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Monday, November 11, 2013

Obamacare Grandfathered Plans

Glenn Kessler, a Washington Post Fact Checker, attempts to make sense of President Obama's promise that "if you like your plan, then you can keep it."  Kessler concludes that the Obama Administration cannot simply blame the insurance companies for not grandfathering insurance plans because the reason such plans are not grandfathered is due to the fact that the cutoff date to do so began 3.5 years before Obamacare was fully implemented.  Thus, the problem was how the law was written, not that insurance companies were trying to deliberately find ways to limit consumers on grandfathered plans because it did not serve the company's best interest.  On the surface this is a logical argument to make and worth looking into.  However, Kessler fails to dig deep into the actions of the insurance companies and he draws the wrong conclusion from the evidence that he lays out to make his case against the Obama Administration.

An individual insurance plan may be considered to be grandfathered if some of the following conditions are met.  An individual is enrolled in the plan on or before March 23, 2010, the plan does not, for example, reduce benefits to diagnosis certain illnesses, and does not increase premiums or out-of-pocket expenses beyond the inflation of medical devices plus 15%.  In other words:
After careful consideration, the Departments opted against rules that would require a plan sponsor or issuer to relinquish its grandfather status if only relatively small changes are made to the plan. The Departments concluded that plan sponsors and issuers of grandfathered health plans should be permitted to take steps within the boundaries of the grandfather definition to control costs, including limited increases in cost-sharing and other plan changes not prohibited by these interim final regulations. As noted earlier, deciding to relinquish grandfather status is a one-way sorting process: after some period of time, more plans will relinquish their grandfather status. These interim final regulations will likely influence plan sponsors' decisions to relinquish grandfather status.
Thus, a grandfathered insurance plan in the individual market prior to the enactment of Obamacare is able to make certain changes, but the changes cannot be substantial in nature.  Insurers can increase premiums of a plan due to inflation plus 15% one time to remain a grandfathered plan.  It was also found that limiting this profit margin for grandfathered plans would be offset by plans that go into effect through the new insurance exchanges as well as the ability to upgrade policies that are complacent with the new health reform benefits during the allotted grandfathering period.  For example, until November 30, 2013 Highmark BlueCross BlueShield offers a Direct Blue plan with a $151.30 premium and $1500 out-of-pocket expenses (see pictures below).  This plan is medically underwritten as compared to Preferred Blue plans, which are guaranteed not matter the health history of the consumer.  Therefore, if someone who does not have a preexisting condition and I, who has a brain tumor, walk in and attempt to order the Direct Blue plan the other person could sign up and I will be denied.  However, their plan will be upgraded to guaranteed status come January 1, 2014 since the plan was bought after the date that a plan can be grandfathered (so if they find out on January 2nd that they have cancer Highmark could not discriminate against them).  Therefore, insurance companies could still keep premiums low to a certain extent until December 31, 2013 because they do not have to cover the sick who would take-up most of the cost-sharing resources.  Thus, the revenue lost by including those with preexisting conditions once Obamacare is fully implemented will be offset during the grandfathering period and not create such a shock to the market.  Furthermore, the amount of cost-sharing can still be increased (medical inflation plus 15%) during the grandfathering period as more consumers slowly move over to the health exchanges, both from the old market and those who were once uninsured due to their medical history.  As more consumers become insured insurance companies will still be paid the full premium that this list the plans despite the fact that the amount of money that consumers themselves pay because the government subsidies go straight to the insurance companies.  This is seen in the third picture below where the guaranteed plans cost $695.85-$1058.05.  Thus, it should not make a difference to the insurance companies because they are already offering guaranteed policies and they will be receiving more customers, which ought to drive down costs.

The purpose of eventually covering as many people as possible is because insurers could decline, kick off, or raise premiums as much as they wanted to so the market did not resemble an actuarial cost of the entire population.  The market is tilted to a subgroup of people---the healthy---while neglecting those who need it the most.  Once a person gets sick they would be pushed out of the market and restore the balance of only insuring those who are currently healthy.  If the sick were not rejected the prices would be so high for them that they would eventually leave the market and, again, just leave the healthy remaining in the market.  This is why insurance plans for the healthy were so low.  They were taking advantage of the discrimination against the sick that were not being served.  So grandfathering plans serves two purposes.  One, grandfathered insurance plans will not overwhelm the new health exchange system while allowing for a smoother transition from the old insurance market to Obamacare that must cover those with preexisting conditions by balancing out the costs between the healthy and the sick.  As seen above their profit margins would not be affected.  And two, such plans will not overwhelm the consumers before the full implementation (allowing grandfathered plans to be kept) and after full implementation since the marketplace will be stabilized from the transition so the premiums will not be out of control.  Due to this, it was estimated that the subsidies that 57% of consumers will qualify for will be 56%-59% below the market price (CBO November 30, 2009, pg 5).  In other words, both the insurance companies and the consumers would win.  Profit margins will remain intact and premiums across the majority of the population will not increase while the population as a whole acquires better coverage.  This is why Kessler's conclusion is absurd:
Blaming the insurance companies can only go so far. First of all, the administration wrote the rules that set the conditions under which plans lose their grandfathered status. But more important, the law has an effective date so far in the past that it virtually guaranteed that the vast majority of people currently in the individual market would end up with a notice saying they needed to buy insurance on the Obamacare exchanges.
The administration’s effort to pin the blame on insurance companies is a classic case of misdirection. Between 75 and 95 percent of the problem stems from the effective date, but the White House chooses to keep the focus elsewhere.
Given the evidence it is obvious that Kessler's analysis is an ideological one.  Kessler neglects to analyze whether or not the way that the law was crafted was necessary in order to create the balance that grandfathered plans offer and also how they allow for premiums to be kept low during and after the transition.  In other words, was the date (March 23, 2010) when the insurers must determine if a plan would be a grandfathered one necessary in order to make the transition between the old market and the new one as smooth as possible?  Kessler is simply dismissing the notion that the insurance companies were undermining the law and creating an unstable market for the own business interests without examining how the companies would benefit from such an action.  Furthermore, Kessler is claiming that the Obama Administration purposely wrote the law in order to make it impossible for individuals to stay with their previous plan.  However, the evidence suggests otherwise.  There was room for maneuvering (despite Kessler's claim that the regulations are "tight") that the insurance companies could do without the plans losing their grandfathered status and without losing money due to rejecting those with preexisting conditions, the influx of new customers starting January 2014, and that more healthy people will be in the marketplace (or pay a fine).  What the new regulations accomplish before full implementation of the Obamacare is that benefits cannot be rescinded and that keeping up with inflation cannot be an excuse to raise a particular plan by an absurd amount because the cost-sharing will be expanded at the beginning of 2014.  In other words, raising a premium by the amount of inflation plus 15% only one time (i.e. at 5% increments for three years) in order to maintain grandfathered status will not hurt the insurance company.  Thus, there were rational reasons why the law for grandfathered plans was written the way it was.  Also, it was a consumer protection reason to disallow insurance companies to take advantage of individuals to force them out of the grandfathered plans and to push more individuals into the new insurance markets that will overwhelm the system.  Thus, it was not the Obama Administration's crafting of the law that led to cancellation letters, but rather the insurance companies attempt to take advantage of a system to charge those who may not qualify for subsidies more in  a guaranteed policy in order to increase their profit margin.  By doing this, the prices would rise because insurance companies were disrupting the transition and creating an unstable market that the grandfathered plans were meant to avoid.  

What is even more unfortunate is that Kessler's piece led to rightwing propaganda picked up by Fox's Bill O'Reilly:
President Obama knew that would happen and he actually wants it to happen because it forces Americans into the Obamacare exchanges to get new policies, many of which are more expensive. Remember, remember. The goal of President Obama and the Democratic Party is for the government to control the entire healthcare industry. That’s called the single-payer system.
However, O'Reilly criticizes this type of speculation that one can know what another person is thinking.  In his book Who's Looking Out for You? O'Reilly writes:
Newsweek columnist Jonathan Alter is a good example of what the S-P fanatics continue to do whenever they can.  A committed secularist who hates President Bush, Alter wrote a column where he stated that Bush knew he had committed a crime by allowing the National Security Agency to listen to some phone calls without a warrant.  You read that right: Alter flat-out stated that Bush knew his NSA order was illegal but gave it anyway.  The journalist did not explain how he knew that---and I wanted to know just how Alter knew, because presidential decision making is usually kept top secret.  Can Jonathan Alter read minds?  Enquiring minds want to know (pg 64).
Now O'Reilly's assertion that his claim is not ideological cannot be taken seriously due to his reaction to Alter's piece.  Also, he does not give any evidence that the goal of the Democratic Party is to control the healthcare system.  Not everyone in the party endorses single-payer so, I guess, I have an enquiring mind (as do others) to know how O'Reilly knows this.  But, as I said, Kessler's misleading analysis gives fuel to propaganda for those who hate President Obama and the Obamacare.

My main point, as I stated in the introduction, is that Kessler's analysis does not support his conclusion that the Obama Administration was misleading in stating that if you like your plan, then you can keep it.  To support this claim, Kessler cites a study by "Health Affairs".  His analysis focuses on a chart that looks at how long individuals stay on an insurance plan in the individual market from 1996-2000.  The chart states that individuals stay on a plan for less than 6 months 48.2% of the time.  Also, individuals remain on a plan 6-12 months 16.3% of the time.  Thus, an individual keeps an insurance plan for a year 64.5% of the time.  What must be kept in mind here is that most plans are contracted out one year at a time.  The study asserts that the reason people do not stay in the individual market very long is because they move to an employer-based plan.  There must be a reason why they move from the individual market to the employer-based market.  When one gets a job they are not forced to pick up the employer plan, but they see that it is a better plan.  Thus, it does not logically follow to conclude that people are upset that they cannot keep their plan when you show evidence and that your argument is based on the fact that people leave the individual marketplace when they have the chance to!

Hence, the only thing that Kessler's "fact checking" accomplished was to give ammunition to the opposition to create more fear and anger against the Obamacare   He also did not go into detail about how insurance companies were trying to skirt the law despite the fact that the law was trying to help them transition by giving companies the ability to increase premiums to a certain extent and not offer certain benefits that still put the sick at a disadvantage.  As was stated, grandfathered plans were designed to incrementally bring all insurance plans under the new healthcare reforms that did not put the sick at a disadvantage, but insurance companies were trying to undermine the law as well as disrupt the marketplace to increase their profit margin.  Insurance companies found a loophole that allowed them to increase profits beyond the medical device inflation plus 15% by pushing everyone into the exchanges faster than they needed to.  By doing this, the market will be unstable and prices may be higher than they otherwise would be.  Thus, their profits will be higher.  Kessler even showed how insurance companies were attempting to do find a way to take advantage of a loophole.  Furthermore, Talking Points Memo investigated the fact that insurance companies violated the law when they were forcing customers into more expensive policies (destabilizing the marketplace) when they canceled their old policies without letting them know that they had other options in the new health exchanges.  Also, insurance companies must tell consumers whether or not their plans are grandfathered or not:
 [The] plan or issuer must make such records available for examination. Accordingly, a participant, beneficiary, individual policy subscriber, or State or Federal agency official would be able to inspect such documents to verify the status of the plan or health insurance coverage as a grandfathered health plan.
Thus, when consumers buy their plan they would have known at that time that their plan will not be carried into January 2014.  In other words, Kessler basically completely ignores the fact that insurance companies must be transparent about whether or not a plan is grandfathered and how they are trying to undermine the law every chance they get.  Hence, one cannot take seriously that insurance companies were attempting to prolong the timeframe of grandfathered plans as Kessler attempts to show.  Due to this, Kessler's claim that "blaming the insurance companies go only go so far" is onerous.  In fact, the Obama Administration has not gone far enough in outlining how the media is not informing the public that it is the insurance companies responsibility to let consumers know if their plan would not be grandfathered or not and that insurance companies are doing everything that they can to increase their profit margins by destabilizing the market by finding loopholes.

H/T Newshounds

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