Wednesday, October 30, 2013

Canceled policies, or better policies?

First, critics of Obamacare cited the troubled launch of the  Obamacare enrollment site to make the case that the law is a “train wreck.”  Now, they are citing the health insurance cancellation notices that have gone out to hundreds of thousands of policyholders.  

But these are two very different things.  The technical problems with the enrollment portal are not evidence of any inherent problem with Obamacare itself.   Quite the contrary: the subsidies to help people afford coverage, the ability for consumers to shop and compare health plans in a competitive marketplace, the bans on insurance companies excluding people with pre-existing conditions or charging them more, an end to annual and lifetime limits on coverage, and the requirement that all plans offer “essential” benefits—all of these, and more, are necessary and desirable changes created by Obamacare.   The problem with the website is that people have not yet been able to fully avail themselves of these benefits—yet. 

The insurance cancellations are another thing altogether, because they are the direct result of changes mandated by Obamacare, not unintended mistakes in its execution.  But are the cancellations really evidence of Obamacare imposing “bad” policy on the American people, as the critics argue? 

Let’s walk through what is happening, and why. 

First, President Obama’s repeated assertion, that if you like your plan, you can keep it, is misleading.  While this is true for the vast majority of Americans who get their coverage from a large employer, or from a government program like Medicare, Medicaid, and the VA, there is a relatively small subset of the population (more on this later) that are now finding that they can’t keep the policies they purchased on the individual insurance market.  This may be a surprise to people owning those policies, but it couldn’t have been a surprise for the administration, since the law itself—and the administration’s own regulations--require people who have substandard health plans  (plans that do not comply with federal benefits  requirements) to switch to plans that meet federal standards.  It also wasn’t a surprise to me, and others who really understand how the Affordable Care Act is supposed to work.  

Second, the number of people getting the cancellation notices is very small relative to the overall population.  About 15 million people—five percent of the population—get their coverage from the individual insurance market, explains the Washington Post’s Sarah Kliff, and seven to 12 million of them may get cancellation notices because their current plan doesn’t measure up to the ACA’s requirements.  (Put another way, 95% of us will not be required to change our insurance plans.)  And constant turn-over in the individual insurance market is common, pre-dating Obamacare.  “Most individuals don't stay in the individual market very long” writes Kliff. “One study, published in the journal Health Affairs, found that 17 percent of individual market subscribers purchased the same plan for two straight years or longer.” 

Third, many of the plans being cancelled are previously “grandfathered” plans that were in place before Obamacare became law but no longer meet the ACA’s benefit requirements, explains Kliff.   “These cancellations are, essentially, a lot of grandfathered plans exiting the insurance marketplace. From an insurance company's vantage point, grandfathered plans are a bit of a dead end: They can't enroll new subscribers and are really constrained in their ability to tweak the benefit package or cost-sharing structure. There's not a whole lot of business sense, for a managed care company, in maintaining a health plan that doesn't meet the health law's new requirements.”

Fourth, no one is actually losing coverage—people who get the cancellation notices are being given the opportunity to enroll in health plan offered through the Obamacare marketplaces, or to buy another plan in the individual insurance market that meets the law’s requirements.  Many of them will be eligible for income-based premium subsidies to help them buy a new plan (sliding scale subsidies are available for people with incomes up to 400% of the federal poverty level, approximately $94,000 for a family of four).  If there incomes fall between 100 and 250% of the poverty level, their deductibles and co-payments will be capped at an even lower level then the standard cost-sharing levels that apply to people who earn more. 

Fifth, the substandard, cancelled “grandfathered” plans are being replaced with ones that generally offer better benefits and consumer protections.  Kliff again: “There are lots of insurance policies, especially on the individual market, that are really bare bones. Some argue they shouldn't even be called insurance coverage, because their coverage is too sparse to insure against financial ruin. One report from the Obama administration, issued in 2011, found that 62 percent of individual market plans don't offer maternity care. Eighteen percent do not cover mental health benefits and 9 percent do not pay for prescription drugs . . . insurance companies cannot, under the Affordable Care Act, keep selling the plans that they used to sell -- the ones that don't cover prescription drugs and maternity care. And that means that some people who liked purchasing coverage without maternity care and prescription drugs won't be able to keep those plans. The cancellation notices are a feature of the Affordable Care Act, not a bug. The idea was to make insurance coverage more robust -- and that means cancelling policies that offer less thorough coverage.” 

Georgetown University’s Health Policy Institute agrees that, “For most people shopping on the marketplace, the policies available there will be a better value than anything they have been able to buy on the individual market. First, they will no longer have to worry that if they get sick, their insurer will jack up their premium – that’s prohibited under the ACA. Second, many will be eligible for premium tax credits to make their plan more affordable. And, as noted above, all the plans will meet minimum standards for benefits and cost-sharing – no more swiss cheese coverage.”

Now, none of the above explanations change the reality that some people are very (and understandably) unhappy about losing their current individual insurance plans.  If you were one of the lucky ones who benefited from insurance company cherry-picking—the industry practice of selling low cost health insurance to healthy and young people, while excluding those who are older and sicker--you are not going to like the fact that you may now have to pay more for insurance.   (Even though the result also is that your neighbors with pre-existing conditions will now be able to afford health insurance.)  If you had a low-cost, bare bones policy that suited you just fine, you won’t be happy about having to pay more for one that offers better benefits and consumer protections.  (Even though you might have found out later, once you got sick, that your bare-bones plan didn’t cover the medical care you needed—shifting costs onto the rest of us.)  And if you earn too much to benefit from the income-based premium subsidies, you won’t be happy that you’ll be paying more, albeit for a plan with better benefits and consumer protections, without any financial help from the government to make it more affordable.  (Even though your less well-off neighbors will benefit from the subsidies.) 

I fully sympathize with people who find themselves in the situation of having to replace their current coverage with a more expensive (but better) plan.  For some of them, the higher premiums will be a stretch. 

But the bottom-line is that the overwhelming majority of Americans won’t have to change their health insurance plans; those that do will be getting a plan with better benefits and consumer protections (and many of them will qualify for premium subsidies to bring down the cost), and people who are older and sicker in particular will benefit from reforms that prohibit insurance company cherry-picking.  As the Washington Post editorialized today, “Reform still might not sound like a great deal to people who are young, feel healthy and don’t want to pay for coverage. Yet having lots of healthy people paying into the new system on its terms will not only limit their financial risk, but also their participation will allow others who have been priced out of the health-insurance market — those with serious preexisting conditions, for example — to obtain good coverage. They deserve compassion, too. None of this is an outrage. It’s the predictable result of a defensible policy choice embedded in the reform.”

Today’s question:  What is your take on some people being required to replace their substandard plans with insurance that meets the new federal standards?


Unknown said...

"Misleading"? The "intended" consequence, which is and was known by anyone who paid attention, is that the individual mandate would force people into new plans. That was known. The people who supported this law knew that it would be suicide to tell the truth about it to those in the individual marketplace. People who knew what the law contained and deliberately omitted the truth in order to ensure it's passage. Withholding a known consequence because it may reflect poorly on one's position is not "misleading", it's a lie of omission. It's unethical. What's "misleading" is not calling it what it was, a lie.

I guess it will also be "misleading" when the doctors choose not to (and likely will not) participate in the new (arrogantly called) "better plans".

But get ready for the next misleading lie and misdirection. When not enough young healthy people sign up because there's no incentive to, and the costs skyrocket. And the next misleading lie and misdirection following that, when employers opt out of offering plans because it's in their financial interest to pay the penalty rather than offer coverage at the workplace.

But the unions and the federal workers will remain exempt, the very constituencies that supported this overhaul, won't have to deal with the consequences of it. Apparently that's acceptable to Mr. Doherty, and is just misleading. If that's the standard for "misleading", then what qualifies as untrue, or a lie.

It really doesn't matter though, because this will come out over the next few months and years, and the politicians will make changes and more back room deals. The bottom line is that individuals and companies will be forced for financial considerations to make new choices, and the mantra of "You can keep your plan, PERIOD" will be revealed for what it is, blatantly untrue.
I'm a simple guy. When it looks like a duck, it walks like a duck, it sounds like a duck, then it's a duck. Call it whatever you want, when you knowingly misrepresent the whole truth, that's called a lie.

Ladeyday said...

I worked in health insurance for over a decade and know all about denials and limited coverage. Now with ACA, even though, in some cases, premiums increase for individual coverage,
there are upsides. In the event of a catastrophic illness, one will not be dropped, face bankruptcy due to inadequate coverage or pre-existing conditions. And even if there is no illness, less people will have to pay collectively (with increased premiums) for those with no or limited coverage.