qotd: John Geyman: Why the private health insurance industry has to go

PNHP Blog
April 8, 2015
Why the Private Health Insurance Industry Has to Go
By John Geyman, MD

The private health insurance industry in the U.S. has had a long run
since shifting to medical underwriting and a for-profit status in the
early 1960s. It finds itself increasingly dependent on the government as
the costs and prices of health care have continued upward since the
1980s. Its many perks from government include tax exemptions for
employer-sponsored insurance (ESI), privatized Medicare and Medicaid
programs, and longstanding over-payments to Medicare Advantage programs.
The Affordable Care Act (ACA) has added to these perks since 2010 with
subsidized premiums through the exchanges, a "risk corridor system" to
protect insurers from losses, and allowing automatic self-renewal for
2015 plans.

Incremental attempts to contain health care costs and reform the system
since the 1990s have built upon our current multi-payer financing
system. After five years' experience with the ACA, we now know that
insurers themselves are a major barrier to achieving the kind of access
to affordable care that our population so desperately needs.

Here are some of the major reasons why private health insurers warrant
no further bailout by government and taxpayers.

1. Continued discrimination against the sick.

Despite the supposed consumer protections in the ACA, a 2014 letter from
more than 300 patient advocacy groups to the Secretary of Health and
Human Services described continuing ways that insurers still
discriminate against the sick, including benefit designs that limit
access, high cost-sharing, restrictive drug formularies, inadequate
provider networks, and deceptive marketing practices. A recent study by
Kaiser Family Foundation found that only one-third of households with
incomes between 100 percent and 250 percent of poverty have enough
liquid assets to pay their deductibles, while only about one-half can
meet out-of-pocket limits. As other examples, Wellpoint developed an
algorithm to search its database for patients with breast cancer with an
intent to cancel their policies, while many insurers place all drugs
used to treat such complex diseases as cancer, multiple sclerosis and
HIV in the highest drug formulary cost-sharing tiers, thereby reducing
insurers' costs but making the drugs unaffordable for many patients.

2. Fragmentation, inefficiency, and exorbitant administrative overhead.

There are some 1,300 private insurers still trying to maximize their
income by avoiding the costs of sicker patients. Their administrative
overhead is more than five times higher than that of the single-payer
program in two Canadian provinces; the overhead of private Medicare
Advantage plans averages 19 percent vs. the 1.5 percent for traditional
Medicare. Although the ACA set limits of 20 percent for overhead in the
individual market and 15 percent in large-group markets, a recent study
has found that those requirements had no effect on insurers' overhead
spending over the first three years of the ACA.

3. Increasing costs for less coverage

The ACA provided insurers with four levels of coverage—the so-called
"metals"—with actuarial values (what insurers pay vs. what patients pay)
ranging from 60 percent (bronze) 70 percent (silver) to 80 percent
(gold) and 90 percent (platinum). Not content with those levels of
coverage, the industry through its trade group, America's Health
Insurance Programs (AHIP), has been lobbying hard for copper plans with
only 50 percent actuarial value. Silver plans have been the most popular
on the exchanges, so that patients are left with almost one-third of
their costs, plus the cost-sharing that was required to get and maintain
their policies. All this has led to an epidemic of underinsurance,
whether the plans are purchased through the ACA exchanges or through the
private insurance markets. The ACA has made the mistake of focusing on
raising the numbers of Americans with "insurance", but has not been
effective in containing prices or costs of health care, with the result
that an increasing proportion of these costs are shifted to patients and
families. One-half of bronze plans in seven large U.S. cities require
enrollees to pay the deductible (often $5,000) before covering a
doctor's visit.

4. Gaming the ACA for profits more than service to patients

There are many examples of this, starting with Medicare Advantage. Many
insurers have been cited by the Centers for Medicare & Medicaid Services
(CMS) for serious violations of Medicare's patient protection
requirements, including inappropriate denial of coverage and failure to
consider physicians' clinical information. Humana, one of the largest
Medicare Advantage insurers in the country, is facing scrutiny from the
U.S. Department of Justice for its risk-adjustment practices, which
"upcode" the severity of patients' illnesses in order to gain increased
reimbursement, even as they lobby Congress for continued high
over-payments. Meanwhile, some insurers are marketing short-term plans
that last less than 12 months, evading any of the ACA's requirements.

5. Private insurance has priced itself out of the market.

Premiums keep going up at rates much higher than the cost of living,
with little or no containment by regulators. As examples, MetroPlus, a
popular new entrant on the New York exchange in 2014, has requested rate
hikes of up to 28 percent in 2015 for some of its enrollees, while
Florida Blue, the state's largest insurer, has announced an average rate
increase of 17.8 percent for 2015. One can argue that the private
insurance industry should be regarded as obsolete and not worth saving.
However, the ACA has extended its life, including almost $2 trillion in
federal subsidies over the next ten years (if these subsidies survive a
U.S. Supreme Court ruling on their legality in coming months). Insurers
have focused on attracting enrollees with low premiums, high
cost-sharing, and low levels of actual coverage. Large insurers such as
Wellpoint (Anthem) and Humana expect to receive $5.5 billion in 2015
through the ACA's "risk corridor" provision that protects them from
"losses."

6. As their business plan dictates, insurers are leaving unprofitable
markets without regard for patients' needs.

Private health insurers are all about making money, so they leave
unprofitable markets regardless of the public's needs. A recent example
is Blue Shield of California (which just lost its state tax-exempt
status with a surplus of more than $4 billion), which withdrew from 250
zip codes in California throughout the state in 2014.

Based on the above, the time has come for us to replace private health
insurers with a more efficient, not-for-profit single-payer financing
system—national health insurance (NHI)—which could be enacted by passage
of H. R. 676, Expanded and Improved Medicare for All.

Reference:

Geyman, JP. How Obamacare Is Unsustainable: Why We Need a Single Payer
Solution for All Americans. Friday Harbor, WA, Copernicus Healthcare,
2015, http://www.johngeymanmd.org

Other references are available at either link below.

PNHP Blog:
http://pnhp.org/blog/2015/04/08/why-the-private-health-insurance-industry-has-to-go/

Huffington Post (Same article):
http://www.huffingtonpost.com/john-geyman/why-the-private-health-in_b_7029594.html

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Comment by Don McCanne

Those supporting further implementation of the Affordable Care Act (ACA)
while rejecting more comprehensive reform are trying to make the
overpriced and inadequate private health plans work for us. John Geyman
reminds us of some of the reasons why the private plans are actually the
cause of several of the problems we face today. We need to replace them
with a single payer national health program.