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Mila Kofman

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Correcting the Wall Street Journal on Health Insurance Reform

Posted: 06/12/2012 9:25 pm

I am writing to correct the record on some misleading conclusions and downright inaccuracies in a recent Wall Street Journal editorial "ObamaCare in Reverse." The WSJ claimed that because Maine deregulated its private health insurance market, premiums fell. That's simply not true.

Deregulation didn't cause base premiums to fall. Premiums fell because of reinsurance. A major part of Maine's new law subsidizes individual health insurance premiums by requiring all insured people to help pay for high-risk people in the individual market. This reinsurance subsidy resulted in a 1.7 percent increase in premiums instead of a 21 percent increase. What the WSJ didn't say is that the 2011 reinsurance program is similar to a prior reform effort. The Baldacci (D) administration in Maine enacted reinsurance to stabilize premiums and help support the individual market. However, the funding source was eliminated by a People's Veto referendum, so it never got off the ground. What the WSJ also didn't say is that the 2011 reinsurance program the GOP in Maine set up is similar to the reinsurance program in the Affordable Care Act. The ACA's reinsurance approach will help consumers in all states and, importantly, will ensure that states with reinsurance do not get hauled into court because of a federal law called ERISA, which broadly preempts many state reform efforts.

The WSJ also said that the GOP took "modest steps to deregulate the insurance market," noting that "a few older consumers will see rate increases." Also not exactly correct. The deregulation allows insurers to charge older people five times more than younger people, although this is being phased in so the rate shock isn't as harsh as it otherwise would be. The ACA would limit this to 3 to 1, but if the WSJ gets its wish -- if either the Supreme Court strikes down the ACA or it is repealed -- insurers in Maine would be allowed to charge older people 500 percent more than younger people. The WSJ also didn't mention that the new law allows insurers to charge up to a 50 percent higher rate for the same coverage, depending on where a person lives. If Maine's deregulation is fully implemented, one family, for example, could be paying $500/month because they live in a city and are young compared to $3,750/month for a family that lives in rural Maine and is older, for the exact same coverage ($2,500 instead of $500 because of age variation plus $1,250 for living in a more expensive rural area for a total of $3,750). Before deregulation, the difference in prices would have been $500 versus $750.

Although all of this is technical and none of us like "actuarial speak," the bottom line for consumers is that the deregulation part of Maine's new law allows insurers to charge older people much higher rates than younger people and allows much higher rates in some rural areas. All of this is good for the bottom line of insurers but not good for the pocket books of consumers. Many small businesses have been paying higher rates and, starting in July, many people with individual coverage will be paying higher premiums than they would have paid had prior protections remained in place. Although the phase-in to higher rates for older people means that some rate shock is tempered, between now and 2014, when affordable coverage will be available through the ACA's marketplace exchanges, many older people in rural areas may have to drop their coverage. In 2014 thanks to the ACA, federal tax subsidies for private health insurance will be available through marketplace exchanges for moderate and middle income people and families.

The WSJ also claimed that deregulation allows new, less expensive products and is good for consumers. The Journal admitted, though, that: "The old and new products are not identical, so the comparison isn't perfect. On top of the rule changes, the benefits are slightly different, such as separate deductibles for in- and out-of-network services." Again, "slightly different" is not exactly true.

The new products the WSJ touted have a lower premium for a reason. If you buy a car without an engine, it is cheap for a reason. The WSJ compared a current $2,250 deductible family plan (with a very expensive added optional benefit for mental health -- which few people actually buy) to a new $2,000 deductible plan. Under the current plan, the most a family would have to pay for covered services would be $2,250 per person up to a family limit of $4,500. On the other hand, the new $2,000 deductible plan has separate $2,000 deductibles for in-network and out-of-network services and a separate $1,000 deductible for prescription drugs. So the total deductibles paid could be as much as $5,000 per person, or $10,000 for the family. Worse yet, once the deductibles are met, the family still has to pay 30 percent of the cost for in-network services and 40 percent for prescription drugs and out-of-network services until the out-of-pocket limits are reached. The out-of-pocket limits are $6,000 in-network and $9,500 out-of-network for a total of $15,500 per person. The family limits are $8,000 in-network and $11,500 out-of-network for a total of $19,500. For prescription drugs, there is no limit on out-of-pocket costs. And unlike the current plan, the new plan does not cover maternity. For consumers, there is a big difference between potentially having to pay $19,500 (and even more for prescription drugs) instead of $4,500 annually for covered benefits, in addition to the premium.

Unfortunately, the new products offered with low prices are nothing more than gimmicks that leave consumers with less economic security and less access to necessary medical care. The bottom line is that the new Health Choice Plus product should really be called "Health Choice Minus," and the only real cost savings achieved were through the reinsurance program, similar to the approach in the Affordable Care Act. Fortunately, in 2014, under a fully implemented Affordable Care Act, consumers in all states will have real affordable and secure health insurance that provides them with financial security and access to necessary medical care.

Mila Kofman is a former Maine Superintendent of Insurance (March 2008 to May 2011) and currently a Research Professor at Georgetown University.

A version of this blog post was first published in the Wall Street Journal.

 
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