Wednesday, October 30, 2013

KHN explains why insurers cancel policies

Kaiser Health News has the best explanation of how and why insurers can cancel policies in the individual health insurance market.  Excerpts:

News that health insurers are ending the policies of what could be millions of Americans has rattled consumers and added to the debate over the health care law.

If you or a family member has been notified that your individual policy is being cancelled at year’s end, you may be stunned and upset.

No one knows how many of the estimated 14 million people who buy their own insurance are getting such notices, but the numbers are substantial. Some insurers report discontinuing 20 percent of their individual business, while other insurers have notified up to 80 percent of policyholders that they will have to change plans. 

Q. Why are premiums changing?
A. Under the old rules, insurers could decide whether to accept you – and how much to charge -- based on answers to dozens of medical questions. You no longer have to fill out those forms. Starting Jan. 1, insurers can no longer charge women more than men, reject people who are sick or charge them more and can charge older people only three times more than younger ones. They’re also adding new benefits.

As they drew up the rates for 2014, insurance firms had to make educated guesses about how many customers would stay, how many new ones they would attract – and what the health conditions of those new members might be.  Actuaries say the new rules on how much insurers may vary rates level the playing field, making premiums more of an average. Older buyers or those who had above-average health problems – and whose former rates reflected those problems – may find their premiums going down. Younger or healthier people, on the other hand, may find premiums going up, sometimes sharply.  Under the new rules, consumers “are not paying based on their own health status, but an average health status,” said Robert Cosway, an actuary with consulting firm Milliman. “The positive side is that people in poor health won’t have to pay as much, but the way you get there is that people in better health have to pay more.”


Barry Carol said...

Modified community rating (the maximum 3X old to young premium ratio) coupled with guaranteed issue and a mandate to buy a policy and participate in the system is sound policy in my view. If we were starting with a clean sheet of paper, this is the way we would probably do it.

Liberals would prefer taxpayer financing and perhaps a Medicare for All like single payer system to achieve universal health insurance coverage. Conservatives think it’s better to use private insurance companies, which offer at least some choices like deductibles and copays, narrow vs. broad networks, etc. and an individual mandate to buy insurance with help from taxpayer financed subsidies for those who can’t afford the full premium themselves.

In Switzerland, they use the private insurance approach coupled with an individual mandate and people can choose a deductible between a couple of hundred and 2,300 CHF per person, I believe. About 45% of the population qualifies for a subsidy. Premiums are less than the equivalent of $100 per month for children, a bit under $300 for young adults between 19 and 25 and something over $300 per month for adults 26 and over. There is no equivalent of Medicare or Medicaid.

Germany uses payroll tax financing. The combined employer and employee share is currently 15% of wages, I believe, though the maximum wage base to which the tax applies is €45,000. Children are covered through general tax revenue based on the notion that they are a national treasure. If you’re unemployed, your premium is paid by the unemployment insurance fund and if you’re retired, it’s paid by the pension fund both of which are financed by payroll taxes as well.

Each country needs to develop an approach that reflects its values, culture and history. What works in one place may not work somewhere else. Nobody should think in terms of one size fits all.

Anonymous said...

As I pointed out in another blog, no one cared about us poor souls in the individual insurance market before the ACA. We were a small fraction of the population; who cared if we got screwed? Everybody else had employer-based insurance.

Now, when it is politically expedient, suddenly a LOT of attention is being paid to this small fraction of the population - many of whom are better off with this new law; some worse off. Another illustration of the cognitive irrationality of humans.

nonlocal MD

Anonymous said...

Of course, if we had a single payer system and a risk pool of 335 million all this would disappear. Insurance companies could compete on the supplemental product if they chose or go out of business altogether. It’s a simple and practical solution, not ideological or political, but that is the way it is treated in the US. And the ACA toll out debacle has killed any chances of further health reform progress in this country for at least another election cycle and probably longer.

Paul Levy said...

Well, it is ideological and political both. The contrast: The UK, Israel, and so many others do as you suggest. In those countries, the political and social environment is such that what you suggest as an alternative is not the least bit controversial.

Paul Levy said...

Plus, here we do it for Medicare . . .

Anonymous said...

Many years ago, I said in a blog that Barry Carol should be head of the "Committee to Fix Healthcare." (: His many informative comments on this and other blogs prove my point. Hopefully he won't mind if I add part of his comment on another blog that really gets to the heart of the problem:

" The bottom line is that comprehensive insurance isn’t cheap any way you slice it at least until we figure out sensible ways to lower the cost of healthcare. We need to remember that health insurance is expensive because healthcare is expensive. It’s that simple."


Barry Carol said...

Bev M. D. – Thanks for your vote of confidence. I appreciate it.

For those who support a single payer system, I strongly recommend that they read chapter seven of Dr. Ezekiel Emanuel’s 2008 book, “Healthcare Guaranteed.” The chapter’s title is “Single Payer Systems: An Outdated Solution for Modern Medicine.” The bottom line is that there is a lot more to fixing healthcare than getting rid of insurance companies, cutting administrative costs and negotiating drug prices down to European levels.

Anonymous said...

If our national objective is to maintain or slowly grow healthcare as a percentage of GDP, then a single payer system, or a system of strict price controls probably would work. With "political log rolling" there is really no way to cut spending in any kind of sustained way. As we have seen in our interminable budget debates even reducing the rate of increase of government spending is politically very difficult.

The people who say a single payer model would would work forget that most of our academic medical centers and other high cost health providers lose lots of money on medicare and medicaid. It is the much higher rates paid by private insurers that allow those losses to continue.

If medicare essentially paid the same rates to everyone as they pay for medicare today. Most of our health providers especially the most famous ones would go bankrupt.

If the famous (high cost) ones were paid much more it would change the character of Medicare which I believe pays a premium to institutions which care for the poor.

Conversely with the U.S. cost of healthcare approx 18% of GDP, for care which isn't universal and of lower quality than most of the industrialized world, which mostly pays in the 8% to 12% of GDP range for better and universal care, we should be able to do better.

If we had real price competition that could drive cost out of our bloated health system down to the level of most industrialized countries we would all benefit.

One simply way to do this would be to make it easier for physicians and other health providers from other major industrialized countries much freer access to practice here.

Completing the Romney/Obama care model of accountable care organizations competing to care for populations of patients at high quality and lower cost is critical as well.

As Barry Carol said, "health insurance is expensive because health care is expensive". And it will remain so until we can get real competition into the health market. Physicians and nurses competing for jobs from around the world would greatly help since approx 70% of health costs is people. In our health market, accountable care organization competing to care for patients at high quality and low cost should be able to drive down health costs also.

Let the competition begin!


Anonymous said...

One additional item about "for profit" health insurance company culpability for the high health care costs in the U.S.

Most insurers in massachusetts are non-profit or governmental payers. The for profit health insurers so prevalent in most of the country have a tiny market share here in Mass. Yet mass is either the most expensive or one of the most expensive states in the U.S. for health care.

It isn't the "evil" for profit insurance companies. As Barry Carol said above the reasons for our high cost of care are far more complex.


akhan13 said...

I would also add that in most countries with insurance mandates combined with private insurance (or similar models) prices are negotiated together by payors as a group, which leads to a better balance in negotiating. Here in the U.S. large provider groups have tremendous leverage and can basically demand higher prices.