Health Insurance Companies Agree to Cover Everyone If…

On November 19, 2008 the insurance industry tried to position itself as a driver of health care reform by putting out a proposal that appears bolder then what it has proposed in the past. Two insurance industry trade groups, America's Health Insurance Plans and the Blue Cross and Blue Shield Association, announced [1] that their members are now willing to do away with their long-standing practice of denying coverage to people with pre-existing medical conditions. But there is a big "if" to their offer.

In return for their largesse, the industry wants Congress to require all Americans to buy one of their policies under the terms and at a price the insurers set. The industry says this type of 'individual mandate' is needed to keep healthy people from delaying buying health insurance until they get sick.

According to The New York Times:

"In many cases, people with cancer, diabetes, traumatic brain injuries or other serious afflictions have found that they cannot obtain health insurance at any price.

"Research suggests that some insurers turn down 10 percent or more of applicants for individual coverage because of their pre-existing medical conditions."

What is wrong with that? As The New York Times put it:

"While insurers would be required to sell insurance to any applicant, nothing would guarantee that consumers could afford it.
"At present, insurance premiums are generally regulated by the states and often vary according to a person's age, sex, medical history and place of residence within a state. In the individual market in most states, a person with a history of serious or chronic illness can be charged much more than a healthy person of the same age and sex."

Ezra Klein of the American Prospect explains [2] how little a 'concession' this actually is:

"Some deal. They're basically saying that if we legislate that every American must purchase insurance coverage, they will sell insurance coverage, at some price, to every American. Their 'concession' here is something called 'guaranteed issue,' and it's an important step, but not a sufficient one. The question is not whether they'll offer to sell coverage at all, but at what price? Selling insurance products that no one can afford may mean you're not technically denying people access to insurance, but it doesn't guarantee accessibility, which is a necessary precondition for a universal system. For that, you need 'community rating,' which would force insurers to offer coverage at the same price to everyone, spreading risk equally and ensuring that coverage is no less affordable for the sick than the well.

So I e-mailed Robert Zirkelbach, AHIP's spokesman, to ask if this proposal had a community rating provision: 'The proposal we issued yesterday was for guarantee issue combined with an individual mandate. We also need to take steps to ensure coverage is affordable for all. There needs to be an adequate safety net and we should provide tax credits to low and moderate income workers. We also have to address the key medical cost-drivers that drive up the cost of coverage.'

"In other words, no. At least not yet."

Bob Laszewski of the Health Care Policy and Marketplace Review expressed [3] a similar disdain for the industry's 'compromise':

"The industry's proposal glosses over the real issue—figuring out how to make health insurance affordable so that a mandate that everyone buy coverage is practical and enforceable.

"All we need to do is to look to Massachusetts to see how hard this is.
"Under the new Mass health law, there was to be a mandate that everyone have health insurance. But Mass was only able to afford to provide subsidies for families making less than about $60,000 a year. With the cost of a family policy—that included a $2,000 deductible—often between $10,000 and $13,000 a year the state had to back off on the mandate. It was simply unrealistic to force most middle-class families to pay such high costs."

We can learn a lot from Massachusetts about the problems with making health insurance offered by private insurance companies affordable, both in premiums and in out-of-pocket costs.

The state reports [4] that of the 5% of people still uninsured in Massachusetts, nearly 100,000 chose to pay the fine rather than purchase insurance they did not believe they could afford. Another 64,000 got a waiver from having to buy insurance because the state agreed that their insurance options were not affordable for them.

Karen Pollitz, director of the Health Policy Institute at the Georgetown Public Policy Institute, demonstrated the need for community rating by analyzing the premiums people of different ages in Massachusetts have to pay for the same plan after health care reform was passed. She found wide variation. For example, one plan offering the "bronze" plan, which offers the least coverage, charged an individual in his or her 20's $6,972 a year in premiums with a $4,000 deductible. That same plan cost a person in his or her 40's $9,552 a year with the same $4,000 deductible. Someone in his or her early 60's would be charged $13,944 year. (Family coverage for the same policy comes with a $10,000 annual deductible and an additional $10,000 a year in premiums at each age level.)

But just making premiums affordable is not enough. Even for those who did get insurance, many still cannot afford care. A fall 2008 survey [5] of Massachusetts residents on healthcare conducted by the Boston Globe and the Blue Cross Blue Shield of Massachusetts Foundation shows many people are still struggling to pay for healthcare despite more people having health insurance:

• 13 percent of insured residents said they couldn't pay for some health services in the past year;
• 13 percent of insured residents said they couldn't afford to fill a prescription in the past year because it cost too much or their copay was too high; and
• 30 percent of those surveyed ranked the cost of care their biggest health concern.

The fact is 'guarantee issue' and 'community rating' are necessary basic features of any health care reform package, but they are not enough to make quality health care affordable to all. We need [6] strong and fair regulation of the insurance industry, as well as a public insurance plan option [7] to compete with the private plans.

Researchers from the Urban Institute [8] make a powerful case for the need to break the quasi-monopoly private insurers currently have on health care costs. They show how a public insurance option promotes value, can help reduce overall health care costs, and improves private insurance.

"Having a competing public plan will neither destroy the private insurance market nor lead to a government takeover. Private plans are attractive because of their ability to be responsive to consumer demands for choice and their innovations resulting from both the profit motive and desire to attract a larger enrollment base. Public plans are attractive because they can offer better access to necessary care for diverse populations, they have lower administrative costs, and they can be large-scale purchasers with a strong negotiating position with providers. The presence of both types of plans should allow the advantages of each to enhance a reformed insurance marketplace while protecting the markets from the potential negative consequences of each type acting alone."

Alison Bass and her family illustrate the problem of the unaffordability of care for people with insurance in Massachusetts' private insurance marketplace perfectly. She wrote about her experience [9] with high out-of-pocket health care costs in the Boston Globe earlier this year:

"THE NEARLY 300,000 Massachusetts residents who signed up for health insurance under the state's new initiative are in for a rude awakening. They may now have some form of coverage, but many of them, even the very poor who used to get free care, are going to be socked with steep medical bills...

"By last fall, [my family] owed nearly $3,000 in medical expenses. The bills had begun accumulating shortly after my husband, a social worker, switched jobs and we were forced to change health insurance from a local Blue Cross plan to a for-profit national plan. My husband was not offered a choice of health plans, and when we signed up it was not made clear that our deductible for the year would be $3,000 (for in-network expenses; $4,500 for out-of-network expenses).

"Nor did we understand that once we met the deductible (i.e., spent $3,000 to $4,500 of our own money), we would then have to pay co-insurance: 15 percent of every in-network expense we incurred and 45 percent of any out-of-network expenses...

"Instead of counting the full amount of our medical bills toward the deductible, the company only included a lower 'discounted' amount and excluded the cost of our co-insurance charges. According to the Access Project, such tactics are not that unusual. But they often go unnoticed because of the sheer complexity of the system. This experience has taught me that our system of private health insurance is badly broken and individual states cannot institute reform alone. We need universal healthcare on a federal level..."