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The Health Insurance Industry’s Last Ditch Holdup

Two mergers of health insurance giants in the U. S.—Anthem/Cigna and Aetna/Humana—are in process, although now being challenged in the courts. If approved, they will collectively cover more than 132 million Americans, controlling most of the market share for private health insurance in this country (1). With less and less competition in concentrated markets, the industry has wide latitude to set their premiums with little regulation. It threatens to leave the Affordable Care Act’s (ACA’s) exchanges, thereby unraveling the Obama administration’s signature domestic program, if it is not further protected from claimed financial losses.

Humana plans to pull out of Obamacare exchanges in all but a few states in 2017, citing losses of almost $1billion. (2) UnitedHealth Group and Aetna are also planning to cut back sharply from the exchanges next year amidst deepening losses. (3) The CEO of Anthem has recently said that the future success of the ACA’s exchanges hinges on whether his $54 billion offer to buy Cigna can be completed. Wendell Potter, former long time executive at Cigna and author of Deadly Spin: An Insurance Company Insider Speaks Out on How Corporate PR Is Killing Health Care and Deceiving Americans, observes:

What the insurers are implying here is that if the Obamacare marketplace doesn’t “stabilize” to their satisfaction (even though the companies will still be making money hand over fist) they’ll threaten to take their marbles and go home . . . big for-profit insurers are simply not reliable partners for the government (or any other customers for that matter). (4)

This is in effect a last ditch holdup of the federal government as the industry faces a future of less profitability unless it once again gets its way for further subsidization. From the beginning, it has been clear that the Obama administration and the insurance industry need each other, and also that the industry has the upper hand in negotiating their way forward. The ACA needs maximal enrollment in the exchanges, as a way of sharing risks, making it vulnerable to insurers leaving the market when that enrollment falls short.

Despite the ACA, insurers still have all kinds of ways to increase their revenues by issuing policies with less and less value. These include high-deductible plans that won’t even cover initial physicians’ visits; changing, narrowed networks without out-of-network coverage; networks that exclude a majority of physicians and some major hospitals in an area; high co-insurance for specialty drugs; manipulation of risk scores to get higher Medicare payments; restrictive interpretations of what constitutes a medical emergency; marketing short-term plans in order to avoid the ACA’s coverage requirements; and denial of services.

Insurers are finding that their enrollees are sicker than they expected and costing them more, so they raise their premiums. (5) As examples, the Providence Health Plan, the largest insurer for people buying coverage through the Oregon health exchange, is seeking an average premium increase for 2017 of 29.6 percent , while a competitor, Moda Health Plan Inc., is asking for an average increase of 32.3 percent after an increase of 25 percent last year. (6) The largest health insurer in Texas is seeking rate increases of 59 percent. (7)

The industry claims financial distress even when its shareholders have seen its stocks recording the highest gains of any sector in the S & P 500, and its CEOs taking in huge sums. As one example, Stephen Hemsley, CEO of UnitedHealth Group, had $66 million in salary, stock options and other forms of compensation in 2014, lower than his total pay of $102 million five years earlier. (8)

These examples from across our market-based system illustrate how we get less and pay more as a result of the insurance industry’s profiteering:

  • Insurers have been gaming the ACA’s risk-coding program, under which they are paid more by covering older and sicker enrollees, by overstating their health risks. (9)
  • Medicare Advantage beneficiaries who need nursing home and home health care disproportionately leave it for traditional Medicare, raising questions about how well privatized Medicare plans serve sicker higher-cost Medicare beneficiaries. (10)
  • Many patients who believe they are enrolling in the traditional Medicare program are surprised to find themselves automatically enrolled in private Medicare Advantage plans; CMS actually secretly allows these plans to enroll traditional Medicare patients without requiring them to opt in. (11)
  • Overpayments by the government to private Medicaid managed care plans are endemic in more than 30 states, often involving unnecessary or duplicative payments to providers and calling for more scrutiny by auditors. (12)
  • Some states have received federal waivers to impose premiums and/or copays to Medicaid patients; this cost-sharing has been shown to result in disenrollment and decreased access to care. (13)

These latest demands by the industry show how desperate it has become to protect these financial rewards even when it is so obviously gaming the system for maximal profit and least service to the public. The industry is on a death march, kept alive mainly by government subsidies and the generous provisions of the ACA. The industry doesn’t deserve any further bailout by the government. It has proved itself unworthy of the public trust and too inefficient and wasteful to be propped up indefinitely.

There are three major alternatives before us in financing U. S. health care—tweaking the ACA as Hillary Clinton proposes, repealing or replacing it as part of the GOP’s “plan”, or adopting single-payer national health insurance, as Bernie Sanders has called for. Whatever happens depends on results of the elections and who controls the White House and Congress. The incoming president could well be faced with an Obamacare meltdown early in 2017. (14) Gridlock or further bailout of the industry will perpetuate an insoluble problem. Single-payer national health insurance is the only long-term solution to our system problems of restricted access, runaway costs and prices, unaffordability and unacceptable quality of health care. To get there, we need a government that works in the public interest, as John Adams, second president of the United States and one of our founding fathers, recognized more than two centuries ago:

 Government is instituted for the common good: for the protection, safety, prosperity and happiness of the people; and not for the profit, honor, or private interest of any one man, family or class of men.(15)

John Geyman, M.D. is the author of  The Human Face of ObamaCare: Promises vs. Reality and What Comes Next and How Obamacare is Unsustainable: Why We Need a Single-Payer Solution For All Americans

visit: www.johngeymanmd.org

References:

  1. Mattioli, D, Hoffman, L, Mathews. AW. Anthem nears $48 billion Cigna deal. Wall Street Journal, July 23, 2015: A1.
  2. Ferris, S. Humana to leave ‘substantially all’ ObamaCare markets. The Hill, July 21, 2016.
  3. Mathews, AW. Aetna backs off plans to expand its ACA business. Wall Street Journal, August 3, 2016.
  4. Potter, W. The insurance empire strikes back. Wendell Potter Blog, August 2, 1016.
  5. Pear, R. Newest policyholders under health law are sicker and costlier to insurers. New York Times, March 30, 2016.
  6. Radnofsky, L, Mathews, AW. Health insurers struggle to offset new costs. Wall Street Journal, May 5, 2016: A1.
  7. Associated Press. Insurance rates going up: New concerns for Obamacare. New York Times, June 2, 2016.
  8. Whitman, E. Rising costs of medical care, health insurance: Median pay for CEOs in health care companies higher than any other industry. International Business Times, May 26, 2015.
  9. Potter, W. Health insurers working the system to pad their profits. Center for Public Integrity, August 15, 2015.
  10. Rahman, M, Keohane, L, Trivedi, AN et al. High-cost patients had substantial rates of leaving Medicare Advantage and joining traditional Medicare. Health Affairs 34 (10): 1675-1682, October 2015.
  11. Jaffe, S. Some seniors surprised to be automatically enrolled in Medicare Advantage Plans. Kaiser Health News, July 27, 2016.
  12. Herman, B. Medicaid’s unmanaged managed care. Modern Healthcare, April 30, 2016.
  13. Levey, N. Four largest states have sharp disparities in access to health care. Los Angeles Times, April 10, 2015.
  14. Ferris, S. Next president faces possible ObamaCare meltdown. The Hill, August 11, 2016.
  15. Adams, as quoted by Hartmann, TA. A red privatization story. The Progressive Populist, November 15, 2014, p. 11.