Category: ACA and Policy, Cost of Healthcare, Government Programs, Health Insurance

How the Healthcare Law Has Changed the Individual Health Insurance Marketplace

In January 2010, just a few months before healthcare reform law passed, I got a study by a national actuarial firm that measured the impact of state regulations on health insurance plan pricing. This study showed WIDE variation in the definition of an individual health insurance policy, and how plans were priced, from state to state.

In fact, the firm divided the states into five different “groups” based on how regulations added to coverage requirements and prohibited underwriting in each state. So a state in Group 1, for example, had tons of state regulations adding all sorts of things to the individual health insurance policy, lots of rules about who they had to cover and how they set their prices. Group 5 states had much less regulation, almost none in some, and health insurance companies could design policies based on consumer demand instead of legislative desires, basing prices on the risk of the member himself.

It was fascinating stuff for a wonk like me! But why should you care about this?

Because once I saw the state breakdowns, I KNEW I had to go shopping! I needed to know if those huge differences in state law lined up with the price of insurance. I had to know!

I’m sure (the amount of regulation in a state) wasn’t the ONLY factor affecting the prices in each market (the cost of medical services can vary a lot by state/region, too), but it’s pretty telling that every single time the market price was higher or lower, it matched to the regulatory group.

Using ehealthinsurance.com, I picked out a common benefit design and ran the prices in 10 different markets inside these “groups” in January 2010. But first, I had to identify the most common health insurance policy to purchase.

Back then, it was a broad-network PPO plan with a $1,000 deductible, 80/20% coinsurance, an annual out-of-pocket max of no more than $2,000 a person, and solid out-of-network coverage. If the plan had copays for office visits, I limited them to $35 a visit. I had no problems finding such plans in any market. I used a 49-year-old, non-smoking male in average health as a test subject. This is what I found in January 2010:

Market Zip Code Group Code* Price/Month
New York City 10026 1 $897.73
Albany 12201 1 $805.53
Denver 80002 2 $533.25
Philadelphia 19149 2 $499.16
Baton Rouge 70810 3 $368.10
Salt Lake City 84015 3 $355.27
Atlanta 30322 4 $281.90
Omaha 68046 4 $251.14
Phoenix 85004 5 $231.40
Lexington 40505 5 $198.32

*Group 1 has most regulations and consumer-protection rules, Group 5 the least

It was immediately clear that the amount of regulation in a state correlated directly to the price of health insurance. I’m sure this wasn’t the ONLY factor affecting the prices in each market (the cost of medical services can vary a lot by state/region, too), but it’s pretty telling that every single time the market price was higher or lower, it matched to the regulatory group.

“A person using health insurance to get treatment for an illness spends much more out of pocket today than he would have using his coverage six years ago.”

Fast-forward to the post-healthcare reform world. I recently re-discovered this 2010 research and decided to repeat this analysis. After all, the healthcare reform law was supposed to improve the individual market, make it stronger and available to more people and ultimately, lower healthcare costs. If it were doing that, I should have no problems proving it, I thought. I started working on getting updated quotes for these same market locations…

And immediately hit a huge snag. Huge.

The individual product I shopped for back in 2010 (broad-network PPO) is extinct. The individual insurance products surviving on healthcare.gov offer very different consumer value. They have higher deductibles, narrower networks, MUCH higher out-of-pocket maximums and the like. Thus, they offer much less financial protection, especially for the lower-cost plans.

A person using health insurance to get treatment for an illness spends much more out of pocket today than he would have using his coverage six years ago. New policies do cover a ton of things “up front” for zero copays, which older policies didn’t, like around 45 different tests, screenings, immunizations and counseling services. In regular medical coverage, the new policies have guarantees that rival everything “Group 1” (the most regulation) had back in 2010. In fact, it appears the federally-designed Qualified Health Plans that we sell today look an awful lot like the New York State standard for individual insurance back in 2010.

New York was certainly no success story in 2010. In a wealthy state of 20 million people, only 17,000 could afford individual coverage. At the same time, in a state of 4.4 million, Louisiana had more than 200,000 people covered in the individual market. File that for later.

“So as usual, when talking about the healthcare law, there are no simple answers. Whether or not your prices went down is decided by where you live.”

Anyway, I shopped and got as close as I could to what I quoted in 2010 with today’s products. Here’s an updated grid with notes on the major differences between the 2016 product and the 2010 one. Remember the original (extinct) product was $1,000 deductible (ded), 80/20% coinsurance, broad PPO network, $2,000 max out-of-pocket (OOP) or less, and no more than $35 office visit copays (if applicable).

Market Zip  Code 2010 $ 2016 $* Price Diff Notes
New York City 10026 $897.73 $627.11 ($270.62) No out-of-network (OON) coverage, OOP max $6,850
Albany 12201 $805.53 $530.61 ($274.92) No OON coverage, OOP max $6,850
Denver 80002 $533.25 $628.30 $95.05 OOP max $6,850.00
Philadelphia 19149 $499.16 $628.30 $129.14 OOP max $6,450, Ded $2,000, 70/30 coinsurance
Baton Rouge 70810 $368.10 $630.86 $262.76 OOP max $5,000, separate $500 pharma ded
Salt Lake City 84015 $355.27 $419.67 $64.40 No PPOs, No OON coverage, OOP max $2,500
Atlanta 30322 $281.90 $500.20 $218.30 OOP max $2,750
Omaha 68046 $251.14 $671.75 $420.61 OOP max $4,000, 25% coinsurance
Phoenix 85004 $231.40 $434.23 $202.83 OOP max $6,000, $500 ded, No OON
Lexington 40505 $198.32 $518.68 $320.36 OOP max $6,000, No OON coverage

*Prices do not include federal assistance, as I was looking for the durable effects of regulatory changes on individual health insurance pricing.

How interesting! You should notice a couple of things:

  1. I could not find the most common plan offered everywhere in basically the same form in 2010 in ANY markets today without major adjustments. In general, everybody got less financial protection no matter which plan I selected.
  2. Prices in big blue states with failing individual markets pre-reform (like New York, Colorado) actually saw their premiums go DOWN thanks to the healthcare law.
  3. States with relatively stable individual markets (although lots of underwriting) saw their prices go up dramatically, or choices narrow, or benefits decrease a lot.
  4. In many cases, the individual policies came from companies that did not exist in 2010.

So as usual, when talking about the healthcare law, there are no simple answers. Whether or not your prices went down is decided by where you live. But here in the state we care about, costs went up, sometimes dramatically, on individual health insurance, and benefits deteriorated in cost protections. Why?

  1. Healthcare.gov product requirements greatly expanded what individual health insurance had to cover and took away some important options for families. Women (of any age!) ALWAYS have pregnancy coverage now, for example, whereas in the past they could choose and only buy it if they needed it.
  2. Healthcare.gov redefined FAMILY for the purposes of health insurance sales. In 2010, we never charged any family more than three premiums (2 adults, 1 child premium), no matter how big the family. In 2016, we are REQUIRED to charge at least five premiums before we declare the unit eligible for a family rate (2 adults, 3 children).
  3. Healthcare.gov rating changes mean the average 25-year-old is paying 75% too much for his insurance, and that money is subsidizing the policies of older folks, saving a 64-year-old 18% on his insurance, at the expense of the 25-year-old.
  4. “Guaranteed Issue” coverage means rules used to base pricing of health insurance on the actual risk of the member are no longer allowed. In 2010, we could reward an insured person for healthy behavior. Now, people who take good care of themselves pay the same premiums as people who don’t. Healthcare.gov rules designed to strengthen the individual markets are not enforced. The individual mandate that “everyone” must have health insurance or pay a penalty now has 27 exceptions. Special enrollment requires no documentation up front. Risk Corridor payments to carriers losing money were promised and then de-funded, leaving huge liabilities for insurance companies to recover from premium funds.

The list goes on and on.

All in all, here at Blue Cross, we currently have 50,000 more individual members than we had in 2010, but we have lost almost $200 million covering them since healthcare.gov opened for business. And you can see above that rates have doubled since 2010, and it’s still not enough to break even with all the healthcare these folks need and the lack of federal oversight of the individual market.

It looks like healthcare reform was a godsend if you were a big, wealthy state before. But poorer states have not fared as well, with dramatic rate increases and huge penalties on the moderately successful who don’t qualify for help paying their premiums. And that is Straight Talk.

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