Negative Consequences of Health Law Force Health Insurers to Withdraw from Markets Across the Country

The negative consequences of the Patient Protection and Affordable Care Act already are cascading through the health sector, with millions of Americans in states across the country learning that their health insurers have withdrawn from the market, making it increasingly difficult for them to find affordable coverage. 

And this is happening despite President Obama’s repeated promises that “If you like your health care plan, you will be able to keep your health care plan. Period. No one will take it away. No matter what.”[1]

Even though most of the provisions of the health overhaul law don’t go into effect until 2014, its destructive impact already is being felt by senior citizens, children, small and medium-sized employers, and families and individuals trying to buy their own health insurance.

Notably, a recent health tracking poll by the Kaiser Family Foundation found that the American people increasingly are confused about whether or not the health law is still in place.[2] The House voted to repeal the law on January 19, 2011 by a vote of 245–189, but the measure failed in the Senate, and the president has vowed to veto the legislation if it were to reach his desk. Yet, according to the Kaiser survey, 22 percent of people think the law has been repealed and 26 percent are unsure. Just over half accurately believe the legislation still stands. 

But the law is very much in place. Here is an overview of the carriers who already have withdrawn from these markets, with itemized details in the accompanying appendices.

Children-only Policies

One of the earliest indications of lost coverage came in June 2010 when Health and Human Services Secretary Kathleen Sebelius told health insurers that they must write policies for children under 19, including those with pre-existing conditions, no matter when their parents apply. Rather than face the very real prospect that most parents would wait to buy the coverage when the children had a significant medical condition, many carriers have decided to leave this market altogether. 

One of the largest insurance markets in the country, Texas, has seen all of its carriers drop child-only health insurance, as have other large states including Florida and Illinois.

Sen. Mike Enzi (R-Wyo.) told Sec. Sebelius that the consequences of her directive are “absolutely devastating.” During a hearing in January, he said, “The outcome is predictable as a result of the drafting that would allow people to buy a policy on the way to the emergency room.”[3]

Sec. Sebelius responded by changing the rule to allow states to institute an open enrollment period for child-only health insurance plans. The move was meant to stop subscribers from applying only when they were diagnosed with a medical condition. But the regulation seems to have done little to stop carriers from leaving the market. 

Sen. Enzi had asked his Health, Education, Labor, and Pensions Committee staff to survey the states to find out the impact of the ruling. Of the 48 states that responded to the HELP Committee survey, 20 said there are no carriers currently selling child-only plans to new enrollees. In addition to Texas, Illinois, and Florida, other states that no longer have carriers selling child-only plans include Alaska, Arizona, Connecticut, Delaware, Georgia, Minnesota, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Rhode Island, South Carolina, Tennessee, Utah, West Virginia, and Wyoming, according to the investigation by GOP staff on the Senate Health, Education, Labor, and Pensions Committee. In 34 states, at least one child-only health insurance carrier has exited the market. Each of these carriers stopped selling new child-only policies following enactment of the new health overhaul law and Sec. Sebelius’s subsequent directives.

See Appendix 1 for a detailed summary showing the states impacted, the dates they exited the market, and the specific companies that dropped their policies.

Medicare Advantage

Seniors were also hit early with the news that their carriers were leaving the market as a direct result of impact of the health overhaul law. More than 11 million seniors have opted to join private Medicare Advantage (MA) plans that offer more generous benefits and lower out-of-pocket costs than traditional Medicare. The plans are most attractive to seniors with modest incomes who do not have supplementary retiree coverage from previous employers to cover Medicare’s many coverage gaps or who can’t afford to buy expensive Medigap plans on their own. 

So Medicare Advantage offers seniors better coverage and better-coordinated care — two of the key goals of health reform. But to pay for expanded entitlements for working-age Americans, the law slashes spending on these private plans. The law requires cuts of $145 billion in the Medicare Advantage program over 10 years, according to chief Medicare actuary Richard S. Foster. He estimates that total enrollment in Medicare Advantage plans will be cut in half, by as many as 7.4 million over the next ten years, pushing seniors back into traditional Medicare where fewer doctors are taking new patients.[4] Foster confirmed that the health care overhaul law will result in “less generous benefits packages” for seniors on the popular Medicare Advantage program and that the coverage will cost them more. He estimates that seniors’ costs will go up by $346 in 2011 and by as much as $923 by 2017.[5]

Seniors already are losing their Medicare Advantage coverage. The Wall Street Journal reported that at least 700,000 beneficiaries across the country are being impacted and forced to find new Medicare coverage arrangements.[6] The Kaiser Family Foundation estimates that there will be a 13 percent decline in the number of Medicare Advantage plans in 2011.

For example, Harvard Pilgrim in Massachusettsannounced in September 2010 that it was cancelling its Medicare Advantage plan, leaving 22,000 seniors to find other MA plans or go back into traditional Medicare, where benefits are not as generous and where seniors most often face higher out of pocket costs.[7] Cigna was next, announcing it was leaving the national market for private fee-for-service Medicare Advantage plans in 27 states this year, impacting approximately 92,000 members. 

Not wanting to face an even larger cascade of lost coverage and growing anger of the important senior vote in the coming election year, Sec. Sebelius sent out her annual “call letter” to carriers on February 18 with the surprising news that per capita Medicare Advantage payments will increase by 1.6 percent on average for 2012. The update for 2011 was zero — the major contributor to the loss of coverage we report here. Given that PPACA requires the $145 billion in payment reductions to MA over 10 years, that will mean even more draconian cuts in the future — after the elections. 

See Appendix 2 for a more detailed list of Medicare Advantage plans that have left or announced they plan to leave the market so far.

Group Insurance

Small businesses — those who had the highest hopes for health reform — are among the first to be negatively impacted in the group insurance market as carriers have announced they are leaving certain markets or getting out of the health insurance business entirely. 

Principal Financial Group announced last year that it would stop selling health insurance, impacting 840,000 people who receive their insurance through employers served by Principal Financial. The company assessed its ability to compete in the new environment created by PPACA and concluded its best course was to stop selling health insurance policies.[8]

Another 42,000 employees of small and midsize employers learned in January 2011 they were losing their health coverage with Guardian Life Insurance Co. of America. The company announced it was exiting the group medical insurance market and that it had reached an agreement with UnitedHealthcare to renew coverage for Guardian clients.[9] 

Citizens in states around the country also have learned that carriers are exiting markets there, largely as a consequence of the combined effect of the health law and state regulations that make it particularly difficult to offer coverage in the small group market.

Cigna announced in the fall of 2010 that it won’t offer health insurance through the Connecticut Business and Industry Association. That means that the 6,000 small businesses participating in the industry association purchasing group will have roughly half as many choices of health plans.

In Colorado, Aetna will stop selling new health insurance to small groups and is moving existing clients off the plan this year, affecting 1,200 companies and 5,200 employees and their dependents. Aetna also has dropped out of the small-group market in Michigan

This is a negative and destructive trend, leaving fewer carriers to serve these markets and giving small businesses and the hard-working insurance agents who serve them less leverage to negotiate better benefits and rates among competing companies.

For more details, see Appendix 3.

Individual Insurance

Sec. Sebelius refused to listen to the carriers when they asked her to delay for at least a year the “minimum medical loss ratio” (MLR) regulations. The MLR rules require insurance companies to spend at least 80 percent of premiums received in the individual and small-group markets and 85 percent in the large-group market on medical claims. If an insurer is unable to meet those targets, it must rebate the difference to consumers. These rules are designed to limit supposedly wasteful spending on administration and profits. But insurers are hardly careless with premium dollars. According to Fortune magazine, health insurance is among the least profitable industry sector in America. Kaiser Health Newsconcludes, “With the nation’s health care spending estimated at $2.5 trillion this year, even the elimination of insurers’ profits and executive compensation would lower health care spending by just 0.5 percent.” 

But the MLR rules in PPACA already are having an impact on access to coverage for families and individuals trying to buy coverage on their own. For example, Aetna has pulled out of Colorado’s individual market because of concerns about its ability to compete there, dropping 22,000 members.[10] Overall, Aetna warns it may hemorrhage up to $100 million thanks to MLRs this year.[11] In Virginia, UniCare eliminated its individual market coverage for about 3,000 policyholders.[12] Many others are sure to follow. 

Companies that sell policies to individuals have higher marketing costs and higher customer-service expenses, and it is especially difficult for them to meet the MLR tests because their administrative costs are necessarily higher. Many companies have slashed the number of employees in the companies, cut agent commissions, and taken other harsh steps to reduce overhead, but this is also slashing customer services to the bone as well.

Conclusion

Long before the law fully takes effect, PPACA is harming not just insurers but workers and employers, too, as they face higher prices and fewer choices for insurance.

Alissa Meade, an analyst with McKinsey & Company, told a health insurers’ conference in Chicagoin November 2010 that as many as 80 to 100 million Americans would find themselves in different coverage as a result of the health overhaul law by 2016.[13] Clearly, the tide already is flowing, as millions of people are having their coverage disrupted, clearly violating the promise that President Obama, and virtually all of those in Congress who voted for the law, have made to the American people. It is no wonder that the percentage of people who want to see the law repealed and replaced with more sensible reforms remains high, and will grow as more and more people see the impact the law is having. 

 Grace-Marie Turner is president of the Galen Institute, a non-profit research organization focusing on free-market ideas for health reform. The views expressed in this paper are hers and do not necessarily reflect the views of the Galen Institute or its directors. She can be reached at P.O. Box 320010, Alexandria, VA, 22320 or [email protected]. Visit the website at www.galen.org.

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