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Exploiting the Market Under the Guise of Innovation

As the market for employer-sponsored health insurance continues to shrink, insurers are now targeting healthier people in the individual market, especially in the 20 to 30s and 50 to 64 age groups.
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Although we pay more and more each year for health insurance (average premium for a family of four now over $12,000), we get less and less for it. Insurers continue to take high profits first, leaving enrollees more vulnerable to high out-of-pocket costs for health care.

A 2007 study of small-group and individual insurance markets in California, published by Health Affairs, shines a bright light on this problem. "Actuarial value" was defined as "the proportion of claims expenses for covered services paid by the insurance plan for a large standardized population." Between 2003 and 2006, the actuarial value in the small-group market held at 0.83 (83 percent of bills paid), but fell precipitously in the individual market from 75 to 55 percent. The investigators concluded that, without reform of the marketplace, people of average means will be faced with catastrophic health care bills.

As we saw in an earlier post, insurers try to avoid coverage of people at higher risk of illness and cherry pick the market for healthier enrollees. They pursue a goal to keep their medical-loss ratios (MLRs) below 80 percent if at all possible (ie., retain 20 percent or more for overhead and profits).

As the market for employer-sponsored health insurance continues to shrink, insurers are now targeting healthier people in the individual market, especially in the 20 to 30s and 50 to 64 age groups. These examples reveal how little coverage these new policies actually provide.

• Wellpoint and Aetna (the largest and third largest insurer in the country, respectively) are marketing individual insurance packages for young adults, the fastest growing population of uninsured Americans. They offer these policies in states where looser regulations don't get in the way of cherry picking enrollees. Wellpoint offers three Tonik plans with different deductibles (Thrill Seeker, with a $5,000 deductible; Part-time Daredevil, $3,000; and Calculated Risk Taker, $1,500). None of these plans cover maternity benefits, a leading expense during childbearing years, with average costs for normal pregnancy and delivery now $8,000 to $12,000. The MLR for these policies is about 70 percent.

• Aetna's new Affordable Health Choice plan caps hospital benefits at $2,000 and accident/ER benefits at $1,000.

• Limited benefit policies being sold to such large employers as Wall Mart and McDonalds often have annual caps as low as $1,000 to $2,000.

• Some early retirees are opting for high-deductible plans with deductibles as high as $7,500; a 50-year-old male nonsmoker living in Colorado could expect to pay $1,000 for such a policy.

These examples make a mockery of AHIP's stated goals to "expand access to
high quality, cost-effective health care", but they do succeed in meeting another of their goals -- "product flexibility and innovation". But at a high cost, much higher than public and not-for-profit programs. Investor-owned Blue Cross plans operate with overhead and profits exceeding 26 percent, in sharp contrast to traditional Medicare, which spends more than 97 percent of its budget on direct medical care, and Kaiser Permanente, which spent 96 percent of premium revenue on patient care in 2000.

Why do we put up with such an expensive industry that provides so little protection against the cost of necessary health care? Part of the answer is that we are constantly bombarded with the claimed advantages of "choice". We will look at just how much choice we really have in the next post.

Adapted from Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, forthcoming, August 2008 by John Geyman. With permission of the publisher, Common Courage Press.