The health insurance landscape has changed dramatically since the Patient Protection and Affordable Care Act has gone into place. While prior to the law many carriers offered different benefits while most offered standard benefits such as hospitalization, outpatient, and prescription. Under the Affordable Care Act (ACA for short, aka Obamacare) all plans must have what are called Essential Health Benefits (ESB’s). Some of the benefits that are now mandated in all plans were optional previously. Some benefits such as maternity coverage was an optional coverage before. Mental health coverage was often times an option, some states had mandated benefits as well. The more you require a plan to cover, the more you have to charge for that plan. I like to use the analogy, if they made a law that you could no longer buy a plain cheese pizza, you would still pay for the toppings.
When pricing is set by insurers they are charging based upon risk. If they pay out more in claims than they take in premium, they must increase the rates to offset that loss. Prior to the ACA, companies did what is known as underwriting. The underwriting would qualify you based on your health. The insurance carriers could select the healthiest risk, or have a specified increase based upon health issues, such as it was common to charge 10% more for high blood pressure. They could also decline certain risks outright. Now they must accept everyone so long as they do it during open enrollment. They also cannot charge someone with a medical condition more than they can charge someone who is perfectly healthy. This process tends to hurt the younger healthy people more as they are charged more to offset the cost of the unhealthy. So far we are not seeing enough younger people enrolling to offset the higher cost of the sick.
To offset the higher costs of insuring everyone even those with medical conditions, we have seen the return of Health Maintenance Organizations (HMO’s) to the individual market. With an HMO you need what is called a primary care physician (PCP). He is like the quarterback for your medical care. If you need to see a specialist, you need a referral from your PCP. In some markets some carriers only offer HMO’s. Another strategy being employed by some carriers is a Preferred Provider Organization (PPO) with a smaller network of doctors than a traditional PPO. These plans also now have less coverage for out of network services. Traditional PPO’s allowed you to see any doctor or hospital. They had large networks. They would have a higher deductible and higher out of pocket costs for going out of network. The Pre ACA plans on the individual market often times had a family out of pocket expense of $5000 and out of network might have been $10,000. Now out of pocket maximum for a family in network is often times $12,700. It is not uncommon to see an out of network out of pocket as high as $25,000 for a family.
Due to several requirements of the Affordable Care Act, fifteen insurers have stopped offering health insurance. Assurant Health, being the latest casualty. Assurant lost $63.7 million in 2014. In the first quarter of 2015 they lost between $80 and $90 million. In June of this year, after 123 years in business Assurant stopped taking new applications and announced it was leaving the health insurance market. They will also be canceling all plans, both grandfathered and non grandfathered at the end of the year. Assurant insures approximated One million people nationally.
Fewer insurers will lead to less choice. When there is less competition there is usually rates going up, as there is nothing to drive it down. Also, if there are fewer insurance carriers, hospitals lose their negotiating power. The fewer carriers in a market, the lower reimbursement rates they can dictate to the hospitals. Hospitals would then make less per patient. A lot of hospitals are also being forced to merge to consolidate expenses. This will also lead to less consumer choice.
Health insurance markets are very concentrated. Research by the American Medical Association as well as the Government Accountability Office find that five large health insurance carriers, Aetna, Anthem, Cigna, Humana, and United Health Care control 70% of the major metropolitan areas across the country. With the mergers of Anthem and Cigna and Aetna and Humana, that will shrink to only three major carriers covering 70% of the country. Higher concentration will lead to higher premiums. We have seen this with the airline industry. With the airlines we now have fewer choices on who to fly with, longer lines at the counter and higher airfares.
Prior to the ACA, most health plans focused on the catastrophic. Most plans had lower deductibles and lower out of pocket expenses. Many plans especially Health Savings Accounts may have had a family deductible of up to $5000, but you paid everything up to that amount. You paid for all of your medications, doctor visits and lab work. Since the ACA has been implemented the focus is more on prevention. In Illinois, a Bronze HSA qualified plan will now have a family deductible of over $12,000. Preventive care will be covered without copayment. So the positives are if you need immunizations or a physical it cost you nothing out of pocket at the time of service. The downside is if you have a major claim or health issue you will have an expense of over $12,000, at a time when you may be working less due to illness.
Healthcare premiums are a derivative of healthcare expenses, which would include claims and administration. In 2014 Health Care Service Corporation, the largest non -profit insurance company in the country, and the parent company of Blue Cross and Blue Shield of Illinois, Montana. New Mexico, Oklahoma and Texas lost $281.9 million. Major Claims were up significantly and their prescription drug cost rose 43%. Under the HCSC umbrella, BCBS of Illinois lost almost $280 million on individual policies, in Texas, it was almost $400 million.
Earlier in 2015, Moody’s Investment Service, said a majority of insurers lost money on their exchange business in 2014. The profitability of those plans, “will continue to be challenged in the near future…until some degree of stability is achieved in the insured population with both regulators and the number of insurers participation,” the credit rating agency said.
The Affordable Care Act as an alternative to a “public option” created what was called Consumer Operated and Oriented Plans ( CO-OP’s). These non-profit plans were designed to broaden coverage options and increase competition to the markets. Co-ops were started in 25 states and given $2.44 billion in low interest federal loans to start up. In the first year they generated approximately $500,000 enrollees total. Some of these got few members as they were still overpriced in the markets. Others were underpriced. Last year we say the Iowa and Nebraska Co-op fail. The Louisiana Co-op announced in June it would close by the end of the year. They attributed it to in part a sicker than average membership. In Louisiana this affects about 16,000 members. In September, New York announced they would terminate policies at the end of 2015 and close its doors. The Co-Op in Nevada also will not operate in 2016. Of the 23 Co-Ops that were established only Maine is profitable. The program began with 23 Co-Ops in 25 states. For 2016 there will only be 19 operating in 20 states.
For the Americans who do not receive an Advanced Premium Tax Credit (subsidy) on the individual market, and depending on where you live, you have seen your deductibles go up as well as your premium and will see it go up more in 2016. It is possible you have had your plan original plan cancelled or set to cancel in the coming year. You may have had to change doctors. For the unsubsidized, you probably have a lot less than you had before. For the subsidized they could have fewer choices than they had before, but could be paying less for insurance and potentially have a lower deductible. So the overall affects of the law really depend on where you fall on the income scale to shape your opinion of the law.