Sorting out why insurers cancel policies

Introduction

Now that President Obama has said it’s OK with him if insurance companies keep their policyholders in health plans that don’t meet the standards established by the Affordable Care Act, at least for another year, the big question is whether insurers will take him up on the offer.

The answer: it depends.

Some insurance executives will view the offer as one they can’t turn down. Even though Karen Ignagni, president of America’s Health Insurance Plans, the industry’s big PR and lobbying group, had nothing good to say about Obama’s proposal, keep in mind that she doesn’t run an insurance company. While industry executives look to her to comment on what politicians do, they make their own decisions when it comes to their companies’ bottom lines.

Here’s what Ignagni was quoted as saying in a FOX News story Friday:

“The only reason consumers are getting notices about their current coverage changing is because the ACA (Affordable Care Act) requires all polices to cover a broad range of benefits that go beyond what many people choose to purchase today.”

Not so fast. There are other reasons some folks are being told they’ll have to change health plans next year. Many of them are having to switch plans not because of Obamacare but because their insurance companies want to move them into policies with higher profit margins.

Insurance companies have been sending similar notices to their customers for years. My son Alex — and thousands of other customers of a Blue Cross plan in Pennsylvania — got such a notice four years ago, months before Congress passed the health reform law.

Why? The insurer wanted to move those policyholders out of a plan with a reasonable $500 annual deductible and into one with a deductible ten times that amount. To accomplish that, Blue Cross notified its policyholders that their health plan would not be available in 2010. Their options were to switch to the high-deductible policy, which would still cost them a couple of dollars more each month, or to another plan with that reasonable $500 deductible. If they chose the latter, their monthly premiums would increase 65 percent.

Notices like the one Alex got have provided a mechanism for insurers to implement a years-long industry strategy of shifting more and more of the cost of medical care to their policyholders. And that strategy will continue until every last one of us is in a high-deductible plan.

Some of you are likely old enough to remember the days before managed care when almost all Americans with private health insurance were in indemnity plans. In an old-fashioned indemnity plan, the insurer didn’t constrain us in a limited network of doctors and hospitals and didn’t call the shots about whether a knee replacement or liver transplant your doctor recommended was really necessary.

Those days are long gone. Everybody eventually got notices that those plans were being discontinued. They were replaced by HMOs and PPOs with limited provider networks and armies of utilization review nurses and medical directors who decided if you would get coverage for your new knee or new liver.

In most cases, it was our employers who killed off the indemnity plans in favor of managed care. But eventually, HMOs and PPOs also fell out of favor. The managed care backlash of the late 1990s forced insurers to abandon some of their utilization review practices and to add more doctors and hospitals to their skinny networks. That led to shrinking profit margins — and to the latest silver bullet from the insurance industry: high-deductible plans.

Before Obama signed the Affordable Care Act, insurance companies already were making rapid progress in implementing their business plans of “migrating” their customers from traditional managed care plans to so-called “consumer-directed” plans, the industry euphemism for high-deductible policies. At the same time they’ve been requiring us to pay more out of our own pockets for care, they’ve also been implementing a strategy of reducing benefits. Investors and Wall Street financial analysts refer to these common industry practices as “benefit buydowns.” That’s another euphemism, by the way.

I myself — and thousands of my fellow Cigna employees — were notified several years ago, long before I left my job, that our HMOs and PPOs were being discontinued. Yep, we got notices in the mail. If we wanted to stay in a Cigna-subsidized health plan, we would have to switch to a high-deductible plan. The same thing has happened to tens of millions of other Americans in recent years.

Yet if you relied on the Washington media for your news and information about health care, you’d think that insurance companies would never have considered sending policy discontinuation notices to their policyholders until forced to do so by Obamacare.

The truth: they have always done this when profits were at stake.

Which is why some insurers will be happy as clams to be able to keep their policyholders in plans that don’t meet the ACA’s standards. Many of those plans — especially the junk insurance plans many folks are in — are exceedingly profitable.

For people who are in those plans who have complained about their discontinuation notices, I hope they will shop around. Chances are, they’ll be able to get much better coverage at a better price. Thanks to the Affordable Care Act.