Cheap individual policies seem like a great deal until you actually have to use them
For a president who has spent five years fighting for health care reform, this should be a blissful moment. Insurance exchanges have opened in all 50 states, more governors are embracing the historic expansion of health care for the poor, and Obamacare’s fiercest congressional opponents have neutered themselves with their government shutdown.
Instead, the administration is slogging through one of the toughest weeks since the Affordable Care Act was signed into law three years ago. Health and Human Services Secretary Kathleen Sebelius faces a congressional interrogation Wednesday for the troubled rollout of the government’s online insurance marketplace. And as the president speaks Wednesday at Boston’s Faneuil Hall, he faces yet another political mess, this one over the cancellation of millions of individual insurance plans that don’t meet the ACA’s minimum standards for coverage.
This latest political storm blew in last weekend, when media outlets started reporting that many people who buy their health coverage directly from insurance companies will have to switch plans in 2014. Their old policies don’t cover the essential health benefits the law requires, so they must now shop for new ones that do. Some people will face higher premiums as a result.
The president has never explained this. He persists in claiming the Affordable Care Act won’t force anyone to switch insurance policies. “If you like your health plan, you will be able to keep your health plan,” he says, ignoring the fact that the health care law could invalidate a quarter of the 14 million individual health policies Americans now hold.
But as critics excoriate the administration for misleading the public, here’s a point to bear in mind. The affected consumers aren't getting ripped off. Most will get more for care their money under the new system than they ever could have hoped for under the old.
The Affordable Care Act was designed not just to expand insurance coverage but to protect consumers who buy it. Compared to people who get group coverage through their jobs, folks seeking individual health policies have long had a raw deal. Those with pre-existing health conditions have either been denied coverage or charged prohibitive rates, and those deemed insurable have gotten plans with high deductibles and limited coverage. On average, plans sold on the individual market covered just 60% of their subscribers’ medical costs in 2010, researchers reported in Health Affairs last year, while group plans covered 83%. In addition to other fees and copays, the average individual subscriber paid a $2,858 annual deductible—nearly four times the $751 that group plans charged.
To correct these distortions, the health care law requires that products sold as health insurance offer the buyer a minimum level of financial protection. Specifically, the law identifies 10 essential health benefits—ranging from maternity care to lab tests and prescription drugs—that all plans must cover as of January 1, 2014. It also limits the sums that insured people can be charged out-of-pocket for their care. Policies sold before March 23, 2010, are exempt from the law, but most of those have been replaced by newer plans that still fall short of the new benchmarks. Studies suggest that half to three-quarters of current individual plans no longer pass muster. Many individual subscribers have switched from one substandard plan to another during the past three years, so their current ones won’t be grandfathered in.
Hence the frustration. “All we’ve been hearing the last three years is, if you like your policy you can keep it,” LA real estate agent Deborah Cavallaro told the Los Angeles Times. “I’m infuriated because I was lied to.”
Cavallaro received a notice from Anthem Blue Cross this month, saying her cut-rate policy was being canceled because it didn’t meet even the lowest of the four coverage levels that insurers can offer in the new health care exchanges (bronze, silver, gold and platinum). The company said she could get a bronze plan for $484 per month—an increase of about $190. “I just won’t have health insurance because I can’t pay this increase,” she told the paper.
But for every Deborah Cavallaro, there is probably at least one Judith Goss. Goss is a Michigan retail worker who got an inexpensive “mini-med” policy while working at Talbots and kept it going for $65 a month after losing her job. “I was aware that it wasn’t a great plan,” she told Consumer Reports last year, “but I wasn’t concerned because I wasn’t sick.”
When she did get sick—with breast cancer—she quickly surpassed her plan’s four-figure annual spending limits and ended up postponing treatment while she scrounged for $30,000 to cover her bills. As White House spokesman Joshua Earnest says, “Those cheap individual policies seem like a great deal until you actually have to use them.”
Real health insurance would have cost Goss more up front. Thanks to the Affordable Care Act, that kind of coverage is now available—at subsidized rates—through a health care exchange. The law effectively discounts premium prices for people earning up to four times the federal poverty wage ($45,960 for an individual, $94,200 for a family of four). And according to the Kaiser Family Foundation, nearly half of the 14 million Americans now insured through the individual market will qualify for subsidies when they enroll in qualified plans through the exchanges.
A shift of such magnitude was always bound to make waves. The Obama administration could have smoothed them by explaining—early and often—what consumers stand to gain from higher health care standards. The president’s “keep your plan” promises look misinformed or even dishonest now that the revolution is here. But while Obama may suffer politically, consumers are still getting a good deal. Some may pay more for coverage, but they'll be buying real security.