"Obamacare Is Radically Changing The Individual Insurance Market — And That’s A Very Good Thing"
Reading and watching this morning’s news coverage about individuals and families receiving notices that their current health care plans don’t meet the minimum requirements of the Affordable Care Act, you’d think that insurers have never before cancelled people’s health care coverage. It’s as if the the individual health care market had offered substantive and comprehensive insurance before the law came along in 2010 and forced the good and trusted folks at Wellpoint, Aetna, Cigna, or United Health to suddenly undo your plan.
So it’s easy to forget in all the decontextualized reporting why the law’s minimum standards were written in the first place and what kind of policies they’re seeking to regulate.
Before the Affordable Care Act went into effect, in most states, Americans were routinely denied coverage in the individual health insurance market if they suffered from serious medical conditions like diabetes, hepatitis C, multiple sclerosis, schizophrenia, quadriplegia, Parkinson’s disease and AIDS/HIV or had relatively benign problems like acne. Some people who had been prescribed Abilify and Zyprexa for mental disorders as well as Neupogen, which is used to treat the side effects of chemotherapy, or even insulin were also routinely turned away or priced out of insurance.
Many insurers, after all, wanted to keep people who incurred substantial health care costs from buying coverage, reasoning that if they only extended insurance to young and healthy people, those individuals would pay-in monthly premiums and almost rarely use their health care benefits, meaning the company would stand to profit.
While employers cannot deny sick people insurance, the individual market was overseen by the states and in the vast majority, insurance companies were permitted to “reject individuals for coverage based on their health status, occupation, or even their recreational activities.” Before the Affordable Care Act went into effect, just five states prohibited issuers from cherry-picking the healthiest consumers and few limited how much an insurer can increase an individual’s premiums.
Healthy people benefited from a system that denied coverage to the (relatively) sick — but only if they never incurred medical expenses themselves. If they fell ill or began incurring substantial cost, companies would find any reason to cancel their plans — often by claiming that they failed to reveal a major medical condition. (Theoretically, federal law protects consumers from rescission and policy cancellations that are arbitrary, but companies often “do not follow federal standards and instead follow state laws that offer weaker consumer protections.”)
The news was fraught with insurers breaking the law to cancel applicants’ policies. In August of 2008, Anthem Blue Cross and Blue Shield agreed “to pay a total of $13 million in fines and to offer new health coverage to more than 2,200 Californians the companies dropped after they became ill.” Later that same year, Health Net Inc. reached a settlement with the California Department of Insurance, agreeing “to offer new coverage to 926 customers who were dropped from individual or family policies in the years since 2004.” And in 2010, even after the Affordable Care Act was signed into law, an investigation revealed that WellPoint — the nation’s largest insurer — stretched the nation’s lose anti-rescission laws to cancel health insurance coverage for individuals when they need it most. The insurer used a computer algorithm that automatically targeted “policyholders recently diagnosed with breast cancer” and investigated them for “fraud.” To make matters worse, the company lied to prosecutors about the practice, falsely stating that it had changed its procedures for canceling the policies of patients after they become ill.
Remember, this was a system in which more than 60 percent of medical bankruptcies occurred to people who already had insurance: the coverage just wasn’t good enough and shifted too much cost to the consumer.
The Affordable Care Act’s grandfather rules and the minimum standard benefit requirements came out of these experiences and frustrations. They establish a federal floor of consumer protection that prevents insurers from shifting the cost and risk of health care to the individual and puts an end to the kind of practices that plagued the consumer driven health care market for years. By 2014 almost all plans will have to meet the new requirements.
Many young and healthy beneficiaries who are currently receiving cancellation notices from individual insurers are understandably upset that they have to change policies. They like the individual plan they currently have but only because they rarely use the coverage they purchase at those attractively low premium rates. But past experience shows that the policy you think you like because you’re healthy today won’t be there when you become sick tomorrow. You may be paying a low monthly premium, but the out-of-pocket health care costs you incur after falling ill could send you into bankruptcy.
Under reform, you’ll find more comprehensive insurance in the exchanges, sometimes at lower cost than what you’re paying now. But even if the monthly premiums are higher, you’ll be paying for better care that will cover more services should you fall ill. You’ll also be contributing to a system in which everyone can always sign-up for health care coverage.
So Obama’s promise — if you like your coverage you can keep it — was missing several key caveats. It’s true that most individuals enrolled in employer based plans can maintain their policies — those plans already meet the new requirements. But for Americans in the individual health care market who have policies that don’t provide you with comprehensive insurance or have substantially changed since 2010, the regulations in the Affordable Care Act mean that you will not be able to keep what you have. Instead, you’ll have to enroll in something better.