As a result of President Obama’s health care reform law, some Americans are already losing their health insurance coverage before the law’s regulations even go into effect, according to a new report.
A study conducted by the Galen Institute, which references a survey by McKinsey & Company, found that many health insurance providers are already getting rid of plans they offer, especially small businesses.
For instance, American Enterprise Group “announced in October 2011 that it would stop offering non-group health insurance in more than 20 states,” which would affect 35,000 people. The reasons the company gave, according to the report, was “regulatory burdens, including the ‘medical loss ratio.'”
Another example was Empire BlueCross Blue Shield in New York, which in early 2012 will get rid of health insurance plans that currently cover 20,000 businesses. The “company will eliminate seven of the 13 group plans it currently offers to businesses which have two to 50 employees.”
James L. Newhouse, president of Newhouse Financial and Insurance Brokers in Rye Brook, New York called the impact of that move “catastrophic.”
In Indiana, the report explains, “nearly 10 percent of the state’s health insurance carriers have withdrawn from the market because they are unable to comply with the federal medical loss ratio requirement. The state asked for a waiver on MLR, and was denied.”
The MLR rule requires that “health insurance carriers spend most of the money they collect from premiums on direct medical care.”
The rule has the largest effect on companies that offer individual policies, and by necessity, therefore, “have higher marketing costs and higher customer service expenses, and… their administrative costs are necessarily higher.” Some companies have had to take severe measures to cut costs, “but this is also slashing customer services.”
Other states have seen similar problems with insurance companies decreasing their coverage. The end result is severely decreased competition in the health insurance market, something which will ultimately drive prices up.
According to the American Medical Association, “four out of five metropolitan areas in the United States [are] without a competitive health insurance market.” In many other major markets, the one or two largest insurers have virtual monopolies.
Another problem has been the requirement in the health care reform law that insurers offer children-only policies. Insurers were required to “write policies for children under 19, including those with pre-existing conditions, no matter when their parents apply.”
The report explains that the rule gives parents an “incentive” to hold off on buying coverage until their child is faced with a serious medical problem. That strategy “creates a substantial risk of ‘adverse selection,’ which makes it financially unsustainable for health plans to continue to offer these policies.” As a result, many insurance carriers are preempting the onset of these rules and simply ceasing to offer child-only policies.
In 17 states, there is not a single insurer that offers these plans to new customers. In Texas, child-only health insurance is not offered at all.
The promised “grandfathered status” to employers who already offer health coverage is one that is likely to go unfulfilled, according to the report, because “the rules developed by the Obama administration to define what grandfathered status entails were so onerous that few companies were able to comply.”
As a result, by 2013, the Obama administration has estimated that “between one-third and two-thirds of the 133 million people with coverage through large employers will lose their grandfathered status.”
Seniors will also be affected, according to the report, which cites a study from the American Action Forum, which found that “nearly all seniors in Medicare Advantage plans will find that the plan they have chosen is either no longer available or will have reduced benefits, higher out-of-pocket costs, or both within five years.”
This article has been updated.