OBAMACARE NOVEMBER 7, 2013
Examples of Obamacare plan cancellations and premium increases are getting tons of media coverage, though you rarely hear the whole story. Some people losing their plans have insurance with huge gaps, the kind that leave you exposed to financial ruin when you get sick. Many people hearing from Insurers know only about the higher sticker price of new coverage, not the federal subsidies that will discount the prices by hundreds or even thousands of dollars a year. Upon closer inspection, quite a few stories of "rate shock" turn out to be stories of "premium joy."
But some of the people getting cancellation notices had generous coverage—not the "junk insurance" that, as President Obama now acknolwedges, the new law prohibits. These people might not be eligible for federal subsidies and, even if they are, those subsidies might not be sufficient to offset the higher prices. They will pay more for insurance next year but they won't get more for it. Some will actually get less.
Here are two such stories that have gotten attention recently:
- Architect Lee Hammack, 60, and his wife JoEllen Brothers, 59, live in San Francisco and have coverage from Kaiser Permanente. It costs $550 a month. But Kaiser isn’t offering the policy again next year because, the company says, it’s not compliant with Obamacare regulations. The couple say the most comparable insurance they can find on California’s version of the Obamacare marketplace will cost roughly twice as much. They make slightly too much to qualify for subsidies, so they must pay the full price. Oh, and they consider themselves strong Obamacare supporters—they're just disappointed, and frustrated, with their predicament. Charles Ornstein, senior reporter of ProPublica and longtime writer on health care, posted an account of their story on Tuesday.
- Health care industry consultant Robert Laszewski and his wife live in Maryland. You may have heard about Laszewski, because he has a widely read blog and has been quoted extensively in Ezra Klein’s Wonkblog, among other places. Laszewski has a generous Blue Cross plan that lets him see all physicians in the Blue Cross network, not just in Maryland but anywhere in the country. He says he can’t even find a new policy that would give him such unfettered access to providers. The plans he sees on Maryland's new insurance exchange would restrict him to narrower networks, he says—and would generally cost a lot more even though he’d end up with higher out-of-pocket costs. Like Hammack and Brothers, he makes too much income to qualify for federally subsidized discounts.
I’ve corresponded directly with Laszewski about his situation. Although he's been an outspoken Obamacare skeptic, he's well-informed and seems to have presented the facts accurately. And while I haven't spoken with Hammack and Brothers, their tales comes via an impeccable source. (Ornstein is a Pulitzer-winning reporter and former president of the Association of Health Care Journalists.) The two stories are consistent with what experts and insurance industry sources say they are seeing elsewhere, which suggests they are not isolated incidents. They teach us something real about how Obamacare is changing the insurance market.
But what exactly is the lesson? It's hard to say definitively. Among other things, some insurers are making business decisions that actually have very little to do with Obamacare. Still, Obamacare seems to be the driving force behind these particular changes, although it's not for the reason many people suspect. Sometimes the problem with current plans isn't the benefits. It's who gets to buy them—and who does not.
Before the Affordable Care Act, insurers selling policies directly to individuals sought to maximize enrollment from relatively healthy people and to minimize enrollment from relatively unhealthy people. This strategy had impeccable business logic: Healthy people don't run up big bills and sick people do. Insurers accomplished this in three ways: They would charge higher prices, restrict benefits, or deny coverage altogether to people with pre-existing conditions. This made affordable, comprehensive coverage more or less unavailable to people with medical problems. Prohibiting those practices, in order to make coverage available to all, was a primary goal of the Affordable Care Act—a goal the American people say they support overwhelmingly.
But a system that discriminates against some people inevitably discriminates in favor of others. If you had asthma or diabetes or had survived cancer, you basically couldn’t get coverage in the old market. If you had a less severe condition—maybe you had a bad bone break last year—you might be able to get coverage but with related services, like physical therapy, excluded. But if you were in good health, you could get insurance. And precisely because you seemed like a good risk, insurers were willing to give you a pretty good price—at least by the standards of American health insurance.
Consider the Kaiser Permanente policy that Hammack and Brothers have right now. The premiums are $550 a month, which works out $6,600 a year for the couple or $3,300 per person. That’s real money, obviously. But for comprehensive health insurance? It’s on the cheap side. Extrapolating from an annual survey by the Kaiser Family Foundation (which has no ties to Kaiser Permanente) and Health Research and Educational Trust, the typical worker with insurance from an employer paid $4,565 for that coverage last year. It's hard to make an apples-to-apples comparison, since employer plans tend to be more generous. But one reason employer plans tend to cost more (in this case, and others) is that employers can't withhold benefits from employees who happen to have medical problems. They have to insure healthy workers and unhealthy workers. That raises the cost of insurance.
Under the Affordable Care Act, insurers that sell coverage directly to consumers must now play by the same rules as the employers do. That means Kaiser Permanente and CareFirst (which insures Laszewski) can no longer keep out bad medical risks. To accommodate the influx of potentially unhealthy beneficiaries, insurers could increase rates or they could simply decide to reduce benefits. In practice, they seem to be doing both—which is why the alternatives all of these people are seeing appear to be more costly, less generous, or some combination of the two.
Klein summarized the effect in a follow-up about Laszewski:
people benefiting from this discrimination didn't know they were benefiting from it. But people in the individual market right now are paying less because of discrimination against the old and sick. When that discrimination ends, a lot of them will end up paying more.
The architects of the Affordable Care Act, like everybody who understands health policy, knew this would happen. And they crafted the law in a way that would cushion the impact for most people. The most obvious method is those subsidies, which offset higher premiums in part or in whole for the majority of people buying coverage on the new exchanges. The law has other, less well-known provisions to help restrain insurance prices—most notable among them, a “medical-loss ratio” requirement that effectively limits how much profits insurers can make. These steps will reduce the number of people unable to find better coverage or facing the prospect of actual “rate shock.” But these steps won’t help everybody. Some people will end up with worse options.
You probably want to know how many people fall into this category. Good question! The data on people buying their own insurance is incomplete, ambiguous, and conflicting. But most experts I've consulted believe that, of the small percentage of Americans who buy their own coverage, a minority should end up paying more next year. (For an alternative view, read Avik Roy of the Manhattan Institute.) The ones facing the most severe sticker shock will tend to be more affluent, since they will get little or no help from federal subsidies. It's almost surely a small group of people. But how small is impossible to say with certainty.
Of course, these people may not feel affluent. That’s particularly true if they live in an area where real estate, gasoline, and other routine costs make it expensive to live. The suburbs of Washington, D.C., where Laszewski lives, is one such place. San Francisco, where Hammock and Brothers live, is another. For a couple in either city making $70,000 or $80,000, which is just above the subsidy threshold, absorbing a few thousand dollars a year in extra health insurance premiums will probably seem like a big deal.
In an ideal world, health care reform would help some of these people more than it does now—either by offering more generous subsidies, offset by taxes on the truly rich, or by controlling the cost of medicine and insurance more aggressively. (A single-payer plan would basically do both things.) Obamacare supporters, in fact, have frequently called for just such changes. The law's critics oppose them.
But it’s not like the Affordable Care Act doesn’t do some of this already. The subsidies actually reach higher into the income spectrum than the subsidies in Massachusetts did, back when that state introduced reform. The health care law already imposes new taxes on the rich, via a surcharge on Medicare payroll taxes. And it has regulations like the medical-loss ratio to keep insurers in check.
The truth is that, until now, people in this situation have been among the few, fortunate souls for whom American health insurance is a bargain. They’ve been relatively healthy, and they’ve had relatively good incomes, making it possible to buy comprehensive policies at prices they could afford. But the practices that made insurance cheap for them made it expensive—and in many cases unavalable—for others. Their good fortune was the by-product of bad fortune for many others. As one ends, so must the other.
Update: I had originally written that the Hammack's Kaiser Permanente plan was "remarkably cheap" relative to employer plans, but that's probably overstated, since—as best as I can tell—it's a bit less generous than the typical employer plan. I've changed that reference accordingly, just to allow for more uncertainty.