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But They Said This Key Would Work: Coverage, Access and the Meaning of Insurance, Part 1

by Emily Friedman

First published in Hospitals & Health Networks OnLine, October 5, 2010

By the end of 2014, assuming the Patient Protection and Affordable Care Act (also known as the health care "reform" law) is implemented as planned, more than 90 percent of the U.S. population will have health insurance. But what kind of insurance will they have? And what is happening in the meantime? As premiums and deductibles climb ever higher, what choices are people making?

Emily Friedman
Emily Friedman

I knew it was coming, because I just had a birthday. And every year, shortly after my birthday, my friendly health insurer sends me a notice that my premium is going up. It doesn't matter that I didn't have any claims. It doesn't matter that I don't take a raft of prescription drugs. It doesn't matter that I am scrupulous about getting preventive care (including vision and dental, for which I pay the entire amount myself). I'm in the individual market, and that means I get slammed every year. This time around, the increase was nearly 10 percent.

In a way, I was lucky; this year, in some states, notably California, health plans tried to implement increases as high as 39 percent. Fortunately, Kathleen Sebelius, current U.S. Secretary of Health and Human Services (HHS), was the Kansas insurance commissioner before she became governor there, and knows a thing or two about coverage. She began pressuring the plans that were proposing these outrageous increases, and most of them decided to "reconsider" them — especially after an investigation in California found there had been "mathematical errors" in the insurers' calculations. Yeah, right.

Will "Reform" Make Things Better?

We are being told that the insurance provisions of the health care "reform" statute (the Patient Protection and Affordable Care Act, or PPACA) will bring an end to this kind of thing, because beginning in 2014, there will be limitations on how much insurers can charge, especially in the individual and small-group markets.

And the feds aren't waiting until then, as evidenced by Secretary Sebelius' jawboning of the California insurers. Indeed, on Aug. 16, HHS awarded grants totaling $46 million to 45 states and the District of Columbia — a down payment on what will eventually be $250 million — to strengthen their oversight of insurers and help them regulate premium increases.

The problem is that insurance review in many states is toothless (Illinois, for example, where I live, does not regulate the individual market at all), and although these grants might produce some benefit, the real stick behind the carrot does not become effective, again, until 2014, when the key PPACA provisions kick in.

So what was reported in the Wall Street Journal on Sept. 8? That health insurers are planning hefty premium increases for most policyholders because they need to cover expenses associated with PPACA — expenses that won't significantly affect them for another four years, if then.

In fact, in a recent survey, insurers predicted that a PPACA provision that took effect this year — allowing parents to keep their children on their insurance tax-free until they are 27 — will increase their costs by a massive 0.1 to 1 percent in 2011. That certainly justifies a 20 percent rate increase!

I understand the strategy, no matter what I think of it. If you know that there will be future limits on what you can charge, you will jack up your prices as high as you can while it's still possible. Anyone with a rudimentary understanding of economics could figure out that if prices will be controlled in a few years, in the meantime they will rise like Granny's home-baked biscuits.

Employment-Based Insurance: More and More Costly

And that's just what's happening. According to the excellent Kaiser Family Foundation/Health Research and Educational Trust annual Employer Health Benefits Survey, released in September of this year, family health premiums in 2010 rose 3 percent, to an average of $13,770. But the share paid by employees jumped 14 percent, as increasingly desperate employers shifted more of the cost to their workers. According to the survey, in 2010, 46 percent of employees in firms with a workforce of fewer than 200 pay deductibles of $1,000 or more; in larger firms, 27 percent do.

At least those employers still offer health benefits; overall, only 69 percent do, and only 59 percent of firms with three to nine workers do. The National Federation of Independent Business reported in July that only a third of the estimated 6 million small businesses in the United States offer coverage and pay at least half its cost.

According to a study by the National Business Group on Health, released in August, many large employers are so frantic to reduce health care costs that they are not planning to take advantage of a PPACA provision that would exempt them from many of the law's provisions, as long as they maintain their current level of benefits. Of 72 large employers surveyed, 53 percent responded that they planned to make changes in 2011. It's unlikely that these will involve lowering employee cost-sharing or enriching benefits.

No Options Left

The situation has not been aided by the expiration of COBRA benefits for many long-term-unemployed Americans, and the end of federal subsidies of COBRA coverage for unemployed people who can't otherwise afford it. COBRA benefits, as a rule, aren't cheap — but they are cheaper than what people in the individual market have to pay.

One example from among way too many: A friend of mine is a cancer survivor, as is his wife. He recently developed a form of multiple sclerosis and had to stop working because his motor skills are deteriorating. His wife works, but she's in real estate, so the money isn't exactly rolling in these days.

As the expiration of his COBRA benefits loomed, my friend carefully researched his options. There was one insurance plan available in his state to which he could convert from COBRA. One. After all, he and his wife had the bad sense to develop cancer, and he now has a chronic neurological disorder; not many insurers will crawl over each other trying to cover people with that health history. It was this one plan or nothing. He couldn't ask for a lower or higher deductible or a different benefit package. He had no choice. The annual premium for the two of them: $22,824. It's an HMO, with hefty co-pays and deductibles (and that's only if you use providers within the network), virtually no subsidy of outpatient pharmaceuticals and no vision or dental coverage.

What the insurers don't seem to grasp is that they are pricing millions of people out of the market. It's not like the economy is booming and employment is at an all-time high, after all. On Sept. 16, the Census Bureau announced that in 2009, 50.7 million people — 16.7 percent of the population — were uninsured. Between 2008 and 2009, 6.6 million people lost employment-based coverage; although public programs and the federal economic stimulus package provided some help, 4.3 million more Americans became uninsured.

"Ah, yes, but" — say those with blind faith in the upcoming reforms — "we have created 'high-risk pools' under PPACA, so that people with pre-existing conditions can purchase subsidized coverage until the insurance provisions become effective in 2014."

Are "High-Risk Pools" the Answer?

These pools provide public funds to help sick people purchase insurance. I used to believe in high-risk pools. Then one day, I had a moment of clarity and said to myself, "Hey, wait a minute. How come the private insurers get all the healthy, cheap-to-cover people, and the taxpayers have to subsidize all the expensive sick people? Where's the equity in that?" So I ceased being a fan.

In this case, the situation is even more absurd. In order to get into one of these high-risk pools, the applicant has to have been uninsured for six months. Yes, that's right. In order to qualify, my friend would have to drop all coverage and go bare for half a year. The man has MS, for God's sake! He and his wife paid for health insurance all of their adult lives, and this is their reward.

I should add that the cost of coverage through these pools is so egregiously high that as of August, a whopping 2,400 people had applied for them — out of an estimated 4 million who are eligible.

So what are people doing, in this dire economic environment, with national unemployment as of this writing at nearly 10 percent, and in some states, such as Michigan, pushing 20 percent? Employers, workers and people like me (who are trapped in the individual market) are making some very hard choices.

One is to drop coverage, and I suspect that is going to be an increasingly popular option as insurance becomes more and more unaffordable, even for people who have managed to hang onto their jobs. Another, equally unappetizing, choice is to drop dependent coverage and just hope nothing happens to your family.

Let's Raise That Deductible

A third option is to shift to less expensive insurance. But coverage becomes less pricey only if one or more of three features comes into play: higher deductibles, increased co-payments and/or skimpier benefits. And that is exactly where people are moving — and where the insurers want them to move. Unfortunately, some of the consequences aren't pretty.

According to a survey by America's Health Insurance Plans (the private health insurance lobby), as of January of this year, more than 10 million Americans belonged to a high-deductible health plan (HDHP). That's a jump of 25 percent in the course of a year. The majority of these policyholders were in the individual and small-group markets. The average annual deductible for an individual was $3,365; for family coverage, it was $6,366. Although some employers soften the blow by putting money into health savings accounts that can be used for part of the deductible, more and more employees are carrying most or all of the water. And in the individual market, there's no employer to subsidize anything.

The idea behind HDHPs — at least this is how they are marketed to policymakers and employers — is that insured Americans overuse health care and demand lavish benefits because they don't have enough "skin in the game" (what an obnoxious term — we aren't talking about playing poker!). If they have to pay more of their own money for their care, they'll make wiser choices, so the argument goes. The fact that information to guide their decisions is hard to obtain, often unreliable and usually incomprehensible is generally ignored. The additional fact that most patients' choices are constrained by their insurers' and providers' policies and preferences seems equally unimportant. Let's get that skin in the game!

How about we consider an alternative theory: No one likes risk. With the exception of a select coterie of bungee jumpers, for most of us, taking risks — especially big ones — doesn't sit too well. It's no different with insurers; if they can avoid risk, they'll do so. The problem, of course, is that they defend their premium increases and discriminatory practices by saying that their job is to accept and spread risk. But heck, you can make much more money if you hand the risk over to your policyholders while still claiming that because of the risk you accept, you need to raise premiums. It does seem to be a bit of a circular argument, but it has worked very, very well.

And if you can force most of the privately insured public into $1,000, $2,500 or $5,000 deductibles, you've removed a lot of your risk. First, you sure won't be paying as many claims. Second, people with heavy health expenses and not so much money can't handle the deductibles, so they will look elsewhere, and you won't be bothered with them.

In many cases, it stopped being meaningful insurance a long time ago; it's risk avoidance, plain and simple.

But there are other reasons to worry about HDHPs. Research conducted for the Commonwealth Fund early on, as these plans were first being pushed by their advocates, found that in 2005, member satisfaction was lower, out-of-pocket costs were higher (duh) and information to guide choices was unavailable. Yeah, well, you get what you pay for.

More important, however, was the fact that HDHP policyholders were, according to the Fund and the Employee Benefits Research Institute, "significantly more likely to avoid, skip, or delay health care because of costs." This included neglecting to take prescribed medications. Other research has indicated that a major area where care is skipped is preventive services — even in situations where those services are covered, because many people who have HDHPs don't understand that there may be exemptions for certain types of care. Insurance is pretty mysterious to most of us, and HDHPs are more mysterious than most of it.

And that isn't all. More and more people who signed up for HDHPs — whether they could afford better coverage or not — are now unable to pay those giant deductibles. I was recently talking with the leaders of a health system whose bad debt is skyrocketing; I asked how much was due to patients with HDHPs who did not have the money to pay the deductible. I was expecting a response of maybe 5 to 10 percent; the answer was 40 percent. That's skin in the game, all right. But it's not the insurers' skin.

PPACA defines four levels of insurance that will meet federal standards when mandatory coverage comes into effect in 2014. The lowest one — known as "bronze" — has some pretty hefty co-payments. Meanwhile, millions more people will have signed up for HDHPs by then. Good luck to us all.

What Do We Want from Insurance?

As all this unfolds, I think it is nearly certain that the cost of health insurance will rise just as far as the market will allow between now and 2014. Furthermore, more people will be unable to afford coverage and will just drop it, while millions of others will opt for huge deductibles that they will be unable to pay if and when the time comes. Preventive and primary care will fall by the wayside, and hospitals and other providers will face mounting bad debt at the same time that their Medicare reimbursements will be further constrained.

For many years, there was a debate about what health insurance should be — a means of ensuring that a person can get care when he or she needs it, a cocoon that protects a person from any accountability for his or her health care decisions, or a backstop in the event of catastrophic health events. Given that this country is gambling on expanded coverage — of whatever kind — as the solution to what ails health care, perhaps we should rekindle that critical debate before the body count-of providers, patients or both-gets any higher.

In Part 2 (Dec. 7, 2010): Just because you have coverage, it doesn't mean you have access to providers.

Copyright 2010 by Emily Friedman. All rights reserved.

Emily Friedman is an independent writer, speaker and health policy and ethics analyst based in Chicago. She is also a regular contributor to H&HN Weekly and a member of the Center for Healthcare Governance's Speakers Express service.

First published in Hospitals & Health Networks OnLine, October 5, 2010

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