When the Affordable Care Act (ACA) became law in 2010, the individual health insurance market was highly concentrated, with little to no competition in most states. One or two insurers controlled the top 94 metropolitan markets in the United States. In 30 states and the District of Columbia, one major insurer had over 50% of the individual market and over 90% in Alabama alone.
The ACA implemented state-specific Health Insurance Exchanges, also called Marketplaces. These Marketplaces were intended to promote price comparison and competition in the individual and small group insurance markets through greater transparency. In the same time, consumers could obtain minimum essential coverage, receive federal subsidies, and be granted exemptions. With medical underwriting prohibited, premiums were easy to compare, focusing solely on competition of price. But in order for consumers to realize a maximum benefit from this Marketplace, there had to be ample choice and competition.
That is why it is so disturbing to see Peter Lee, the head of Covered California (California's marketplace), publicly go out of his way to justify and advocate for the rapid wave of consolidation and mergers amongst the private insurance industry.
In a recent Wall Street Journal op-ed, Mr. Lee readily parrots the deep concern of the private insurance industry regarding the consolidation amongst hospitals and providers, but fails to mention his poor record on forcing participating insurers in California's exchange to open up their narrow networks or the lack of effect such consolidations would have. It should be pointed out that Covered California has the 4th narrowest network in the U.S. and that 75% of all the policies negotiated by Mr. Lee already have 25% or fewer physicians in an area compared to 41% nationally.
While a dominant insurer may indeed be able to negotiate lower rates from hospitals, physicians, and big Pharma, there is absolutely no indication that these savings would be passed on to consumers. Mr. Lee claims savings would indeed be passed on because of the ACA provision that mandates insurers spend 80-85% of every premium dollar on consumer medical claims and activities that improve quality of care.
What Mr. Lee fails to mention, is that while the ACA does mandate a minimum level of spending on care, it fails to regulate the premiums that insurers can charge and poorly defines the activities that improve quality of care are. Does spending money on promotional ads really improve quality of care?
This is especially ominous in California where the private insurance industry and its allies spent over $55 million to defeat a statewide initiative, Prop 45, which would have given the politically elected and publicly accountable California Insurance Commissioner the right to regulate such rates. Thus, while insurers are required to spend more of every healthcare dollar on actual patient care, they can make up for this lost revenue by charging higher unregulated premiums.
Due to the successful and expensive lies that were spread to defeat Prop 45, California consumers of which nearly half already find it difficult to pay their premiums, remain powerless, particularly when the politically appointed and unaccountable head of Covered CA appears to be an agent of the private insurance industry.
While Mr. Lee can claim smaller premium increases up to now in California compared to many other states, his recipe for insurance consolidation and a lack of insurance rate regulation will make sure that this will not endure. In the nine years prior to the ACA, California premiums increased 185% while insurers cherry picked the healthiest applicants and rejected many with pre-existing conditions or made coverage too cost-prohibitive, all the while issuing over 45.7 million denials. Now that they can no longer use pre-existing conditions to screen out and deny people coverage, it is only a matter of time before insurers find other ways to maximize profits.
A recent study from Harvard University's Institute for Quantitative Social Science revealed that the largest insurer in each marketplace had a 75% higher premium increase from 2014 to 2015 compared to other same-state issuers. On average, the largest issuers raised rates by 23.9%, while the other issuers only raised rates by 13.7%. So, do we really want to increase the likelihood of this happening in California with less competition and choice through more consolidation?
It has been said that no one can serve two masters. It is clear by Mr. Lee's op-ed who he serves.
Mr. Lee's justification for consolidation in reality makes the de facto case for a single payer healthcare system. The real question is whether this single payer should be controlled by an entity that only makes money by denying patients care, or a government run Medicare for all system that has proven to be more cost effective, provide better coverage, and have greater patient satisfaction.
Finally, a word of caution to all who were fooled into voting against Prop 45. When you let the fox guard the hen house, there's bound to be a lot of chicken dinners.
Dr. Song is a board certified radiation oncologist and the Executive Chairman of the Courage Campaign and Co-Chair for a Campaign for a Healthy California. Mr. Potter is a former Health Insurance Executive turned whistleblower, author, and an analyst at the Center for Public Integrity.