Unintended Consequences

What the press should have known about health reform

During the health reform debate, the Obama administration stuck to its mantra—the law would bring competition to health care, which would in turn lower the price of health insurance. Last week, a couple of articles indicated that the opposite may be happening in the health care business. There are some big road blocks in the way to the promised land of “affordable” health insurance.

Reed Abelson of The New York Times, who knows her onions on this stuff, reported that Principal Financial Group in Des Moines had just announced that it was exiting the health insurance business. Some 800,000 people who have employer-group coverage through Principal will now have to choose coverage from one of its competitors during open enrollment this fall. Guess what? The biggest insurer of them all, United Health Group, has agreed to offer policies to Principal’s customers. Eight hundred thousand customers is a hefty chunk of new business for a company that has been super strategic over the last decade, swallowing the small fry to rule the insurance kingdom today.

Daniel J. Houston, a senior executive at Principal, told Abelson that United is “clearly going to be a long-term player in this market.” Principal was not, and is leaving the market to concentrate on its other products, rather than make investments needed to be a competitive seller of health insurance. Iowa’s long-time insurance commissioner Susan Voss tried to play down the significance of Principal’s decision, telling Politico that the company was going to leave the market anyway.

Yet Voss voiced concern that maybe the much-touted competition was in jeopardy. Like other state insurance commissioners, she had asked for a waiver from a provision in the law that requires carriers selling in the small group and individual markets to pay out 80 percent of the premiums collected in medical expenses—in other words, they have to give patients more bang for their bucks. She’s concerned that small insurers are not able to meet that benchmark. Uh oh! Begging for exceptions from the law already? That brings other consequences, but I will save them for another post.

Other carriers are making similar decisions that further consolidate a market already dominated by four big national players and a few strong regional ones. Test driving the new government consumer help website, the prompts led me to the health insurance guide published by the New York Department of Insurance. It said Health Net was no longer selling policies in the state after the first of the year, but noted that policyholders could transfer to Oxford—which, unfortunately for consumers, did not offer the cheapest alternatives for those buying in the individual market. But they could get an Oxford policy without a new application and without having to prove they are medically fit. They could, of course, try to get cheaper insurance—but they would bump into that pesky problem of medical underwriting, and might not qualify.

Then there was the news that WellPoint and Cigna will no longer issue separate policies to children. The new law says they must give them coverage, even if they are really sick. The advocacy community reacted with moans and groans. But what did they expect? Insurance companies are not charitable institutions, and a bunch of claims from kids with cancer or cystic fibrosis is likely to affect profits and, yes, the premiums that everyone else will pay to cover these claims. The insurers were simply trying to limit their risk, which they would be expected to do.

To find out what all this means, I rang up Robert Laszewski, whose posts on Health Care Policy & Marketplace Review during the debate were some of the clearest and smartest around. Laszewski told me that all this business about smaller carriers leaving the health insurance market was Unintended Consequence Number 37. The new benchmarks, known as the medical loss ratio, or MLR in policy wonk land, were supposed to penalize for-profit insurance companies, he said, but all they will do is hurt the smaller ones that remain. The nonprofits already pay out 90 percent of the premiums in medical care, and the big for-profits won’t have much trouble with the 80 percent rule.

“The MLR has backfired completely,” he explained. “I’ve been predicting this from the beginning. This MLR thing will run the small companies out of the market. All this has done is to consolidate the market.”

If that’s the case, the media has a job to do keeping track of the insurance behemoths’ growing market power, and what that means for their audiences. And while they’re at it, they may want to investigate their local hospitals. Consolidation mania has caught up with them, too.

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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.