The Truth About Those Obamacare Coverage Letters

Of late, numerous reports have told of people surprised by letters telling them that insurance plans they now have will not be renewed. Many are puzzled. Weren’t they told that if they like their insurance they could keep it? Opponents of health reform in general are seizing on the fact and asking in an accusatorial manner: “Isn’t this a betrayal of trust?”

No. To see why, imagine a new law enacted to promote food purity. As it is being debated, you are told: “If you like what you eat, you can keep on eating it.” The new law takes effect, and one day, you find that the market no longer carries certain foods you have been buying. As it happens, those products included elements found to be bad for your health. The pure food act barred their use.

Obamacare is analogous to the pure food law. It bars certain common practices of insurance companies that most people find unacceptable at best, outrageous at worst. These include:

• Denying care for preexisting conditions, sometimes temporarily, sometimes permanently;
• Charging higher premiums to women of child-bearing age than to men of the same age;
• Charging 65-year-olds rates that are as much six or eight times higher than they charge 25-year-olds;
• Cutting benefits entirely when annual or lifetime treatment costs exceed specified amounts;
• Omitting coverage of particular services that are basic and important, such as rehabilitation after serious injury; and
• Cancelling coverage when a customer presented very large bills and was expected to have very high bills in the future.

As of January 1, 2014, insurers will be barred from doing any of these things. Currently available insurance plans that include such practices will not be allowed on the market.

Let’s be clear. Not all plans have these noxious provisions, but some do. And let’s also avoid demonizing the insurance executives who sold policies with these provisions. Many people look hard for the lowest premium and pay less attention to coverage in circumstances they see as unlikely. So, there has been a market opportunity for insurers to lure customers willing to accept substandard coverage at rock-bottom premiums, and canny insurance executives have tried to seize it.

Furthermore, no insurance company could afford to offer coverage the expected cost of which exceeded premiums. If they did so, they would have to find some other customer willing to pay premiums above the cost of expected benefits to cover the loss. But they could not count on keeping customers who were overpaying because some other canny insurer would offer coverage at lower premiums.

The major problem has not been venality by insurers — although there has been some of that — but lousy incentives that drove normal human beings to engage in socially deplorable practices.

Obamacare is changing the system. With the requirement that people carry approved coverage, anticipated profits on some customers will offset anticipated losses on others.

Are those denied access to “adulterated” insurance going to have to pay more than they did in the past? The answer in most cases is no. First, many of them will be eligible for financial help — payments to lower the net cost of insurance and to help with cost sharing when they use care. Four-person families with incomes up to $94,200 in 2014 will be eligible for such help.

Second, in many places, competition among insurers will lower premiums. Bloomberg Government has reported that the more plans offered in an exchange, the lower the premiums.

Third, people can hold down premiums by selecting plans with comparatively high deductibles. They would have to cover routine medical outlays themselves, but they would be well covered for all necessary services during serious illnesses, no matter how large the cost is in a given year or in their lifetime.

People should be no more shocked when substandard insurance plans are removed from the market than they would be if food purity legislation caused some products to be removed from a grocer’s shelf. Obamacare is removing insurance products from the market that are bad for your health.