There’s been way, way too much follow-the-newsmaker reporting in recent weeks, with Obama’s acolytes trailing the procession to the promised land of health and financial reform. That’s why we were so pleased to see two pieces in the Times that jumped beyond contemporary press release journalism into the real world.
First came a story by Eric Dash and Nelson D. Schwartz, which ran shortly before the president penned his name to the financial reform law. Anyone who thinks the banks are going to suffer should think again. They’ve already found ways to work around the rules to prop up their profits. Jamie Dimon, the CEO of JPMorgan Chase, said it soooo succinctly: “If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger.”
Dash and Schwartz tell us that the banks now face limits on debit card fees and overdraft transactions. So to make up for lost revenue, they will begin adding fees to checking accounts—as much as $180 a year on a basic account offered by Wells Fargo and Fifth Third of Ohio. And if consumers want to avoid the fees, they might find an account that requires a minimum balance or makes them use other banking services. We’ve been through this before. When consumer advocates criticized the monthly fees banks were charging back in the 1980s, banks eliminated them but started charging fees for other services and imposing minimum balance restrictions—and yes, there was the package of services you could buy to avoid the fees. Back then, they called it relationship banking.
I once interviewed John Reed, who was climbing his way to the top of Citibank by making a name for himself in the burgeoning consumer banking business. Reed told me he heard what consumer advocates were advocating and would simply find other ways to bring in more money—and he did.
According to Aaron Fine, a financial consultant who talked to the Times, it costs a bank between $150 and $350 annually to maintain a checking account. Consumers who don’t contribute the required amount in fees may get the old heave-ho, as banks rid themselves of unprofitable customers. Does financial reform bring us back to square one, where banks catered to consumers willing to pay the high fees and assume costly (and tricky) mortgages, instead of those who were more prudent?
Dash and Schwartz report on what the banks will do to get around the new rules for those controversial derivatives. They won’t be able to make bets with their own money. In the past, they sold derivative contracts directly to buyers and collected hefty fees. To skirt this prohibition, banks will now trade them through a clearinghouse which will bear the risk, leaving them to broker the transactions and supposedly compete on service and price. They are gearing up for that job, scouting for new customers by pitching their clearinghouse services to hedge funds.
The Times’s Reed Abelson takes a hard look at how insurers will adapt to their new world order. And the outlook isn’t pretty for consumers, who have been led by the president and reformers into thinking that they would never have to change their doctors and could have all the choice in medical care they wanted. If they believe that, Abelson’s fine piece says they should think again.
It turns out, says Abelson, more people will have to pay higher premiums for the privilege of choosing or keeping their own doctors. That’s because insurance companies have decided to squeeze their provider networks, and force patients to get care from the docs and hospitals in the networks that tow the financial line insurers draw in the sand. Carriers know that the new law calls for little or no cost containment, and no one is betting the family farm that the handful of pilot programs offered through Medicare will offer any savings that translate to the rest of the insurance business.
Bottom line: Insurers are worried that continued high prices will hurt business, so they need to find ways to lower the prices, and narrowing their networks is the ticket. Indeed, Abelson reports that insurers will be able to reduce their premiums by offering more restrictive plans. Dr. Sam Ho, the chief medical officer for United Healthcare, says that more employers are interested in limited arrangements for their workers “because, quite frankly, affordability is the most pressing agenda item.”
Choice—-or at least choice that will not cost you—is likely to be increasingly scarce as health insurers and employers scramble to find ways of keeping premiums from becoming unaffordable.
Carriers are experimenting with different ways to force consumers into the restricted networks. Ho’s operation is trying out plans where patients can see a doctor not in the network, but they will have to pay much higher out-of-pocket costs than they would in a traditional plan with out-of-network benefits. Aetna is testing a narrow network in New York that has half the doctors and two-thirds of the hospitals it typically offers. Those who enroll are covered only if they use in-network providers. Ouch, if the best brain surgeon you need is not among them.
Déjà vu time, guys! This is the very industry that tried to force consumers into restricted managed care organizations during the 1990s, only to loosen up when consumers and doctors fought back. Who knows if consumers will rebel again? And what about the docs who will be left out—those who signed on to reform because they were promised a ton of new patients?
Insurers are testing the waters in advance of all those new customers who will dive in come 2014, when the insurance exchanges and government subsidies kick in. Skimpy policies with their limited networks may be the only way customers can afford the required insurance. That, of course, leaves them vulnerable when serious illness strikes. And that brings up the problem of underinsurance, which reform was supposed to correct. Then, too, there’s the issue of continuity and coordination of care we heard reformers preach last year. If you get jerked around by your insurer, and must find new providers in the network to protect your pocket book, it’s hard to see how there will be much continuity and so-called “quality” care.
Did the Times reporters stumble onto unintended consequences of reform, or did they discover a hard truth—that it’s damn tough to regulate American business? Whichever it is, we hope they and their colleagues at other news outlets will keep calling out these contradictions.