward.

It has been apparent for months that moderate and conservative Democrats would determine the success or failure of President Barack Obama's health care reform effort. Democrats might have substantial majorities in each chamber, but liberals do not. To muster the necessary majorities, the support of moderate and conservative members of the Democratic caucus would be critical. While generally supportive of health care reform, unlike their more liberal counterparts, these moderates are not the "true believers" concerning the issue. Which means instead of accepting reform at any cost, they could – and have – defined the cost.

As reported by the Associated Press, Senator Ben Nelson fixed the price of his vote for health care reform in large part on preventing federal subsidies from being used to pay for abortion coverage.Thirteen hours of negotiations with Senator Barbara Boxer, overseen by Senator Reid and facilitated by Senator Charles Schumer, were required to reach a compromise locking Senator Nelson in as the 60th vote for reform. Almost immediately, House anti-abortion lawmakers blasted the Senate deal.

The political challenge facing the conference committee will be to accommodate enough of these House moderates and conservatives with language that won't make the health care reform legislation unacceptable to too many liberals. The political reality, however, is that under either the Senate or House abortion language, the cost of insurance covering abortions is likely to approach the actual cost of the procedure.

In the House, the abortion language inserted in the health care reform bill prevents health plans receiving federal subsidies from offering abortion coverage. Women would have to buy a separate policy covering the procedure using their own funds. The Senate language leaves it to the states to determine if abortion would be covered by health plans selling in the exchange. If so, those plans would have to collect a separate premium for such coverage. These premiums would be maintained in a separate account by carriers and would have to be paid for by the insured with no federal subsidy.

In reality, neither the House nor the Senate approach is a compromise – they are outright victories for anti-abortion advocates.

Practical implications

Insurance is about spreading risk. Everyone pays a fraction of the cost likely to be incurred by an insured event (an auto accident, a fire, an illness) in order to be eligible for reimbursement of the full cost of the event if and when it occurs (less cost sharing provisions such as deductibles). The idea is that the premiums paid by those who don't incur claims pays for reimbursement to those who do – along with the cost of administering the coverage, selling the policies, and earning a return for the carrier. (These returns represent more than just profits and executive bonuses – regulators require insurance companies to retain substantial capital so they can make good on their policies if a higher number of insured incidents occur in a given period).

Here's an oversimplified example of how insurance is supposed to work: Assume that, in any given year, 10 percent of motorists will have an accident costing, on average, $1,000. And assume an auto insurer needs 15 percent of the premiums it collects to cover administrative and other expenses (including profits). If a carrier sells 10,000 policies, their actuaries would expect the company to pay out $1 million in claims (10,000 insured x 10% having accidents = 1,000 accidents x $1,000 per accident = $1 million). Add in the 15 percent overhead ($150,000 on $1 million) and the total premiums our mythical carrier would need to bring in is $1.15 million. The annual premium for each of its 10,000 policyholders would need to be $115 ($1,150,000/10,000 policyholders = $115).

That's a rough description of how insurance is supposed to work. In the real world, however, carriers have to protect against what's called "adverse selection" – coverage that attracts purchasers with a higher than average propensity to incur covered claims. The most extreme case of adverse selection is when 100 percent of policyholders are expected to submit a claim during the premium term. If, for example, our hypothetical auto insurer sold its policies only to motorists at the scene of an accident, they would have to charge a premium of $1,150 – more than expected cost of the mishap. (The extra $150 is to cover overhead).

Congress is moving toward a classic case of adverse selection concerning coverage for abortions. Today, abortion coverage is included in most policies. The cost for the anticipated volume of abortion procedures is spread over all of those covered by the policy, including those unlikely to ever incur such claims.

Under either the House or Senate compromises, however, those wanting to cover abortions pay separately for it. Which means the risk of claims related to abortions can be spread only among those anticipating the need for such coverage. While it's unlikely that 100 percent of those purchasing the coverage will submit a covered claim, a large percentage will. The premiums for abortion coverage, consequently, will approach the actual cost of the procedure.

Restrictions on abortion coverage are likely to be placed only on those policies eligible for federal subsidies – in other words, those sold through the exchanges to be created by the health care reform legislation. Policies sold outside of the exchange should be able to operate as they do today. But for women who need the subsidy to afford health insurance, coverage for abortion may well be financially out of reach.

Why might Congress pass legislation with the practical effect of requiring many women to self-insure abortion procedures? Because while liberals are true believers concerning health care reform, anti-abortion lawmakers have a different top priority. And the need for liberals to pass health care reform – any health care reform – gives those anti-abortion lawmakers the leverage they need to achieve their end.

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