With Obamacare, insurers will still find ways to avoid risk

November 4, 2013
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We pay health insurers to perform four basic jobs for us: pricing risk, spreading risk, haggling with health care providers and processing our claims.

However, there has traditionally been a fifth element to running a successful health insurer: avoiding risk.

Before Obamacare became law in 2010, health insurers had built up a poor reputation for avoiding risk: denying coverage to the sick, rescinding policies after big claims, charging outsized overhead fees and allowing certain health plans to become death spirals.

Obamacare put an end those practices. But that doesn’t mean Obamacare put an end to health insurers’ risk-avoiding ways. Not at all.

My article this weekend about Anthem Blue Cross and Blue Shield’s “zero-premium plans” should make that clear. The plans have premiums so modest that low-income Hoosiers that receive a federal tax subsidy can apply the subsidy to the premiums and have no monthly payment for the coverage.

But they will have an enormous deductible--$6,350 for single coverage and $12,700 for family coverage. Those are the maximums allowed by Obamacare.

The New York Times ran a related piece this weekend, citing a McKinsey & Co. analysis that found that up to 7 million Americans could qualify for a zero-premium plan on the Obamacare exchanges.

Contrary to the Times article’s assertion that health insurers don’t plan to promote these plans, Indianapolis-based Anthem will roll out a marketing campaign about its zero-premium plans later this year.

Indiana hospitals think these plans are simply a way to shift the financial risk of these patients onto them. The likelihood of hospitals collecting $12,000 from a Hoosier family of four earning $35,000 is, indeed, remote.

“It’s not a lot different than when they were uninsured,” Doug Leonard, president of the Indiana Hospital Association, told me.

Naturally, Anthem sees things differently. It expects only relatively healthy Hoosiers will sign up for these zero-premium plans, which means they're unlikely to rack up a large amount of medical bills. In other words, the zero-premium plans are a way insurers can sign up lots of healthy customers.

That’s a good goal. Anyone who supports Obamacare or anyone who is trying to buy through the exchanges wants to avoid a death spiral in the exchanges, where only sick people sign up for coverage, pushing prices higher and higher every year. Insurers targeting healthy people means a broader risk pool.

And in defense of Anthem and other health insurers, health plans with high deductibles were one of the few ways they could absorb Obamacare’s new regulations—guaranteed issue, minimum required benefits—and yet still offer affordable prices. (Narrow provider networks and narrow drug formularies are two other strategies insurers are employing to keep prices down.)

But the prevalence of high-deductible plans in the Obamacare exchanges also signals that insurers are well-prepared to play within Obamacare’s new rules to seek out premiums (or tax subsidies) from those who won’t cost too much to their health plans. Meanwhile, health insurers can shift risk to someone else—in this case, health care providers.

Just look ahead a couple years. After 2016, Obamacare’s transitional reinsurance fund will end, meaning health insurers will no longer get supplemental payments to offset the cost of the influx of sick people into their plans. By that time, they will have both the incentive and the tools to woo the healthy while shunning the unhealthy.

They can craft super low-cost bronze plans and market them, while putting few promotions behind their richer silver and gold plans.

They can take a page from their Medicare Advantage playbooks, where insures like Louisville-based Humana Inc. and Minnesota-based UnitedHealth Group Inc. have offered gym memberships and other perks to attract healthier seniors into their plans.

They can make smart use of mobile technology and social media to attract younger customers, who tend to be healthier.

They could even, as one Indianapolis health benefits consultant told me, target industries with lots of small employers with young healthy populations. Here’s just one speculative example: Anthem could approach the IT trade group TechPoint to offer exchange-based coverage to its member companies—and their predominantly young, male workers.

Insurers who do this risk-avoidance best will prosper by attracting more customers and receiving larger amounts of Obamacare’s subsidies to cover their premiums. Anthem expects half of the premiums it collects in the exchange in Indiana to be paid by taxpayers, rather than by the less-certain payments of individual customers.

How’s that for shifting risk?

Hospitals, meanwhile, will bear more of the burden of collecting payments from low-income customers, while they also grapple with cuts in payments from the Medicare and Medicaid programs.

No wonder Anthem’s parent company WellPoint is predicting record revenues because of Obamacare, while forecasters expect a chunk of hospitals to go out of business.

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  • Grist for public option
    If these policies become egregious we will see calls for the public option. Either insurance companies play nicely or their market share will shrink. Single payer would really shrink private insurance. Seems like they should look down the road and help Ocare to serve everybody's interest.
  • What?
    Mr Leonard states that a potential $12,000 hospital writeoff from a patient with a high-deductible policy is "not much different" than the writeoff from an uninsured patient? Seems very hard to believe.
  • The smartest guys in the room
    The communist's attempt to put "fairness" into the healthcare system is working well don't you think? It's just making the rich richer and the middleclass poorer. Once us mc's are poor then the communists will go after the rich and corporations with impunity. Ladies and gentlemen readers you are witnessing the devil's work. What are we going to do about it?!
    • Communist?
      Forcing people to buy insurance from large corporations is communism? I'd call Obamacare yet another triumph of the Corpocracy.
    • By the Way...
      J.K., I've been meaning to thank you for this blog. It can't be easy taking on a complex and controversial subject like health care. I don't always agree with what you write but I certainly appreciate your efforts to illuminate a very, very murky situation, where so many of the interested parties like to keep the rest of us in the dark. Information is power - thanks for sharing!
      • David, your too optimistic
        David, I wish I could agree with you about the need for insurance companies to exercise self-restraint, but they really don't have to. Congress is bought and most Americans don't want socialism -- at least not in theory. Government run health insurance is anathema to most Americans. They don't recognize Medicare as government run. Again, I want what you say to prove true, but I don't think it will.
      • To Mordant
        I appreciate the compliment. I absolutely agree with you: health care and health insurance are these big black boxes to most people. So I'll try to keep the revelations coming. Feel free to tell me when you disagree too. The best outcome is to get people really debating these things.
      • thought to ponder
        Everyone complains about the high deductibles; however, if you run up a $300,000 medical bill at a hospital, is it too much to ask that you pay $6,350 of it. No matter your income level, medical care costs money. If you are ill, you will pay more. And, hospitals are usually willing to work out discounted payment plans. It isn't fun or good news, but it is reality.
      • Premiums and Deductibles
        JK, thanks for the details on the premiums and deductibles concerning the zero premium healthcare plans. Somehow, we will, at the end of the day, need to have incentive for the insurers to participate in the new healthcare, and for the insured to have appropriate coverage at a appropriate price. Both stakeholders have to have incentive to participate in the game, or otherwise the system will not work.
      • premiums
        This is a little off topic, but still somewhat relevant. I was just on the government site, and playing with the numbers. The premiums for a couple (62 and 56 years old) with an income of $62000 would be, with the subsidy, $5890 annually. However, should their income go up by a mere $100, their premiums jump up an astounding $10755, mainly due to the loss of the subsidy. Why is there no gradual loss of the subsidy? You either get it, or you don't, and that makes no sense at all!
      • Three monkeys on the branch
        Other commenters are focusing on the what's and wherefor's of ocare. Look beyond the end of your noses! This is not some game. This is just one of many schemes the liberals are employing to drive wealth out of the country and turn America into its version of Soviet Russia.
      • Beware of Affordable Care Act websites
        John McAfee, founder of anti-virus company McAfee, Inc, on the ACA exchanges: On Fox Business Network's Cavuto on Wednesday, computer programmer and founder of McAfee, Inc. John McAfee said the online component of Obamacare "is a hacker's dream" that will cause "the loss of income for the millions of Americans who are going to lose their identities." For starters, McAfee said the way it is set up makes it possible for fake websites be set up to fool people to think they're signing up for Obamacare. "It's seriously bad," McAfee said. "Somebody made a grave error, not in designing the program but in simply implementing the web aspect of it. I mean, for example, anybody can put up a web page and claim to be a broker for this system. There is no central place where I can go and say, "OK, here are all the legitimate brokers, the examiners for all of the states and pick and choose one." "Instead, any hacker can put a website up, make it look extremely competitive, and because of the nature of the system — and this is health care, after all — they can ask you the most intimate questions, and you're freely going to answer them," he continued. "What's my Social Security number? My birth date? What are my health issues?" According to McAfee, there's not a quick fix — and as long as it set up this way, it could be a playground for computer hackers. "Here's the problem: It's not something software can solve," McAfee continued. "I mean, what idiot put this system out there and did not create a central depository? There should be one website, run by the government, you go to that website and then you can click on all of the agencies. This is insane. So, I will predict that the loss of income for the millions of Americans who are going to lose their identities — I mean, you can imagine some retired lady in Utah, who has $75,000 dollars in the bank, saving her whole life, having it wiped out in one day because she signed up for Obamacare. And believe me, this is going to happen millions of times. This is a hacker's dream. I mean I cannot believe that they did this."

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