Let’s agree that insurance is tough to understand. Start with the fact that people in general don’t like the subject and add politics to the mix, and we have a perfect storm.
Much of recent news coverage on the Patient Protection and Affordable Care Act has been focused on election-year presidential promises that everyone could keep every existing health insurance policy, if they liked it. Clearly, that wasn’t 100 percent correct. Clearly, President Obama should have said “most” instead of “all.” But, he didn’t.
How big of a deal is this, really? Well, as it turns out, policy cancellations will affect less than 4 percent of Americans – those who buy individual health insurance directly, rather than the 80 percent who get it from their jobs or government programs, or the 15 percent who have no health insurance at all. The Census Bureau says this 4 percent figure represents at most 11 million of the 315 million citizens in the U.S.
To some of these canceled plans, I say “good riddance.” As an insurance professional, I know that some “health insurance” plans have always been poor risks – they may be cheap, but they offer poor coverage.
The plans may not cover hospitalization or have really low coverage amounts that are not useful in the “real world.” People with this minimal insurance coverage often think they are covered, then go bankrupt when their medical bills start piling up. One of the keys to reducing the cost of health care is to reduce the bad debts owed to providers. As insurance advisors, we have never trusted plans where people are surprised by problems when they incur expensive doctor and hospital bills.
But not all the insurance plans being canceled are these minimal coverage plans. Some people really do like their plans, and they're losing them because of relatively small differences in new Affordable Care Act rules.
The law standardizes health insurance plans by mandating that they cover a basic set of minimum essential benefits, including hospitalizations, prescription drugs, mental health services and maternity care, that some of today’s insurance products don't cover. The ACA also limits total annual out-of-pocket expenses to $6,350 for a single person, in order to protect people against going broke when they get sick, and plans that do not reflect these changes are not allowed.
I have mixed feelings about this – I understand the benefits of covering a larger market basket of services, but am concerned about the higher premium levels, especially in states that are choosing to not expand Medicaid coverage. Many of the low-income people that would be primary consumers of the now-cancelled low premium plans will not have the cash to fund even a subsidized insurance plan.
What if you get dropped? The most important thing to do is shop around. You may be able to get help paying for your insurance through the ACA’s subsidies, which are available on a sliding scale through the state marketplace to anyone who earns up to four times the federal poverty level, or about $46,000 for a single person this year.
Outside the state marketplace, you can still go directly from insurance company to insurance company, call up a local insurance agent, or use an online broker like eHealthInsurance. Just know that none of these methods will present you with the full array of options in your state, and that if you want a subsidy, you still have to go through the state system.
Frankly, I am not as upset by this issue as the media partisans are. Hearing that policies are discontinued or that prices are going up is old news to those of us that work in health insurance. Health insurance companies have always been quick to discontinue unprofitable plans, cancel coverage for insureds with excessive claims, change benefits or raise prices. This is not very different.
Once again, this disruption is happening despite President Obama saying, "If you like your plan, you can keep your plan." We insurance advisors and consultants always knew that this promise could never be kept. We knew that with the law redefining the insurance market by getting rid of insurance with lesser benefits and weaker financial protections, that there would be some disappointed consumers. We also knew that more robust policies will offer better long-term outcomes.
Finally, while you may or may not agree with the outcome of these changes, at their core the new rules follow basically sound risk management principles. Long term, it may help. Short term, it is uncomfortable for those who can’t get what they have always had.
Remember, there is a storm blowing lots of change through our world of health insurance. Some of the stories we've been seeing in the news turn out to be inflated by political agendas and not to be quite true. The bottom line is that some people will pay more and some will pay less, and we will all be sharing the risk.
In the world of risk management, less is more.