Health Reform and Obama’s Consumer Protections

Good for consumers, or good for insurers?

Last Wednesday, The Washington Post told us the obvious: that “the fight over health-care legislation is saturating the summer airwaves, with groups on all sides of the debate pouring tens of millions of dollars into advertising campaigns designed to push the cause of reform forward, slow it down or stop it in its tracks.” It’s easy to be tempted to write the “fight on the airwaves” story and call it a day. We have a better idea: explain to all those perplexed people what the consumer protections President Obama promised will mean for them and for reform.

After all, these protections get to the heart of what the president has told us this effort was all about. He said it was about health insurance reform a few weeks ago in his TV address, and repeated that term again five times in his radio address this Saturday. Is he no longer calling for health care reform? And what the heck does ‘insurance reform’ mean for most average folks?

To help journalists and the public understand all this, I contacted Mila Kofman, the insurance superintendent for the state of Maine, who knows insurance regulation as well as anyone. A few takeaways: while some of Obama’s eight protections may be a real benefit to policyholders, others already exist, and reporters need to keep a careful eye on what happens to all of them as Congress and the special interests start fiddling with legislative language. Herewith is my consumer protection primer:

No discrimination for preexisting conditions. That’s a good thing, and insurers have agreed to eliminate health status as a factor for granting coverage in the individual market if every American is required to carry insurance one way or another. Right now, a few states restrict preexisting conditions clauses; the Health Insurance Portability and Accountability Act (HIPAA), passed in 1996, gives people the right to buy a policy in the individual market without regard to health problems if they do so within sixty-three days of losing coverage and if they have used up all their COBRA benefits. HIPAA, though, didn’t say anything about premiums, and so insurers in most states charge higher rates to discourage people with preexisting medical needs from signing up.

What to watch for: Lobbyists inserting language that limits insurers’ risks, like the restrictions in the HIPAA law that still make it difficult for sick people to obtain coverage. President Obama has been silent on the question of age rating, which serves as a proxy for using health as a factor in charging higher rates. Older people are likely to present more health risks and cost the insurers money. “As long as they can rate people up for age, that’s a proxy for health rating,” Kofman says.

No exorbitant out-of-pocket expenses, deductibles, or co-pays. Sounds reasonable. Insurance companies sell policies with protections for catastrophic expenses, called maximum out-of-pocket limits. However, some policies in the individual market don’t offer this protection, so requiring all policies to provide this is a step forward.

What to watch for: Lobbyists trying to water down the cap on individual expenses. The key here is what kind of services count toward the cap—deductibles, coinsurance, copays, drug expenses, medical care, and services that are not covered by insurance? In some current policies, visits to out-of-network specialists don’t count. Maximum out-of-pocket protection can still leave people at risk for thousands of dollars of expenses each year.

No cost-sharing for preventive care. Also good protection. Some policies simply cover preventive care without making policyholders pay coinsurance or copayments. Other policies, especially in the individual market, claim to cover preventive care but only after the annual deductible has been met. In other words, it’s an illusory benefit—especially when the deductible is more than a few hundred dollars, as many of them are these days. Obviously, it’s better to have a policy cover the care outright with minimum out-of-pocket expense.

What to watch for: Lobbyists trying to make some preventive care subject to deductibles, and imposing some cost-sharing requirements, thus weakening the protection. Also look at what is considered preventive care. Legislative wheeling and dealing may try to limit coverage to services that don’t cost very much.

No dropping coverage for seriously ill people. HIPAA does not allow insurers to drop people who have filed claims for serious illness. People with individual coverage and those in groups can’t be dropped if they have filed lots of claims. But the companies have found a way around this prohibition. If too many people in a group get sick, especially in a small group of people who have purchased the same individual policy, the company just closes off its “block of business” and sets off what’s known in the insurance biz as a death spiral. The company starts selling a new, perhaps similar product to healthy people, while sick people with the old coverage face higher and higher premiums, making the policy unaffordable. Eventually they drop the policy—which, of course, makes companies happy.

What to watch for: Lobbyists trying to sneak in provisions that would let insurers raise rates for sick people. Insurers have said publicly they would no longer charge sick people more money. Will that promise apply in these death spiral situations with policyholders already on the books, or will it apply only to people applying for new coverage? Look for companies to support language allowing flexible-benefit policies that effectively restrict what’s covered and discourage people with health problems from applying, because the policies won’t cover their conditions.

No gender discrimination. Charging women of child-bearing age more for coverage because women get pregnant “is horrific,” Kofman says. “It goes on all the time in most states because state law does not prohibit it.” Historically, companies have justified this policy because women file more claims—especially claims relating to pregnancy and childbirth, which can be expensive for insurers. Carriers have now said they will stop this practice.

What to watch for: Look for attempts made to restrict or eliminate pregnancy coverage from policies, especially in the individual or small group market. This has already been done in California. Policies sold to employers with fewer than fifteen workers are not protected by the Pregnancy Discrimination Act.

No annual or lifetime caps on coverage. That’s a critically important new protection, Kofman says. Individual market policies often cap the total amount an insurer will pay out during the life of the policy. That hurts people who need organ transplants or have other catastrophic medical expenses. One premature baby in the hospital for six months could cost over $500,000. In some states, you can also burn through a cap of $1 million pretty quickly if you have a major heart attack.

What to watch for: Again, look for lobbyists trying to limit lifetime and annual coverage. The lower the limits, the less protection people will have for truly expensive medical treatments. Flexibility will be a hard argument to counter, but reporters should dig beneath what the companies really mean by ‘more flexible policies.’ What will be excluded?

Extended coverage for young adults. The president wants companies to agree to cover young adults on their parents’ policies until they turn twenty-six. Some states have tried to extend coverage, with mixed results—especially when it’s up to employers to choose this option when they buy a policy for their workers. Insurers charge for it. While this solution makes it sound like more people can get coverage, there’s a hitch. Under IRS rules, these young folks must be listed as dependents on their parents’ tax returns. A ‘dependent child’ in the eyes of the IRS must be under age nineteen, or a full-time student until age twenty-four, and cannot provide more than half of their own support for the calendar year. Employers cannot provide tax-free benefits to adult children, so Kofman says tax rules may have to be changed to make this provision meaningful. Also, how many parents want to keep their twenty-five-year-old dependent on them rather than out on their own? So how much protection does this really offer?

What to watch for: Resistance from employers, who may not be too keen on paying more money to insure their workers’ young adult children. While it’s a good bet that insurers would relish new business and more premiums from younger and healthier people, they just might find it more lucrative to send all these young people into the individual market rather than keep them on family coverage.

Guaranteed Insurance Renewal. The White House says that insurance companies will be required to renew any policy as long as the policyholder pays the premium in full, and won’t be allowed to cancel anyone who gets sick. Mr. President, take note. HIPAA already says that all kinds of health insurance policies are guaranteed renewal—job-based coverage and individual health insurance. So what’s new here? Is this an attempt to deal with rescission, that onerous individual-market practice where insurers drop coverage claiming that a policyholder lied or failed to disclose information on the application?

What to watch for: Will insurers fight for language that continues to allow rescissions? Watch for language that allows rescissions for fraud and misrepresentations. If there are new rights to coverage and prohibitions on carriers from discriminating against people with preexisting conditions, there should be no incentive for fraud or misrepresentation, whether intentional or unintentional.

Journalists, this is where the action is going to be if a bill moves forward in the Congress. If ever there was a time to watch the backroom politics of insurance reform, it is now. The AP moved a story yesterday that at first I thought was promising. “Consumer protections lost in health care debate,” the headline said. But the story was disappointing, missing a chance to explain and analyze exactly what these protections are, and how they might get watered down. Instead, the story was a collection of graphs, a couple of which noted how insurers could no longer base premiums on someone’s medical history. It included a few quotes from Washington wonks, and talked about the age rating that would be allowed by the House and Senate bills.

The story did deliver one takeaway for readers who might be tempted to think their problems getting insurance and staying insured are about to be solved. The AP said the protections would not be available until 2013. That’s a long time to wait if you need medical care—and a way to pay for it.

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman.