A couple of years ago I made a bet with my friend Herschel Lessin, a skeptical Republican pediatrician of Poughkeepsie, NY, a graduate of Stanford Medical School and Yale pediatrics residency, and no dummy. Obamacare (otherwise known as the ACA) was just starting, and Herschel believed that the health plans would fail, and that insurance rates would rise significantly the second year.
I didn't think so. I thought that insurance companies would be cautious, since their main lines of business would continue to be non-Obamacare policies, and that they would probably make their rates on the higher side to be safer and not lose money out of the gate, figuring they could gain market share later on when the risks were more knowable.
Herschel won. I don't remember if I have yet ponied up the ten bucks, but still, he won. Rates rose the second year. I supposed that companies had gone for market share after all.
But an article in today's LA Times makes me wonder if the actual culprit for rising rates lies elsewhere. Even though Herschel won (and I will pay up!), I think his win might be tainted.
It turns out that three of California's big four health insurance companies made significant amounts of money last year selling individual policies on the ACA California marketplace. Blue Shield was number one in the country, Kaiser number two, and Blue Cross number seven. So there must be something special about California.
It turns out there is. California mandated that the insurance companies terminate their existing individual policies. According to the article:
That move created a healthier, more diverse mix of old and new policyholders at the start of the exchange. About 35 other states allowed consumers to stay longer on health plans that didn't comply fully with the new law.
That decision left many states with a smaller and sicker population signing up for Obamacare. Many new enrollees had been denied coverage previously because of pre-existing conditions.
So that's the story. The problem with the other states is that they didn't really adopt the full ACA as a program; they waffled. As a result it looks like the ACA is a failure, with all those companies losing money, and half the Coop plans going out of business. But in fact, their decisions to let people keep their old policies made the ACA plans victims of adverse selection.
But that's not all there is to the story. In the area of health insurance, it's bound to be complicated. Remember, the biggest wager of the ACA was that insurance companies would reform their sharp practices and compete on quality and price rather than aggressive underwriting and policy denials, that old dogs would find new tricks. Did California health insurance companies learn new tricks?
Well, it seems not. Blue Shield – a chronic offender of sharp practices, according to those of us in the field – benefited by the fact that
consumers had difficulty finding a doctor or getting care during 2014. That could have reduced medical claims, boosting the bottom line for companies.
Michael Johnson, a former Blue Shield official and now a company critic, said the San Francisco insurer should issue more refunds to customers. "Blue Shield made this huge profit because they hindered access to care."
And in addition, both BS and BC had inaccurate provider directories, which means that when patients went to sign up and they checked to see if their doctors were in the plan they were signing up for, and they saw that they were indeed on the plan, that information was frequently inaccurate, and after they signed up, they had to switch doctors.
And why were the doctors not on the plan? That's because of the infamous “narrow networks.”
The insurance companies would have us believe that the new plan selected superior clinicians who were most economical in the use of resources, the best and smartest doctors. In fact, however, what happened on the ground was, they circulated a rate schedule to the doctors and said to them, will you take these horrible rates for our new plan? Those that said yes were then christened by the insurance companies as the best of the best.
And meanwhile, let's add one more observation about the insurance companies. There was a ballot initiative last year in California to allow the state Insurance Commissioner to negotiate rates with health insurance companies, as most other states allow their IC to do. It lost with huge insurance company (and organized medicine) advertising campaigns against it. But part of the success of the California ACA state plan is that
Unlike most other states, California negotiates premiums with health plans and doesn't allow every insurer into its exchange.
So in summary, it looks like the ACA looks worse nationally than it should because of the adverse selection problem – too high a proportion of the new policyholders represent people who couldn't get insurance before because of preexisting conditions, probably. And in California, it looks like Covered California is a go, although it could do better with regulating the insurance companies and their practices and narrow networks. And it looks like the old dog insurance companies are continuing with their old tricks.
Stupid insurance companies.