Sunday, January 23, 2011

The Insurance Industry and the Affordable Care Act:

What consumers need to know

By Barb Rea
ESPC health issues volunteer

The insurance industry poured $80 million into lobbying what is now known as the Affordable Care Act (ACA), the nation’s new health care law. The industry succeeded in reaching its main objectives, killing the public option and ensuring the inclusion of an insurance mandate—a requirement that people buy health care—that will bring them millions of new customers.

Many healthcare policy analysts believe that efforts to repeal the ACA will not be successful because the powerful insurance industry wants the provision that will tax people who fail to buy insurance to remain intact.

In exchange for the mandate that will bring the industry tens of millions of new customers, the industry agreed to comply with new rules and regulations. The new rules and regs will profoundly affect the way the companies compete, and will at the same time provide new security for millions of Americans. The industry is now spending millions of our premium dollars to influence the people in charge of writing the new rules and regulations.

Instead of fighting for repeal of the law, our representatives both in Congress and the Wyoming Legislature should be working to ensure Wyoming has a way to enforce compliance with these new consumer protections.

This is especially important in Wyoming, where representatives of the insurance industry are the default experts on all insurance questions. We have very little experience with or expertise in insurance regulation—the state has, for example, no authority to review rates unless it declares a particular insurance market is not competitive.

And the state declined to apply for $1 million in federal grant money that the ACA made available to all states to help them beef up their insurance oversight. Wyoming Blue Cross/Blue Shield currently operates with an excessive surplus, one of the highest in the nation, and continues to file for rate hikes, which our Insurance Commissioner has no authority to deny.

Wendell Potter, a former public relations executive for Cigna, one of the largest insurance companies in the U.S., reveals in his new book, Deadly Spin, how the industry works systematically to increase profits at the expense of consumers and pours millions of dollars into PR campaigns created to spread disinformation.

Mr. Potter resigned after he began to see that his industry was contributing daily to the growing numbers of un- and underinsured. The industry was part of the problem—and its promise to support health reform efforts under President Obama was disingenuous.

He explains the relationship between health care and how the industry works to maintain its profit margin. Currently, insurance companies compete on risk selection-- companies (for-profit and non-profit alike[1]) try, in a variety of ways, to select healthy customers and dump sick ones to avoid having to pay claims.

These are some of the tactics:
  • denying people coverage or charging them more because of some pre-existing health condition;
  • excluding or limiting coverage of certain conditions;
  • “rescinding”— canceling—a policy when a person gets sick;
  • more subtle tricks like discontinuing coverage of certain medications or changing the amount the customer must pay for them; and
  • changing the network of providers available to the customer to exclude certain types of specialists —or maybe your specialist.
From the consumer’s perspective these tactics are genuine “gotchas,”and we have come to assume that this is just the way the business works. Few of us anywhere in the nation file complaints. The process is very intimidating, and those who do file are rarely able to overturn the insurance company’s decision.[2]

The new federal healthcare law addresses these problems and establishes new rules to eliminate “gotchas.” The ACA is designed to move the industry from one that competes on risk selection to one that competes on risk management.

Many of these rules have already gone into effect. Insurers, for example, can no longer cancel a policy if a person gets sick, or deny coverage to children with preexisting conditions. [3]

Starting this year, thanks to the ACA, we will be able to see what proportion of our premiums is used to pay for medical care and what proportion goes into marketing, other overhead—and profit. If companies don’t spend 80 to 85% of our premiums on our claims, they will have to pay us a rebate.

If the new law drives insurers who are taking a larger bite out of our premiums out of business, they shouldn’t be missed. That will be a good thing for consumers. These companies now are collecting premiums without paying claims. And insurance customers, under the new law, are guaranteed the right to an external appeal if companies fail to pay as promised.

The law also allows for the establishment of a set of “essential benefits” so all insurance companies have to cover the same set of benefits, making policies easier to compare and spreading the risk of the total cost of health care in our state across as many people as possible.

This is important in Wyoming, because the federal guidelines for establishing these benefits are broadly defined and states will have the authority to make consumer protections stronger if they want to. We could make Wyoming citizens much safer by making these standards as broad as possible. We could guarantee that patients in Wyoming will never be put in a situation where the doctor tells them they need something but their insurance doesn’t cover it.

With the establishment of insurance exchanges in 2014, insurers will have to begin to compete by adding value to their products, like providing great customer service, or patient education, or by offering coverage for popular elective procedures over and above the essential benefit package.

The mandate to buy insurance is the key to spreading the risk. Without a mandate the likelihood is greater that people would only buy insurance when they got sick.

The ACA puts us on the path to near total coverage in several different ways:

  1. Most people in Wyoming will continue to get their health insurance through their employer.
  2. Forty thousand will find coverage through the new insurance exchange where people and small business can shop for insurance. This coverage will be made more affordable with the application of federal subsidies for anyone making less than 400% of Federal Poverty Level (approx. $80,000 for a family of 4).
  3. Thirty thousand will become eligible for Medicaid, a public insurance program, with the federal government picking up most of the tab and at a cost savings to the state, according to a report prepared for the Wyoming Department of Health.
Most of us agree that the system is broken but many do not understand how the federal law can help us create a Wyoming solution. Insurance should pay for what is medically necessary and people should easily be able to predict how much they will have to pay out of pocket for premiums, deductibles and co-pays.

But if we are unwilling to regulate this industry at the state level we should let the federal government do it for us.

Wyoming has made many attempts at state-wide health care reform over the last 25 years but has never had the political will to do all that is necessary. We need the federal framework provided by the ACA to achieve real reform, and we need to be wary of allowing industry representatives to do the job for us.

A Wyoming solution has to be a real solution to the failure of our health care system to meet the health care needs of all our citizens, not perpetuate the practices that got us here.

[1]“…Blue Cross Blue Shield of Wyoming had only one hundred thousand members in 2007, but CEO Timothy Crilly collected a salary of $471,000, or $4.71 per member, the highest per capita rate in the nation.” Potter, Deadly Spin.
[2] Assessing State External Review Programs and the Effect on Pending Federal Patient s Rights Legislation. Pollitz, Lucia, Bangit. Kaiser Family Foundation, May 2002.
[3] This rule hasn’t stopped the industry from gaming the system for children as many plans stopped offering child only policies. “How States Are Making Sure Coverage is Available to Children. Families USA, 2010.

Barb Rea, pictured above, serves as a consumer representative to the National Association of Insurance Commissioners.