The Los Angeles Times reports on 2012 rate increases being taken by health plans and insurers in the Golden State’s individual market. According to The Times, premiums are headed up on average between 8 and 14 percent. The newspaper reported that outpaces the cost of medical care, citing federal government data showing the cost of goods and services associated with medical care increased by 3.6 percent over the past 12 months.
However, payers cite claims experience — and not underlying medical costs— to justify the rate hikes. That’s consistent with the adverse selection that is gripping the state’s individual market. Premiums increase to cover fewer and sicker people who keep their coverage, shrinking the pool as healthier people refuse to pay the higher premiums required to cover the claims costs of the former. The accelerating adverse selection calls into question whether the state will have a viable individual health insurance marketplace to participate in the California Health Benefit Exchange when it opens for business in January 2014.
The interim high risk pool created as part of the Patient Protection and Affordable Care Act (PPACA) to provide a market of last resort for people who buy their own health insurance but who can’t meet medical underwriting standards has become a catastrophic risk pool serving people with very high cost conditions.
According to a federal government report issued this week, those covered by the Pre-Existing Condition Insurance Plan (PCIP) are averaging annual costs more than double the $13,026 actuaries estimated in November 2010, The Washington Post reports.
A review of the report shows nearly 80 percent of claims costs are attributable to five medical conditions: cancer, cardiovascular disease, rehabilitative care and aftercare, and degenerative joint diseases. The higher than expected costs indicate that after getting off to a slow start in 2010, the PCIP could spend all of the $5 billion the PPACA appropriated to it by 2014 when insurers must accept all applicants regardless of medical condition or history. However, several factors are likely to moderate future enrollments. They include high premiums, the requirement that applicants be medically uninsured for at least six months as well as pre-existing state run high risk pools already serving those deemed medically uninsurable by private insurers and health plans.
In 2011, some health insurers were conceding the individual market was failing, entering the dreaded death spiral of adverse selection. But none went as far as Aetna CEO, Chairman and President Mark Bertolini at a Las Vegas conference this week in proclaiming the business model of health insurance broken and facing extinction.
“The system doesn’t work, it’s broke today” Bertolini was quoted as saying by HealthData Management in remarks to attendees of the HIMSS12 conference. “The end of insurance companies, the way we’ve run the business in the past, is here.”
A fundamental function of any form of insurance is underwriting the selection and rating of risks. With medical underwriting ending January 1, 2014 under the Patient Protection and Affordable Care Act (PPACA), it’s no wonder Bertolini sees the end of health insurance as we have known it.
The PPACA as well as other factors are forcing health insurers to reinvent themselves. But as what? Since Accountable Care Organizations (ACOs) being created by the reform law are risk sharing mechanisms that reward better patient outcomes and reduced treatment costs though more coordinated, more holistic patient care, Bertolini sees a role for insurers to help manage that risk. “We need to move the system from underwriting risk to managing populations,” Bertolini was quoted as saying. “We want to have a different relationship with the providers, physicians and the hospitals we do business with.”
What about state health benefit exchanges created by the PPACA that open for business in 2014? The exchanges are to serve as purchasing pools to help individuals and small businesses aggregate purchasing power to get better deals on health insurance than they would otherwise get negotiating on their own behalf. If health insurance is becoming a thing of the past as Bertolini predicts, what will they be buying? Bertolini foresees all-inclusive, branded “health systems” (perhaps similar to California-based Kaiser Permanente) that leverage health information technologies to put patients in charge of their health.
Like the Clinton administration’s comprehensive health care reform proposal of the 1990s, a key goal of the Obama administration’s Patient Protection and Affordable Care Act (PPACA) is having all Americans medically insured though public or private health plans. Since coverage gaps largely occur with private coverage, private market reform is central to the reforms of both administrations.
Since most working age Americans have employer-paid coverage, the Clinton administration’s reforms would have required all employers to cover their employees so that none had to obtain their own coverage in the individual market or be medically uninsured. Rather than the Clinton administration’s employer mandate, the Obama administration instead placed the mandate on individuals, requiring all Americans to have medical coverage by 2014. Key to the individual mandate in the PPACA is the law’s state health benefit exchanges to provide an insurance marketplace for small employers and individuals.
If the U.S. Supreme Court upholds the constitutionality of the individual mandate later this year, it could mesh well what some observers believe is a trend toward more temporary and self-employment. This trend has seen a significant boost in recent years as employers hire fewer people to do the same work or adopt processes that require fewer permanent staff. This in turn has led to growing numbers of temporary and self-employed people.
Since these workers aren’t covered by employer-provided plans and must obtain health coverage on their own, they will benefit from the exchanges where participating insurers will be required to offer coverage with minimum coverages and premiums determined using modified community-based rating versus medical underwriting. As 2014 draws closer, the exchanges could in turn encourage more to deliberately choose temporary and self-employment. Many who might otherwise work for themselves balk at the prospect of having to find health coverage in the existing individual market where they can be declined for pre-existing medical conditions and don’t benefit from group purchasing power the exchanges would provide. The exchanges and the PPACA’s mandates that all individuals have coverage and health plans and insurers accept all applicants regardless of medical history would significantly mitigate this disincentive for those considering self-employment.
UCLA report finds economic downturn and job loss pared health coverage for middle class Californians
Critics of employer-based health insurance (and single payer advocates) will likely point to this recent article by the California HealthCare Foundation’s California Healthline reporting on a recent UCLA Center for Health Policy Research report finding 670,000 Californians lost employer provided health insurance in 2008 and 2009. The article quotes Shana Lavarreda, lead author of the report, describing the numbers as an indication that medical coverage among middle class Californians was significantly undermined by the economic downturn and resulting job losses. “The uninsured here is less and less an undocumented [worker] problem, and now it’s more of a Main Street problem,” Lavarreda told California Healthline.
The report has implications for the Patient Protection and Affordable Care Act, which is predicated on all Americans being in a public or private managed care or health insurance plan by 2014 — with the bulk of private coverage employment-based. The experience of California (and certainly other states) in the two years leading up to the enactment of the Act in 2010 shows that employer-based coverage — which had been eroding even prior to the recession with fewer small employers providing coverage — remains quite vulnerable to fluctuations in the economy that disrupt employment.