The Current Individual Market Is Broken
Starting in 2014, Affordable Care Act Adds New Consumer Protections & Market Reforms to Individual Market; By Contrast, GOP Repeal of ACA Leaves Individual Market Broken
On January 1, 2014, under the Affordable Care Act, major consumer protections and market reforms are being added to the individual market, including such critical protections as requiring health plans to accept all comers no matter what their health status and to not charge people higher rates if they have a pre-existing condition. The individual market is being transformed because it has been broken for the last couple of decades. As Ezra Klein and Evan Soltas of the Washington Post explain:
“The individual market – which serves five percent of the population – is a horror show. It’s a market where healthy people benefit from systematic discrimination against the sick, where young people benefit from systematic discrimination against the old, where men benefit from systematic discrimination against women, and where insurers benefit from systematic discrimination against the uninformed. The result, all too often, is a market where people who need insurance most can’t get it, and the people who do get insurance find it doesn’t cover them when it’s most necessary. All that is why the individual market shows much lower levels of satisfaction than, well, every other insurance market [as shown by the chart below prepared by Jonathan Cohn of the New Republic, which does not even include the millions denied coverage in the market].”
Following is an overview of the broken current individual market, which the ACA will transform in January.
CURRENT INDIVIDUAL MARKET: Keeping Those with Pre-Existing Conditions Out of the Market or Charging Them Very High Premiums, Through Medical Underwriting
- In the individual market up through 2013, in all but 5 states, insurers have requested detailed information about your medical history when you seek to buy insurance. If you have a pre-existing condition, an insurer will generally either refuse to sell you coverage or charge you a higher premium.
- Medical underwriting not only makes insurance less accessible for people with pre-existing conditions; it also makes applying for insurance much more complicated for everyone. The medical history and lifestyle questions often go on for pages and pages, including questions such as:
- Whether you have been diagnosed with or treated for any of dozens and dozens of medical conditions over the past five years. Applicants are often even questioned on everyday conditions such as ear infections, strep throat, hay fever, and eczema, as well as serious, highly private issues such as sexually transmitted diseases, mental health conditions, and miscarriages.
- The dates and details of treatment for any medical conditions, including lab results (e.g. cholesterol levels) and the names of treating physicians.
- Whether you participate in dangerous activities such as scuba diving.
- Medical underwriting creates several challenges for consumers. Most obviously, it means that people with pre-existing conditions can’t get insurance or face higher premiums.
- A recent Kaiser Family Foundation poll found that 49 percent of Americans under age 65 say that they or a family member has a pre-existing medical condition. Among this group, 25 percent say they or someone in their household has been denied coverage or faced a premium surcharge because of a pre-existing condition.
CURRENT INDIVIDUAL MARKET: In Some States, Up to 33 Percent of Applicants Are Denied Coverage
- The problem of Americans with pre-existing conditions being denied coverage in the individual market has been a growing one over the years. It is one reason that there were 50 million Americans – or 16.3% percent of the population – uninsured in 2010.
- Overall, across the country, an average of almost 20 percent of applicants are denied coverage in the current individual insurance market (not even accounting for those with pre-existing conditions who do not try to apply), according to a study by the Kaiser Family Foundation.
- In many states, the percent of applicants who are denied coverage is much higher than that. For example:
- In Ohio, 33 percent of applicants are denied coverage.
- In North Carolina, 33 percent of applicants are denied coverage.
- In Kentucky, 33 percent of applicants are denied coverage.
- In Tennessee, 28 percent of applicants are denied coverage.
- In Mississippi, 26 percent of applicants are denied coverage.
- In Nebraska, 26 percent of applicants are denied coverage.
CURRENT INDIVIDUAL MARKET: Low Premiums Are Often Temporary In the Individual Market
- The experience of many people in the individual market is that their premiums start relatively low, since they have passed the insurance company’s aggressive medical underwriting, but their premiums don’t stay low.
- If a policyholder has a year in which someone in their household develops a serious illness or has a hospitalization, in many cases the policyholder’s premiums are jacked up dramatically the following year.
- No one on the individual market today has the peace of mind of knowing that, if someone in their family becomes ill, they will still have access to affordable coverage to help meet their family’s medical bills.
CURRENT INDIVIDUAL MARKET: Many End Up in Shoddy Plans, With Major Gaps in Coverage That Leave Them Vulnerable
- A 2009 report by Consumer Reports on health plans in the individual market found:
- There are many health insurance policies with gaping holes offered by insurers in the individual market.
- Disclosure requirements about coverage gaps are weak or nonexistent. So it’s difficult for consumers to figure out in advance what a policy does or doesn’t cover, compare plans, or estimate their out-of-pocket liability for a medical catastrophe.
- People with modest means in many states have no good options for individual coverage. Plans with affordable premiums can leave them with crushing medical debt if they fall ill, and plans with adequate coverage may have huge premiums.
- Below are a couple of examples provided by the 2009 report by Consumer Reports of people ending up with a shoddy plan with major gaps in coverage that left them with enormous medical bills:
- Janice and Gary Clausen of Iowa bought a limited benefit plan that cost about $500 a month. “I didn’t think it sounded bad,” Janice said. “I knew it would only cover $50,000 a year, but I didn’t realize how much everything would cost.” The plan proved hopelessly inadequate after Gary received a diagnosis of colon cancer. His 14-month treatment, including surgery and chemotherapy, cost well over $200,000. Janice and Gary expect to be paying off medical debt for the rest of their lives.
- Similarly, Jeffrey Miller of Florida received a diagnosis of prostate cancer a few months after buying a limited benefit plan. Jeffrey then learned that it would not cover tens of thousands of dollars’ worth of drug and radiation treatments he needed.
- Furthermore, just a couple of weeks ago, Consumers Reports analyzed a current shoddy health plan, reporting, “Consider the case of Diane Barrett, a 56-year-old woman from Winter Haven, Fla. Her story was featured in a CBS News report and endlessly echoed on the Internet. She was upset because Blue Cross Blue Shield of Florida was canceling her $54-a-month ‘GoBlue Plan 91’ and offering to replace it with a $591-a-month ‘Blue Options Essential plan.’ Sounds terrible – except that Barrette’s expiring policy is a textbook example of a junk plan that isn’t real health insurance at all. If she had ever tried to use it for anything more than an occasional doctor visit or inexpensive prescription, she would have ended up with tens or hundreds of thousands of dollars of medical debt. Here are some of the gory details:
- The plan pays only the first $50 of doctor visits, leaving Ms. Barrett to pay the rest. Specialist visits can cost several hundred dollars.
- Only the first $15 of a prescription is covered. Some prescriptions can cost hundreds or even thousands of dollars a month.
- The plan only pays for hospitalization for “complications of pregnancy,” which are unlikely given Ms. Barrette’s age and in any event only the first $50 is covered.
- It pays $50 for a mammogram that can cost several hundred dollars, and only pays $50 a piece for advanced imaging tests such as MRIs and CT scans and then only when used for osteoporosis screening.”
CURRENT INDIVIDUAL MARKET: Due to Serious Gaps in Coverage, Some in Individual Market Have Ended Up in Bankruptcy
- In 2005, a Harvard Law School professor named Elizabeth Warren produced groundbreaking research on the subject of how gaps in coverage have led to bankruptcy for a number of American families.
- As Professor Warren wrote, “As part of a research study at Harvard University, our researchers interviewed 1,771 Americans in bankruptcy courts across the country. To our surprise, half said that illness or medical bills drove them to bankruptcy. So each year, 2 million Americans – those who file and their dependents – face the double disaster of illness and bankruptcy. But the bigger surprise was that three-quarters of the medically bankrupt had health insurance.“
- Professor Warren continued, “How did illness bankrupt middle-class Americans with health insurance? For some, high co-payments, deductibles, exclusions from coverage and other loopholes left them holding the bag for thousands of dollars in out-of-pocket costs when serious illness struck.”
CURRENT INDIVIDUAL MARKET: In Many States, Individual Market Not Truly Competitive, With At Least Half the Market Dominated by a Single Insurer
- According to a study by the Kaiser Family Foundation, the current market for individual insurance is highly concentrated in many states. Indeed, the majority of states (30 states, plus the District of Columbia) had individual insurance markets with at least half of the market dominated by a single insurance company in 2010. For example, in 2010:
- In Alabama, the largest insurer had 86 percent of the market.
- In Iowa, the largest insurer had 84 percent of the market.
- In Kentucky, the largest insurer had 83 percent of the market.
- In North Carolina, the largest insurer had 81 percent of the market.
- In North Dakota, the largest insurer had 81 percent of the market.
- In Arkansas, the largest insurer had 77 percent of the market.
CURRENT INDIVIDUAL MARKET: Comparison Shopping of Health Plans in the Individual Market Is Virtually Impossible
- The individual market has been notorious for lacking any transparency for consumers for decades.
- As a result, it is virtually impossible for consumers in the current individual market to do comparison shopping to find the best health plan for them and their families.
- The benefit structures of current individual health plans are often extremely complicated and disclosure requirements about coverage gaps in the health plans are weak or nonexistent.
- January 2014 marks a brand-new day for consumers. In the individual market in existence up until now, consumers could not do what consumers can now do in the brand-new Health Insurance Marketplaces, where consumers can make an apples-to-apples comparison of health plans – including apples-to-apples comparisons of benefits, premiums, deductibles and out-of-pocket costs of the various private health insurance plans offered.