Moving toward a saner health insurance system: rocky but necessary

Friday will be the two-year anniversary of the signing of the Affordable Care Act, and there's plenty of discussion about the law's impacts and the upcoming Supreme Court oral arguments. While many of the law's provisions won't take effect until 2014, it's already having an impact on some aspects of health insurance. I described several of these in a post on the law's one-year anniversary, so now I want to focus on two recent stories that underscore the difficulty and importance of changing how the US handles health insurance.

First, it's important to remember that the law isn't an overhaul of entire healthcare system. It takes some worthwhile steps toward paying for quality rather than quantity of healthcare, controlling cost growth, and investing in prevention, but its most important achievement is to address our country's shameful rate of uninsurance. It also improves the overall quality of insurance by prohibiting some of the most problematic insurer practices, like denying coverage for pre-existing conditions and placing lifetime dollar-value limits on coverage. The individual mandate requiring everyone (except those who can't afford it) to have insurance coverage is the price we pay for getting these improvements.

The Affordable Care Act is important for people who don't already get health insurance coverage through a large employer plan or government program. Insurers do offer plans to small employers and to individuals, but the premiums have typically been very high, even for less- than-extensive coverage. People with pre-existing medical conditions have often struggled to find insurance plans that will offer them full coverage at all. The ACA will prohibit insurers from rejecting or charging higher premiums to adult applicants with pre-existing conditions starting in 2014 (insurers were barred from discriminating against children with pre-existing conditions starting in late 2010) , but the law also tries to provide a stopgap measure for the uninsured with expensive-to-treat conditions in the meantime. As Michelle Andrews reports for Kaiser Health News, these efforts have run into challenges.

Between 2010 and 2014, people with serious medical conditions who've been uninsured for at least six months have the option of getting coverage through preexisting condition insurance plans, or PCIPs. The premiums can cost several thousand dollars a month, though, which is probably why only 49,000 people nationwide were enrolled at the end of 2011. States can run their own PCIP programs -- 27 have chosen to do so -- using federal funds; Andrews reports that some states have already used more than their initial federal allotments and have asked for and received additional money. States can set some of their own rules about PCIPs, and Andrews highlights one conflict that's arisen over an Iowa policy:

In many states, people with medical conditions such as HIV/AIDs, hemophilia, kidney disease and cancer can get a helping hand from government programs or nonprofits that pay the PCIP premiums on their behalf. But a handful of states have decided to prohibit third parties from picking up the tab.

Iowa is one of them, and in recent months the situation there has generated plenty of public controversy.

Some Iowa health officials would like to use federal funds from the AIDS Drug Assistance Program to pay the PCIP premiums for residents who have HIV/AIDS. That way, these people could receive coverage for doctor visits and other medical needs in addition to drugs.

... There are legitimate reasons why states have concerns about third-party payments: If an employer or insurer is permitted to pay someone's PCIP premium, for example, it may be tempted to dump people into those plans rather than insure them and absorb the cost of their care. Likewise, hospitals and other health-care providers might benefit financially by paying the premiums for people with serious medical needs, thereby encouraging them to receive care at those institutions, including possibly unnecessary care.

The federal government runs the PCIPs in 23 states and in the District of Columbia. Those jurisdictions permit third-party payment, at least for now. In its guidance on the plans, the Department of Health and Human Services says it will monitor such payments closely, and "to the extent that HHS finds that these payments present conflicts of interest or contribute to greater than projected spending, HHS anticipates that it will issue further guidance that restricts or even prohibits third-party payments for premiums."

People who have cancer, HIV/AIDS, or kidney disease are going to represent net losses for insurers, so it's hardly surprising that insurers have tried to avoid taking on those expenses. If each insurance plan has a few of these high-cost members, the risk can be spread among a large population and the premium dollars can cover the costs -- but insurers probably worry (legitimately) that if they take on applicants with pre-existing conditions for reasonable premiums and their competitors don't, they'll end up with a glut of high-cost plan members and lose lots of money.

Several states operated their own high-risk pools prior to the ACA as a last resort for people who had pre-existing conditions and couldn't get insurance through other avenues, but as in the case of the PCIPs the premiums tended to be unaffordably high. That's what happens when you compose a risk pool entirely of people at high risk of incurring large healthcare bills. In 2014 and beyond, costs for these high-risk enrollees should be spread across many plans and be more manageable. Deliberately or not, though, some plans will end up attracting fewer high-cost members than others. The ACA requires risk adjustment to redistribute funds from plans with lower-than-average actuarial risk to those with higher-than-average actuarial risk in each state. Fine tuning the process for doing this will take some work, and the transition may be rocky.

Another article published yesterday, this one by Robert Pear in the New York Times, focuses on another group that has a hard time getting comprehensive, affordable coverage on the individual market: women. One problem is that individual policies for women often exclude maternity care, or only offer it as a separate component for a large fee. But even without maternity coverage included, insurers charge women more than they charge men of the same age. Pear writes:

For a popular Blue Cross Blue Shield plan in Chicago, a 30-year-old woman pays $375 a month, which is 31 percent more than what a man of the same age pays for the same coverage, according to eHealthInsurance.com, a leading online source of health insurance.

In a report to be issued this week, the National Women's Law Center, a research and advocacy group, says that in states that have not banned gender rating, more than 90 percent of the best-selling health plans charge women more than men.

... Insurers said they charged women more than men because claims showed that women ages 19 to 55 tended to use more health care services. They are more likely to visit doctors, to get regular checkups, to take prescription drugs and to have certain chronic illnesses.

But Marcia D. Greenberger, a president of the National Women's Law Center, said the justification was "highly questionable" because the disparities varied greatly from one insurer to another.

"In Arkansas, for example," Ms. Greenberger said, "one health plan charges 25-year-old women 81 percent more than men, while a similar plan in the same state charges women only 10 percent more."

Fourteen states ban this kind of gender rating already, and the ACA will prohibit it starting in 2014.

Charging sky-high premiums to people who have pre-existing conditions, are likely to visit the doctor more often, or might need maternity care is rational economic behavior on the part of health insurers. It's not compatible with a society that wants its people to have an equal opportunity to afford healthcare, though. That's why the Affordable Care Act was necessary, and why I hope it will withstand legal and political challenges.