So what does this vaunted increased choice, as claimed by the insurance industry, look like? Is it a choice of plans that offer financial security against the cost of major illness or injury, as should be the goal of insurance? These examples belie that premise:

The trend in employer-sponsored health insurance (ESI) is to cover fewer people with less coverage all the time, and to eliminate coverage for retirees if at all possible (eg., the auto industry)

Even when covered, there are many circumstances where enrollees’ choices are minimal or non-existent, such as when their health plans make changes in network providers and hospitals, when plans withdraw from the market, or when lock-in rules restrict them from making changes at their own option

If one loses ESI, there is little recourse for many in the individual market, as these examples show:  because of pre-existing conditions, many applicants are rejected for coverage; many who are not rejected cannot afford the premiums, which are one and a half times higher than the usual costs of ESI coverage; if one loses one’s job, COBRA guarantees coverage for another 18 months, but only one –quarter of those people can afford continued coverage.

The Boston-based Access Project, a non-profit resource center working to improve health and health care access since 1998, recently conducted in-depth interviews with 45 people in seven states who had  accrued medical debt while being privately insured.  They found that only one-half of interviewees who had ESI were offered any choice of plans; even if they had a choice, they tended to choose a plan with the lowest premium because that was all they could afford, even though they felt vulnerable to increased out-of-pocket expenses.

The insurance industry has trotted out a growing number of limited benefit policies (LBP’s) in recent years; do they offer useful choices? Here are two examples of heavily marketed plans at the moment: large employers such as Wall Mart, McDonalds and Lowe’s, often have annual caps of coverage as low as $1,000 to $2,500; Aetna’s Affordable Health Choices caps hospital benefits at $2,000 and accident/ER benefits at $1,000. Is this what market advocates have in mind about choice?

The health insurance industry is actually much more consolidated than we might think; the American Medical Association has found that private insurers have near-monopolies in 95 percent of HMO/PPO metropolitan markets; many of these markets have triggered antitrust concerns by the Department of Justice; as the accompanying graphic shows, a few insurers dominate the market in most states

The trends are obvious for the private health insurance industry – less coverage all the time for more money.  It is a failed industry, though many have not yet recognized it (Wall Street is beginning to have concerns about its future). It succeeds only as long as its enormous administrative and overhead costs are paid by consumers convinced that their “choice” offers more value. All trends indicate, however, that it is an unsustainable industry. The sooner that Americans realize that, the better, since we have another, better choice as to how to finance health care – a single-payer public financing system with one big risk pool, combined with our private delivery system.

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.

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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.

Purchase book from Common Courage Press: http://www.commoncouragepress.com/index.cfm?action=book&bookid=396