Obama’s health plan tackles disparity : Scrapping risk-based pricing

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A Barack Obama administration would seek to ban risk-based pricing on all individual health insurance plans to stop companies cherry-picking healthy customers, a senior adviser has said.

By Krishna Guha in Washington

David Cutler, a Harvard professor who helped to draft the health plan for the presumptive Democratic presidential nominee, said: “Under our plan you cannot be priced higher because you are sick.”

Insurance companies usually charge standard group rates to corporate scheme members but individuals have to pay different premiums, or not have some conditions covered at all, depending on their risk profile.

Mr Cutler said an Obama administration would consider automatically enrolling people in approved health insurance plans unless they chose to opt out.

He declined to say how much tax credits to help low- and middle-income earners buy insurance would cost. However, he suggested it might not be radically different from the $110bn-$120bn (€71bn-€76.5bn, £55.4bn- £60.5bn) a year that Hillary Clinton, Mr Obama’s former rival for the nomination, said would be needed to achieve universal coverage.

Mr Obama also proposes setting up exchanges where people not covered by corporate health plans could buy plans that meet federal minimum standards and have low administrative costs.

Mr Cutler said that, for this to work, it would be necessary to ban risk-based pricing on all health plans, including those sold off exchange. Otherwise the exchange would become a “high-risk pool” dependent on public subsidies. Banning risk-based pricing could result in healthy people – in particular young people – refusing to buy insurance at a price that did not reflect their own risk profile. It could also reduce the incentive for people to take better care of their health.

Mr Cutler said one partial solution could be to allow age-based premiums. He said that an Obama administration would also seek to find ways to build in incentives for healthy living.

He said that the Obama campaign, which proposes to automatically enrol people in 401(K) defined contribution pension plans unless they chose to opt out, would consider using this opt-out approach for health insurance too. “We are very much open to that,” he said. “That may very well be the best way to get people covered.”

However, Mr Cutler said that no decision had been made on an opt-out system for health and that there would be other options, such as a drive to “sign people up on their tax forms”.

John McCain, Mr Obama’s Republican opponent, has a fundamentally different approach.

Mr McCain wants to take the tax breaks available only for corporate health plans and redeploy the money as individual tax credits, while deregulating and increasing competition in the market for individual plans.

The Financial Times

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