Millions of Americans have received letters from insurance companies in the last few months, cancelling their health plans. It’s part of the transition to the Affordable Care Act, and it’s sparked anger and confusion. President Obama has been trying to address the concerns. Last month, he said this:
“…virtually every insurer is offering new, better plans and competing for these folks’ business. I realize that can be scary for people if they just get some notice like that. So we've got to make sure that we're getting them the right information.”
So, what is the right information? Well, it’s important to note that the new law will mostly affect just a portion of Americans who buy their own insurance. In California, that’s just over two million people. About a million received letters cancelling their health plans. The ACA requires that all insurance plans offer “essential benefits” like emergency services, maternity care, mental health, and prescription drugs. And these plans don’t comply.
As a result, many people are being forced to buy insurance with higher monthly premiums. And it’s not just an increase in benefits that’s causing the costs to rise.
The Cancellation Letter
I recently got a cancellation letter from Blue Shield. It’s 17 pages long, and it’s printed with graphs, pie charts, and most importantly, a table. The table compares my old insurance plan – the one that’s being cancelled – with a new plan recommended by Blue Shield.
I’ll admit, I was upset when I got this letter. The new plan is more expensive, and I thought my old insurance was really good. It has no deductible, and I pay about $260 a month. But I’m not an insurance expert, so I asked for a professional’s opinion. I talked to San Francisco insurance broker Carolyn Kim.
“I would say this is a great plan,” she told me. “Most people these days are on plans with a deductible. As the cost of insurance has gone up, most people decide to choose a higher deductible plan to bring their rates down. So it looks like you have a plan without a deductible, which isn't as quite as common these days, so I think that's a great plan.”
I think so, too. The new plan Blue Shield is recommending, on the hand, has a deductible of $4500 a year and costs $26 more a month. And that’s their cheapest plan.
“The plan that they are suggesting for you,” Kim told me, “is definitely a downgrade.”
I went on Blue Shield’s website to find a plan that more closely matched my old plan; something that wasn’t a downgrade. It turns out that if I want a similar plan next year with no deductible, I’ll have to pay at least $150 dollars more a month. That’s 60 percent more than I’m paying right now. I’d rather keep my old insurance, but I can’t. So, if I have to pay more to get what I already have, it would be nice to know what’s behind the hike in my health insurance premiums. I went looking and found some important answers.
Pre-existing Conditions
One of the most important factors contributing to the hike is that health insurance companies are no longer allowed to refuse people with pre-existing conditions. Estimates vary, but somewhere between 19% and 50% of Americans have a pre-existing condition.
I spoke with Susan Shargel, an insurance broker in San Francisco for 24 years. She reminded me of the process I had to go through when I signed up for my insurance with Blue Shield.
She said, “You answered pages of questions about your health, and the insurance company had an opportunity to say, ‘No, thank you. Actually, we would not like to approve your insurance,’ or, ‘Sure, we’ll take you on as a client but we’ll charge 50% more.’”
I remember that paperwork well. It was exhausting. I was healthy, and Blue Shield decided to insure me. But Blue Shield denied a lot of sick people based on their answers to those questions. That made health costs cheaper for me, but much more expensive for people who were denied coverage.
Carolyn Kim told me that paperwork is gone.
“In 2014 there are no health questions asked anymore, that means no coverage is based on pre-existing conditions. Basically everyone has to be accepted. That really drives up the cost of covering people, covering those unhealthy people.”
Ultimately, this feels like an ethical and moral question: Am I willing to pay a higher premium to help sick people get insurance? Yes. I am. The point of health insurance is to help people when they are sick, so why exclude people who are already sick? I wouldn’t want to be denied coverage for pre-existing conditions. But Kim told me that the end of this practice is driving up rates.
The 3:1 ratio
“The other thing that's really having an impact on rates is the new rate ratio,” she said. “In 2013 and before the Affordable Care Act was implemented, rates really from age 21 to 64 were a very steep slope. So between age 21 to 64 you might have seen more of a 6:1 or 7:1 ratio. “
In other words, older Americans paid a lot more for their health insurance than younger Americans like me. But now the Affordable Care Act has a 3:1 ratio, meaning older adults will now pay no more than three times what younger adults pay.
What does that mean for me? It means that when I’m older I’ll pay less, but right now, I’m stuck paying more.
Premium Assistance
So far, this has all been bad news for my budget. But Susan Shargel reminded me about the part of the Affordable Care Act that could make it more affordable for my age group.
“If you're income is 400% of federal poverty level or below you will get premium assistance.”
For a single person, that income cap is about $46,000. It’s a cutoff that excludes many middle class Americans, like me. But if I were to get sick and couldn’t work, then I would qualify for assistance. So it’s a safety net – for everybody, really.
Network sizes
According to Carolyn Kim, insurance companies are finding ways to keep premiums down, too.
“There's a few ways that insurers are able to bring down costs,” she explained. “One of them is to reduce the size of their networks. That's why people really need to make sure their doctors are going to be covered in 2014 on these new plans because some of them just aren’t.”
But that’s not what President Obama promised when he was lobbying for the Affordable Care Act in a speech to the American Medical Association.
“I know there are millions of Americans who are content with their healthcare coverage” the President said. “They like their plan and most importantly they value their relationship with their doctor. They trust you. And that means that no matter how we reform healthcare, we will keep this promise to the American people: If you like your doctor, you will be able to keep your doctor.”
Well, that’s not necessarily true. Susan Shargel pointed out that my network size with Blue Shield was shrinking in 2014.
“Specifically, UCSF and the doctors that are associated with UCSF are not in your network now,” she told me. On my old plan, I could go to UCSF. But come January, I won’t be able to.
I asked Blue Shield why it wouldn’t let me go to one of the best hospital systems in the country. In an email a representative said this:
“Many of our network hospitals and physicians came to the table and chose to participate in the new IFP [individual and family plan] network, accepting discounted rates in return for access to an expanded patient population in 2014. The University of California chose not to participate in the new high-value network at this time.”
In other words, Blue Shield and UCSF couldn’t agree on prices.
“So that is a huge loss for you,” concluded Shargel.
The true cost of healthcare
Now I know some of the reasons why my health insurance premium is going up. There’s the end of pre-existing conditions and the 3:1 rule. But I also know that if it weren’t for smaller networks and government assistance, the prices could be even higher.
At the end of our discussion, Carolyn Kim reminded me of an axiomatic truth.
“The nature of health insurance is such that rates increase every year and benefits generally decrease every year,” she said. “That's health care.
“The intention of the Affordable Care Act really was to make prices more affordable. Whether that's happening or not is up to a lot of analysis, and we'll see. Different people's rates are skyrocketing, some people's are staying the same, and some people are getting a little bit of a price break, it really depends on who you are.”
I’ll admit that I was mad when I got this letter saying Blue Shield is cancelling my policy. I was upset about how much it was going to cost me to get similar insurance.
The reality is there’s been a huge redistribution of risk. We’re all paying different shares than we used to. The young, the old. The sick, the healthy. The government and the individual. Suddenly, we’re all facing something closer to the true cost of health care. And it’s a reality check.
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