Insurers “Had a Seat at the Table” when Reformers Hammered Out the ACA, but Things Didn’t Work Out Quite As They Expected . . .

What This Means for Health Insurance Stocks–and Your Premiums

When Congress passed the Affordable Care Act (ACA) in 2010, liberal critics feared that the Obama administration had “cut a deal” with for-profit insurers.  Single-payer advocates were particularly incensed when reformers invited the insurers’ lobbyists to the table to help hammer out the details of the legislation.  Some charged that, in return for the industry’s support, the administration agreed to a mandate that would force 30 million uninsured to buy private-sector insurance (or pay a penalty,) thus guaranteeing carriers millions of new customers, and billions in new revenues.

“It pays to be one of the few sellers of a product the government is going to force everyone to buy and provides subsidies to help them do it,” one Obamacare opponent sniped. 

Why Health Industry Insiders Were Offered Seats at the Table

At the time, I didn’t believe that the administration was selling out to the health care industry. Reform’s architects offered insurers, drug makers and device-makers seats at the negotiating table, in part because because they hoped to persuade them to help fund reform – and they succeeded.

Ultimately, the industry agreed to shell out over $100 billion in new fees and taxes to help fund the legislation. Those contributions are critical to financing subsidies for low-income and middle-income Americans.

The Obama administration also did not want to watch re-runs of the “Harry & Louise” television ads that helped torpedo “HillaryCare.” Here too, they prevailed.  In a new series of 2009 ads, the make-believe TV couple were all smiles: “A little more cooperation, a little less politics, and we can get the job done this time,” Louise declares.

Still, some feared that the administration was giving away the store. “No wonder the cost of reform keeps going up and up and up,” said  Bill Moyers.  “Could it be” he asked, “that Harry and Louise are happier because, this time, they’re in on the deal?” 

              But Didn’t the  Administration Capitulate On the “Public Option”?

Skeptics on the Left also believed that  reformers agreed to quash the “public option”—a government insurance plan that would compete with private sector carriers.

The truth is that Connecticut Senator Joe Lieberman ( sometimes known as “the Senator from Aetna”)  almost single-handedly  killed “Medicare for Everyone.”  When Lieberman said “I’m not going to let this happen,” Congress was on the verge of passing legislation that would let Exchange shoppers choose between a public option and private sector insurance.

Then, in the fall of 2009 ,Lieberman, who was supposedly a Democrat, stood up and brazenly announced that if reformers didn’t drop the public option from the plan, he might join the Republicans in a filibuster that would stop  the  health care reform bill come to the Senate floor.  In other words, he was threatening to kill reform.(At that moment in time, Lieberman could have drummed up just enough votes from moderate Democrats to help him do this.)

In October of 2009, I wrote:: “This is vintage Lieberman. He’s an opportunist. I knew him many years ago, back in Connecticut, when I was working for a a  reform candidate in New Haven who was challenging the Democratic machine. Lieberman wavered on the sidelines, waiting to see who was going to win. He didn’t want to risk picking a losing team.”  For Lieberman, politics was not about issues and what might be best for his constituents. It was all about Joe.

Was he  doing the administration’s bidding?

Hardly.  Lieberman and Obama were never soul-mates. Indeed, in 2008, Lieberman, nominally a Democrat, appeared at the Republican convention where he endorsed  John McCain– and criticized Obama.

In 2009, many observers agreed that Lieberman  wanted to stop  the public option, not just out of loyalty to the Connecticut insurance industry, but out of spite.  He was still furious that Democratic party leaders allowed liberal Ned Lamont to run against him in the state primary. Lieberman wanted to “show” the Obama administration what happens to anyone who dares to cross him.

                               What Investors Did Not Understand

In 2012, two years after President Obama signed the bill, the myth persisted that the administration had gotten into bed with the insurance industry,  As proof, critics pointed out that from 2010 to 2012 Aetna’s shares gained 33%, market leader UnitedHealth Group soared 65% and Humana climbed 76%  Clearly Wall Street knew that in 2014, insurers were going to clean up.

But strangely, in just the past two months–on the eve of the Exchanges’ opening– investor confidence has  weakened:

What is going on?

Wall Street is beginning to figure out that under Obamacare, for-profit insurers are not going to make out like bandits.

Investors who drove carriers’ shares to record heights were misled by media reports that the White House had “sold out” to insurers. Meanwhile, they overlooked the many ways that Exchange regulations would whack carriers’ profit margins: 

  • Insurers can no longer shun customers suffering from “pre-existing conditions”—and they cannot charge them more.
  • All policies must offer free preventive care.
  • The amount that a carrier can ask patients to pay out of pocket is capped.
  • But insurers cannot cap the amount they pay out in a given year, or over the course of a life time.
  • All Exchange policies must cover the 10 essential benefits—no more “Swiss Cheese” policies filled with holes.
  • Perhaps worst of all, from the industry’s point of view, if carriers don’t spend at least 80 cents of every premium dollar on medical care for individual and small business policyholders (85 cents for large groups), must send rebates to customers, letting them know they were overcharged.

In order to keep their seats at the table, insurers also agreed to pay annual fees to help fund reform. The fees begin at $8 billion in 2014, grow to 14.3 billion in 2018, and then rise to track any growth in premiums.

Finally, Wall Street ignored the provision in the ACA that reins in overpayments to Medicare Advantage insurers. Last week, when UNH announced earnings, it cited this as a reason it is lowering projections for next year’s profits.

                                   Virtually No One Actually Read the Bill

Why didn’t investors recognize the many ways the ACA would squeeze carriers?  Like most Americans, they hadn’t taken in the details that make the ACA both strong and complicated, with checks and balances embedded on virtually every page.

Most of the reporters who spread the rumor that the administration had “caved” to insures also hadn’t read the legislation: “Too long, too complicated, too many details,” they groused. It was easier to simply repeat what the pundits said.

To be fair, by 2010, print journalists were trapped on a high-speed information highway where they were trying to compete with bloggers working in “real-time.” Flogged by editors who wanted the story “Now”  they just didn’t have the time to hunker down with the Affordable Care Act.

Meanwhile, by then, most publications had eliminated the fact-checkers who would have realized that the text of the legislation was their only reliable “red check.”

I Was Just Plain Lucky

Fortunately,  in 2010, I was no longer on staff of  a daily newspaper  or a weekly magazine.  Back then, the non-profit foundation where I worked was run by old-fashioned bosses who gave me great freedom to do in-depth research– and try to make sure  that what I wrote was true.  As a result, I had the time to read the Affordable Care Act, more than once. That was my job. (When I explained this to Lou Dobbs, at first he was incredulous, then he laughed. But ultimately, I think he was convinced.) 

Because  I understood how the ACA’s regulations would hem in insurers’ profits, in the Spring of 2010, I wrote that under Obamacare, for-profit insurers would not be big winners. Quite the opposite.

                           How the Insurance Industry Mis-Calculated

Okay, maybe investors and reporters did not  read the bill.  But the insurers’ lobbyists did. After all, they were “at the table.”  Why, then, did they swallow the new rules and fees that would  cut into their profits?                

“Because there is nothing the health insurance industry wanted more than an individual mandate to force people to buy their product,” explains Consumer Watchdog’s Carmen Balber.

As the Center for Public Integrity (CPI) points out, when the reform law passed in 2010, “the Democratic Party controlled the White House and both houses of Congress. By supporting the law, the industry was able to stay in the game on a very complex piece of legislation.”

Privately, the insurers’ lobbyists believed that Obama would not be re-elected in 2012. Down the road, they assumed that conservatives would help them overturn the parts of the bill that they didn’t  like. This is why, even while loudly professing their support for Obamacare insurers were quietly funneling two-thirds of their campaign contributions to Republicans.

As they hoped, by October of 2011, the political environment had changed dramatically. “Democrats no longer hold a filibuster-proof majority in the Senate, the House is controlled by Republicans and the president is in a tight race for re-election,” CPI noted.

Insurers now began publicly criticizing Obamacare. At this point they openly lobbied for new legislation that “would effectively gut” the provision that insurers must spend 85% of premiums on medical care.

But to the industry’s utter chagrin, in November, President Obama won.

Ultimately, carriers would lose on every provision in the Affordable Care Act  that they had hoped to see repealed.

                         State Regulators Develop Spine

Then came the final blow: Last summer, as carriers began proposing rates for the policies they hoped to sell in the Exchanges, state regulators flexed new muscles.

The ACA had set aside $250 million for state insurance departments to support an “enhanced rate review process.”  Meanwhile the administration encouraged regulators to get tough– and many clamped down..

In response to the federal law, Colorado, Maryland, New Mexico and New York, all passed legislation giving their regulators more authority to review health insurance rates

Insurers selling plans in Portland, Oregon ultimately were  forced to reduce their rates by nearly 10% on average. Three of the 12 insurance companies in that market had to lower their rates more than 20% compared with what they requested.

In Maryland, Aetna filed a proposal with state insurance regulators to raise its rates 25.4 percent, the highest of any carrier. The rate the state approved July 26 was 29 percent lower than what Aetna sought, while other carriers saw their proposals cut back by as much as 33 percent.

Aetna  backed out of Maryland.

In the end,, Aetna also fled California, New Jersey, New York, Georgia —-and Connecticut. “As corporate identity crises go, this is like L.L. Bean quitting Maine or Apple leaving California–for the Moon ”The Wall Street Journal commented.

Aetna is now participating in Exchanges in just 16 states.  

Even in states where regulators didn’t reject bids, the Exchanges forced insurers to compete on price.  Brand-name carriers who able counting on high premiums to offset the costs of the  new regulations soon realized they couldn’t compete with non-profit insurers who don’t have to deliver profits to investors.

For consumers, this is good news. When it comes to the quality of the care that they deliver, and customer satisfaction, non-profit carriers get the highest marks..

In the end, the biggest for-profit insures backed away from the exchanges. WellPoint wound up participating in Exchanges in only eight states.  UnitedHealth will be peddling policies in four. .

“It’s almost surreal to see the most dominant company in the industry completely sitting out the launch of the . . . exchanges,” observes Deutsche Bank’s Scott Fidel.

Reportedly UnitedHealth is now eying insurance markets overseas.

So much for having a seat at the table

(Note to readers:  A shorter version of this post appeared on

Soon, I plan to write about how drug-makers, device-makers and hospitals will fare under Obamacare, and where there shares are likely to be headed over the long term. 



25 thoughts on “Insurers “Had a Seat at the Table” when Reformers Hammered Out the ACA, but Things Didn’t Work Out Quite As They Expected . . .

  1. Maggie, you always write good pieces and I love it that you can back your statements with evidence. Wonder ACA did not plan good websites and failed so miserably past few weeks.

    • Ray–

      Thanks very much.

      I think two things happened:

      1) the Federal government wound up running many more state Exchanges than expected.

      They assumed that states would want to run (and have control over) their own marketplaces.

      Instead, states that don’t like Obamacare said “You run it!

      This left the federal government with more than they could do. Time ran out.
      For instance, in some states
      they didn’t get the Spanish side of the website ready in time.

      2) Initial traffic was much heavier than expected. If people want insurance by January 1, they don’t need to sign up
      until Dec. 15. But for whatever reason, a great many decided to go to the sites at the beginning of October.

      I expect I’ll buy insurance through my Exchange, but don’t plan to shop until mid-November–when things will have calmed down and navigators will know more (and be better able to answer my questions.)

      3) Glitches were inevitable. This is a Huge project, and people are enrolling in a Brand New program. The rules are complicated (they have to be if the program is going to be fair and meet the needs of a diverse population.)
      When Medicaid Part D rolled out there were glitches– and this s Medicaid part D times one hundred.

      4) HHS is not geared to handling hi-tech problems. Secretary Sebelius is not a website expert. It’s interesting that in the state of Kentucky, the governor is a Democrat–and most importantly a Technocrat. Kentucky set up its own marketplace it is
      working quite smoothly. In the first few days they had enrolled more people than any other state. (I’m not talking about how many applied, but how many were actually enrolled.)
      Kentucky is not a huge state:it was a manageable project, and the guy at the top was a techie who had a strong interest in making things work.
      If more states had set up their own Exchanges–and Wanted them to work– we wouldn’t be seeing so many problems.

      4) Obamacare’s opponents are exaggerating just bad things are. Yesterday, the NYT’s ran a story claiming that it will take months to sort out the problems. The sources? All unnamed “excerpts” and “people close to the problem.” None of the critics were named.
      The senior writer in the byline? Robert Pear who has written many negative stories about Obamacare.

      By contrast today, an executive vp at Moline, a Medicaid insurer in the private sector, told Bloomberg that things are getting better. (Bloomberg, to its credit, avoids unnamed sources.
      (Moline likes Obamacare– They run good Medicaid HMOs that follow up with patients and try hard to keep them healthy. With more patients, they’ll make more money.

      Meanwhile The people who hate Obmacare (most large for-profit insurers) are eager to say that it’s a disaster.)

  2. Maggie, you are the only person I know of who has read the Affordable Care Act, so I have a possibly challenging question for you.
    I have been a defender of the Affordable Care Act, which I believe I began calling “Obamacare” when only those opposed to it used that term; my purpose was to disarm opponents into assuming that anyone who used that term must be on their side, and thus they might continue reading my argument. But yesterday I learned of a potential drawback of the new system that I have not seen discussed.
    Some background: My wife and I are comfortably (and early-) retired. I realize that the ACA was appropriately not designed to help people like us who did not need help. We have had self-paid individual high deductible health insurance for many years. When we moved to California from Illinois 12 years ago, we initially kept our Blue Cross Blue Shield of Illinois (still non-profit) insurance because they covered care in any location including California. Later I switched my own to Blue Shield of California (also non-profit); she was unable to switch because of a minor existing condition (by “minor,” I mean it hasn’t and won’t cost the insurance company a dime due to her high deductible).
    I will be on Medicare starting mid-2014, so I have no future problem. She is 60, so I started shopping for her unsubsidized insurance via the California state website: only two companies offer insurance in our zipcode, 93940: Anthem Blue Cross (for profit), and HealthNet. Her doctors are not apparently participating providers in the latter. I have confirmed that Blue Shield no longer offers new policies for us (a change since two weeks ago, at which time they were listed).
    Now here is the surprise: despite a letter from BCBS of Illinois to her at our California address assuring her that she can keep the grandfathered coverage she has (I already knew they would not change her to another BCBS Illinois policy due to non-resident status), I learned via a phone query that her existing insurance will only cover care by Illinois provider (except emergencies) starting January 2014. And on a preliminary phone call to a very knowledgable Anthem Blue Cross California agent, I learned that 1.) they don’t have the information yet to actually sign up for a policy until mid-November (the reason, surprisingly, is a new California law that requires even a 60 year old individual to add “pediatric dental” coverage, and those policies haven’t been finalized. Seems odd, but I’ll assume the idea is for all of the insured to subsidize kids’ dental care: fine with me.), and 2.) the bronze policy I anticipated getting will only pay providers in California. The agent mentioned that “Blue Card,” which is apparently the system by which the former “blues” cooperate on an interstate basis is no longer applicable to either this particular situation, or it is dead completely. I was so flabbergasted by this that I failed to ask if the other policies offered were any different. He isn’t answering any further calls about 2014 policies until the company is prepared in mid-November, but I suspect their other policies are the same, with silver and platinum being more expensive simply because of higher co-pays and deductibles, rather than because of more extensive, including out-of-state, networks.
    I fully understand that anyone like us, retired before the age of 65, do not merit special treatment by the Affordable Care Act. We don’t quite fit the description of those who “work hard and play by the rules” because we only “worked hard and play by the rules.” So I’m not crying “foul.” I’m just surprised. For my wife’s insurance, I will just need to wait until mid-November to find out the real story, and we’ll get by even if she remains uninsured in 49 states. Arguably, we have been used to a “Cadillac” provision allowing us to go to any participating provider in the country for treatment if we ever needed or wanted to leave our state.
    But the real question is whether this is very important and generally unrecognized downgrade of insurance quality as a result of the Affordable Care Act. If so, I will probably accept it as a necessary blow to the well-insured to allow affordable aid to the under- and uninsured. I assume it is an allowable adjustment made by insurance companies to compete on price. Perhaps it is only an issue among the “Blues,” but even that would make a considerable impact, given what I assume is their big piece of the insurance market.
    So I bring this up not to complain or ask for a solution to my problem, but just to ask if this was already known to those, unlike me, who actually study current medical economics. I am curious to learn how these and other insurance companies have responded to people whose zip codes are near state borders (mine isn’t), such as people across the river from St. Louis or Reno, who would not really be asking for a Cadillac provision if they want to visit the closest doctor of a given specialty, who happens to be nearby but in another state.
    Googling “news Blue Card” got me nothing.

    • Richard K-

      First, let me address your questions about selling insurance policies that cover people across state lines.

      The Patient Protection and Affordable Care Act addressed this question: Section 1333 permits states to form health care choice inter-state compacts and allow insurers to sell policies in any state participating in the compact. Two or more states may enter into compacts under which one or more insurance plans may be
      dents as coverage under Title I, and not increase the fedeal deficit.1

      Note: “Until March 2010 there was no federal law that, in general, either allowed for or prohibited cross-border purchasing of health insurance – only state laws regulate health insurance policies that are “fully insured” – and sold throughout the small employer and individual insurance market in all 50 states. The federal reform law enacted in March 2010 (see above) takes full effect in January 2016.

      In other words, before the ACA was passed there was no federal law regulating whether or not the Blues could form interstate agreements. It was entirely up to the individual states. Now, the PPACA has confirmed that states have the right to let insurers sell across state lines.

      You might want to read this issue brief by RWJF.
      It talks about how, under the PPACA, consumers will have better protection when insurers from other states come in: sleazy insurers from an under-regulated state cannot come into a state that has good regulations and undermine those regulations by selling policies that really shouldn’t be called “insurance.”

      Moving on to your wife’s situation– from what you say, it seems that her doctors are in Anthem Blue–so I don’t quite see your problem.

      In addition if the Blues are no longer selling policies that cover people in all 50 states, I don’t see how this represents a “downgrade of insurance quality.” Before Obamacare, very very few people had access to policies that would cover them in all 50 states.

      This is not something that the PPACA did. And under Obamacare, if states want to make compacts that let insurers sell policies across state lines, they can–as long as those policies meet the ACA’s regulations which are designed to ensure that consumers get comprehensive, affordable care. There can be no limits on how much the insurance pays out over a year or a lifetime, etc.
      So someone living close to a state border may well be able to buy a plan that covers him in the adjoining state.

      I realize that you have to wait until mid-November to sign up, but that still gives you a full month (until Dec. 15) to sign up and be covered by Jan. 1. Apparently Anthem Blue is still working out how to cover pediatric dental and vision–which everyone in the Exchange will be paying for. As you say, that’s fine–we all have a vested interested in all children getting he dental and eye care they need.They are our future. Among other things–in 20 years, they will be paying for our Social Security and Medicare.

      I am not sure Anthem Blue why didn’t figure this out earlier. Since early in 2010, we have known that all policies sold in the
      Exchanges will have to cover dental and pediatric. But the ACA allows for somewhat different rules governing pediatric and dental in different states. No doubt insurers had to wait until states finalized their rules.

      Finally I also will be buying insurance in the Exchange (I’m self-employed), and I don’t plan to begin looking until November. By then the navigators will know more and the process will be much easier.

      • Again, we will survive. Yes, my wife’s doctors are in Anthem, so no doubt that is where she will get her insurance, assuming they don’t follow Blue Shield out-of-state (I still don’t know why they quit the state). I’m just thinking of somebody in similar situation, maybe single, who gets cancer and her family decides it would be better to have treatment and follow-up at the home of daughter in Chicago or NYC, she can’t do it. And I get that “Obamacare” didn’t do this directly, but coincidentally or not, it appears at least one company or group of companies are taking this opportunity to make this change. I actually made a point in 1998 when I shopped for this policy (prior to developing any pre-existing illnesses) to pick Blue Cross because they had a national presence. I was assured at that time that we could transfer it to another state if we moved in the future, regardless of our health at that future time. That policy did in fact change in the interim, leaving her on Illinois insurance paying California doctors. We are fortunate that BCBS did not further change this to a no-out-of-Illinois doctors policy prior to the Obamacare enactment. But yes, this is a downgrade in our insurance. But again, better overall for most people.

        • Richard–

          First, Blue Shield has not “quit” the state of California.

          I remembered you included your zip code in your first comment and so I looked it up. You live in Monterery county, and you
          are right Blue Shield recently decided to stop selling in the individual market there.

          Monterey is one of just 4 (out of 58) counties where BS isn’t selling. IN the other 54, you can a enroll in BS and get a Blue card to go to a Blue out of state.

          Why is BS not offering policies in Monterey? Because there are fewer hospitals and doctors in Monterery than in some more populous counties. As a result, there is less competition, and so doctors and hospitals are unwilling to negotiate with insurers –offering lower rates in return for more customers.

          Compared to providers elsewhere in California docs & hospitals in Monterery overcharge. Much medical research shows that higher prices do not mean higher quality care. What providers charge insurers is all about who has more market clout in that particular market.

          The fact that BS has pulled out of Monterey has Nothing to Do with Obamacare.

          I also noticed that Kaiser Permanente does offer insurance in Monterery.

          And according to the NCQA and Consumer Reports, when compared to other insurers in Southern and Northern California KP gets the highest marks for qualify of care. See

          I wonder why your wife doesn’t sign up for KP?

          Finally, regarding your concern that most insurance won’t cover people if they go out of state. This was always true, and has nothing to do with Obamacare. Moreover, most people don’t want to be hospitalized far away from home.

          AS for your hypothetical,these days few people have adult children in Chicago or New York or wherever who have the room in their homes–or the time– to take care of a convalescing relative. Most women work. No one is at home during the day. And only relatively affluent families have an extra bedroom.

          • You are no doubt correct about the hypothetical going out of state for care, yet my aunt (on Medicare) just did exactly what you described. Her 64 year old daughter does stay at home.
            Just FYI, though Kaiser offers their program for Monterey, there are no doctors closer than Gilroy in Santa Clara County, over 40 miles away; and to go to a specialist one apparently would have to go to San Jose, over 70 miles. I realize that people in rural areas often need to travel for medical care, but we live in a very developed area. And you are right that the doctors here don’t want to take discounts. I would guess that very few accept Medicaid patients, for example. The providers no doubt argue that the cost of living is high, and reimbursement is low (I believe the county is on the lower “rural” reimbursement level for Medicare, for example, but that’s another story). So I agree that the limited access it isn’t the fault of “Obamacare,” but it might be the result of the reaction of providers who believe they are acting in their own self-interest.

          • Richard–

            Thanks very much for your reply.

            As you say, you are in a high-cost community where doctors don’t want to negotiate with insurers.
            You are probably right– very few accept Medicaid patients.

            This suggests that your are living in a “money-driven” medical culture (see my book) where providers
            “act in their own self-interest.”

            Yet, in theory, physicians are professionals -which means they put their clients’ (or in this case patients”)
            interests ahead of their own financial interest. When a patient goes to a doctor “caveat emptor” should not apply

  3. Maggie,
    If a single person does not qualify for a subsidy (e.g., earnings over about 80k), it is my understanding that policies must be purchased directly from a company of choice in a particular state. Also, assume an insurer is dropping most prior (non-Grandfathered) individual plans, which is happening to a lot of my patients. I did some homework around this base scenario.
    The ‘precious metal’ (bronze, silver, etc.) plans are offered across all providers (in California, at least) and premiums range from **50%-100%** higher for the ‘equivalent’ benefits. It is not yet known how much ‘narrower’ some of these plans are with regard to doctor and hospital networks, but the HMO’s such as Kaiser would hopefully not present this kind of problem. Premiums on HMO plans are still the same, though (vs EPO/PPO).
    The main point is that if one does not qualify for a subsidy (and is not medicaid eligible either), plans will cost significantly more (the pediatric dental only costs about $7/month extra, lol). Are my observations way off?


    • Ruth–

      If a person had truly comprehensive insurance with a reasonable deductible then a good plan in the Exchange will probably cost less than they are paying now if they are either over 45 or a woman.

      (In the private market woman buying their own insurance are now charged significantly more than men in virtually all states and older people can be charged 5 times as much as a younger person.)

      If a young person had a skimpy policy (which most do) they may wind up paying more–though much depends on how big the network is.
      Overall, Kaiser Permanente is far and away the best value in California. When rated for quality of care and consumer satisfaction by the NCQA and Consumer Reports, Kaiser Northern California and Kaiser Southern California rank # 1 and #2 on a list of the best private insurers–not just in
      California but Nationally. They’re not the cheapest insurers in Calif but they are also not the most expensive.

      Younger people may wind up paying more than they do now if they want a large network. But young people who don’t go to the doctor that often usually don’t have a list of 7 specialists who they feel Must be in their network. They may not even be particularly attached to their PCP. They just want to know that they have insurance so that if they’re in a car
      accident they (or their relatives) won’t be wiped out financially.

      Even young married people with small children will be happy with a narrow network (unless one of the kids has a speciall problem, and they’re already attached to a specialist they like.)

      Lot of polls show that young people care far more about low premiums than large networks.
      Thus most will be happy with the cheapest Bronze plan– and in most cases, it will be fine.

      As Atul Gawande points out, doctors, like everyone, exist on a Bell Curve. The vast majority (let’s say 85%) are “pretty good”–the’re in middle. On the far right, you find a small percentage (perhaps 5% of all M.D.s) who are outstanding. On the far left,
      5% , let’s say) who really shouldn’t be practicing medicine.
      The narrow networks will draw primarily from the middle. Many younger doctors (who may be more familiar with the most recent research and more open to practicing evidence-based medicine)
      are willing to take lower fees from insurers in return for more patients. Also women physicians tend to
      charge less than men. (I think for many woman there’s just not as much ego involved — for many men, how much they earn is a major marker for
      self-worth. )
      So the care in these narrow networks will be
      All of the research shows that there is NO Correlation between how much provideres (docs or hospitals) charge and quality of care. There is only a correlation between prices and “perceived quality of care.” And laymen’s perceptions of how good a doc or hospital is are based on: how well they like him; how much they think he likes them; how nice his office is; how nice his receptionist is;
      how good the view is from their hospital room; how pretty the lobby is;good the food is; what other (equally uninformed)
      laymen think.

      The only people who can really give you an informed opinion as to which doctors and hospitals are better than others are nurses.
      And they don’t talk. (I found this out when I wrote my book.)

      P.S. I buy my own insurance here in N.Y. and now pay $680 a month for one person. It’s very good insurance– no annual caps on pay-outs, no life-time caps, very good docs in the network (it’s an HMO), low deductibles, reasonable co-pays.
      I’m over 45, and at my age don’t want find myself selling my apartment to pay hospital bills. I’m buying peace of mind..
      In New York State, insurers cannot charge older
      people more. I’ve browsed New York City’s Exchanges, and from what I can see if I’m happy with a somewhat narrower network (which I probably would be ) I would pay somewhat less–may $100 less. (In NYC medicine is very, very expensive.) If I want a network as broad as the one I have now I would pay close to what I’m paying now.

  4. Lots of good material here, Maggie. Thanks.

    I am a little surprised that so many carriers are cancelling individual plans. I would have thought they could incorporate the mandates and raise prices. The industry has surely done that before.

    In some cases, the insurance companies were not making much money off the under-65 individual market. There has never been any risk adjustment in this market, so carriers can exit a market rapidly. (This is true in LTC and disability insurance also.)

    I believe that most large carriers have been making most of their profits off of Medicare Advantage. Look at the TV ads asking for new customers every fall. There certainly has never been a TV ad asking for under-65 individual customers! Once again, a so-called lion of private industry depends on crony capitalism and taxpayer money in order to prosper.

    People who are having their individual plans cancelled will be getting very nervous if the exchanges are not up and running by Jan 1. They will literally have no insurance in that case I fear, if only for a while.

    • Bob–

      First, thank you!

      You are right: For a number of years most carriers in the individual market have been making their money from Medicare Advantage.. But now, under the Affordable Care Act, their payments willbe cut unless they can show that their network of providers is delivering better outcomes.(Some carriers have been successful in doing this but they are mainly non-profits, not the brand-name commercial insurers.)

      The one group of carriers who will make money under the ACA are Medicaid HMOs. Even though not all states are expanding Medicaid, many are– and these insurers make $ on volume. They are not big household names, but they are attractive stocks

      Obamacare doesn’t hurt them. They are already working in a regulated market (They can’t turn down sick Medicaid patients, etc.) Their margins may be slim, but this is why volume matters. If I were going to invest in health insurers (and I wouldn’t because I write about healthcare and it would constitute a conflict of interest), this is the one group of insurers that I would invest in. I am a pretty sure that over the next 12 months, all but a few states will expand Medicaid.

      As for insurance companies getting out of the individual market– Most of these large brand-name companies were not in the individual market in the first place. By and large, they service large corporations.

      Investors though that under the ACA,
      UnitedHealthcare, Aetna, et. al. would be able to move into the Exchanges clean up. This is because they believed the conservatives who claimed that under the ACA insurers would be able to charge whatever they wanted–and that Congress would repeal the regulations that insures didn’t like.

      Insures (and Obamcaare’s opponents) were very surprised when state regulators began to flex their muscles. But many state regulators had wanted to do that for a long time. The ACA gave them permission to do their job.

      And then Obama was re-elected. That sealed it.

      Not long long after Obmas was re-elected in 2012, Bertolini, Aetna’s CEO said “the health insurance industry, as we know it, is over.” (I’m paraphrasing, but that is the gist of what he said.It was a very candid moment. He knew what investors didn’t know.

      With some bravado Aetna then tried to go into the Exchanges -but soon found that a combination of tough regulators and non-profit competitors who were charging less were closing them out of the market




  5. I wonder if the new loss ratio rules are making it hard to turn a profit on individual insurance.
    Avik Roy had a column a couple of years ago called the Hidden Time Bomb, which was rather accurate (for him) and covered this issue.

    There is also an item in the ACA that requires insurance companies to pool their experience on and off the exchanges in the individual market.
    I do not have a mastery of how this will work, other than to note that it may be a reason for insurers to leave the market.

    • Bob–

      The new medical loss ratio rule means that insurers covering large groups must pay out 85% of premiums to cover medical bills. (80% when covering small groups because the administrative costs of selling to small groups are higher.) If they don’t pay out that much, they have to send rebates to customers.

      Prior to Obamacare, most insurers already did that. How do we know?

      Because in 2012 the Kaiser Family Foundation reported that “Rebates are expected to go to almost one-third (31%) of consumers in the individual market. Among employers, about one-quarter (28%) of the small group market and 19% of the large group market is projected to receive rebates. The share of consumers in the individual insurance market expected to receive rebates ranges from near zero in several states to as high as 86% in Oklahoma and 92% in Texas.”

      Even in the individual market, where insurers have gouged customers (individuals don’t have as much negotiating leverage as employers) its seems that over 2/3 were already meeting the requirement. IN the small group market nearly 3/4 were paying out the required amounts, and in the large employer market, 80% were in line with the rule.

      The medical loss ratio rule will hurt insurers are just aren’t very efficient and over-spend on administration–marketing ,
      advertising, executive salaries etc.

      What will hurt insurers more is the fact that now they will have to cover sick people–and they won’t be able to charge them $10,000 deductibles. They also won’t be able to over-charge women–simply for being women. They won’t be able to drop people
      if they get sick.

      And state regulators are not going to let them hike premiums 8% to 10% a year.

      This is why many for-profit insurers will get out of the business. In the individual and small group markets, non-profits are taking their place. In the employer-based large group market, employers have been self-insuring for some time. The commerical insurers just acts as a back office doing administrative work.

      The fact that the for-profit insurandce industry as we know it is likely to disappear is good news for consumers. See this NCQA/ Consumer Reports piece, rating private sector insurers for quality and customer
      satisfaction. Here is the list of the top 15 nationwide:

      Note that NONE of the big for-profit insurers make the list. In fact, I’m pretty sure that NONE of the 15 are for-profits (though I didn’t look up all of the names–I recognize most of them and they are non-profits.)

  6. Thanks Maggie, but I still think there is a problem.
    There are a lot of ‘flyover’ states where Kaiser is not present and is not planning to move into. In some states there are just one or two semi-decent companies offering individual policies now, and if they leave the market then more people will be forced onto the exchanges.

    That is not all bad, but there are no subsidies when the MAGI exceeds about $40,000 for an individual and $62,000 for a couple without kids.
    (let me know if I am wrong about this.)

    Some persons in these groups will be stuck in that ugly position where the cost of an Exchange policy is more than they can handle. A couple aged 55 with an income over $62K will be looking at a premium over $10K a year for most policies on the exchange, thanks to age rateups. They won’t have to pay a penalty but they will also be uninsured.

  7. Bob–

    First of all , the large carriers don’t sell much insurance in the individual market now. They are mainly involved in employer-based insurance.

    Some people thought that Obamacare they would move into the individual market. They were wrong. (One exception: as Medicaid expands they will expand their presence in the Medicaid market. There a couple of for-profit insurers that you probably have never heard of are doing well–managing care.

    In the “fly-over states” there are many good non-profits–especially in the Upper Midwest-

    If you don’t live there, you may not have heard of them.

    If you have employer based insurance you probably have only heard of the Big Brand Names who offer insurance to large companies, or service large companies that self-insure. ,

    All of the NCQA and Consumer Reports ratings show that the quality of care –and consumer satisfaction–
    if much lower with the big brand names. NONE of them make the list of the top 15 nationwide.

    How many insurers there are in a market is not that telling.

    The question is: how good are they? In many states, two
    insurers now have most of the market. That’s because they are popular. It is hard for a 3rd company to move in and compete with them.

    On cost— you get a subsidy if, as an individual you earn less than roughly $48,000– (not $40,000)
    For a couple, you’re right, it’s $62,000

    Paying $10,000 a year for a couple aged 55 is not unreasonable
    I now pay $5,800 for one person.

    AT 55, you need and want excellent insurance.
    At some point in the not too distant future one of the two of you will be very, very sick. Most cancer patients are diagnosed in their 60s. Most people in their 60s suffer from two or three chronic diseases. People begin to be diagnosed with Alzheimer’s in their 60s.

    Even if doctors and hospitals never overcharged three chronic diseases are expensive–whether you’re here or in Europe. Managing chronic diseases is labor-intensive.

    A couple earning , say, $68,000- $80,000, can afford $10,000.

    If they are self-employed (which would explain why they don’t have employer-based insurance), they can deduct the premium on their income taxes. If one is self-employed and the other is on Medicare, they can deduct the 55–year-old’s premium and what the 67-year old pays toward his Medicare.

    If they’ve retired early (another reason why they wouldn’t have employer-based insurance) that is their decision.
    They have to expect to pay more for healthcare than someone who keeps on working until he or she is 65. (If they are disabled and not able to work, they can get disability.)

    If they are 55 with joint income over $62,000, chances are they don’t work for a small employer who doesn’t offer insurance. (Their employees are generally much younger, or in a much lower income bracket–well below median income.)

    Finally, at 55, you’re going to be spending more on healthcare (or health insurance) and less on children’s clothing, toys for the kids, bicycles for the kids etc. etc.
    If you’re a woman you are no longer spending as much on clothing and shoes as you did when you were 35. (This is particularly true if you are no longer working.) If you are a man, chances are you have most of the gadgets you want (kitchen gadgets, power drills, etc. If you’re not working, it’s not clear that you need two cars (as you did when you each needed a car to get to work).
    Probably you have the furniture that you want.
    With some luck your kids have finished college or are on their own.
    You no longer need a home with 5 bedrooms. Increasingly, older couples are moving into condos that require less upkeep.

  8. Maggie:

    I appreciate your website. Keep up the good work.

    Assuming that the exchanges “work” by virtue of having enough healthy participants, it seems to me that the key to the long-term survival of the ACA is public polling in the next couple of years. This depends on many factors, but chief among them is how the law affects various groups and how each group perceives the law. That’s going to be affected by media coverage and politics, of course.

    Here’s my question. How do you think various groups are going to respond to the law once we get past the 2014 roll-out of the exchanges? That would include the roughly 50% who get their insurance through their employer, the 30% or so who get their coverage through Medicaid, Medicare, the VA or Tricare and the 20% who either don’t have insurance or who are already in the individual market. Based on self-interest, it’s obvious that those who benefit from the Medicaid expansion will approve of the ACA. Presumably, those who are already on Medicaid will mostly be ambivalent. I would assume that most people on Medicare would be pleased with the fact that the ACA extends the solvency of Medicare and closes the doughnut hole, not to mention other benefits for Medicare recipients. I would think that half to two-thirds or so of the 20% who are either in the individual market or uninsured would be pleased with the ACA, thanks in good measure to the subsidies and the Medicaid expansion. Some, however, will see their rates go up and others won’t get insurance, perhaps because their state didn’t accept the Medicaid expansion.

    So, if a plurality of the 20% wind up having a favorable opinion of the ACA and if the 30% who already have government-run insurance lean in favor of the ACA, that just leaves those who already have employer-provided insurance to potentially lean against the law.

    If sentiment runs against the ACA for long, one can imagine how the law could be further undermined by political posturing and then who knows what could happen in subsequent elections? It seems to hinge on how the 50% or so who have employer-based insurance react to the law. Will they split mostly according to whether they are Democrats or Republicans? Will they lean against the ACA once the press inevitably focuses on negative stories? Will premiums for those who already have employer-based insurance rise more than expected in 2014 and 2015? Will Republicans succeed in convincing these people to turn against the ACA? Will the reaction of employers play a big role (e.g., if many of them drop spousal coverage for those spouses who have their own employer-sponsored insurance)?

    There has been a lot of attention on particular provisions of the law, how employers are responding, the problems with the website and the mechanics of the law, but ultimately, it is most likely to succeed if a clear majority of the public approves of it, especially when the 2014 and 2016 elections roll around.

    How do you think the various subgroups will react? Do you think political propaganda, media coverage and the deliberate undermining of the law in some Republican-controlled states will turn public opinion negative, despite the fact that most people will be favorably or minimally impacted? Feel free to correct me if I got something wrong.

    • Jon–

      Many people compare the ACA to Civil Rights Legislation.

      Civil Rights Legislation also was extremely controversial There are still people who are opposed to
      many elements of that legislation.

      But this was a case where our political leaders decided that we had to do the right thing.
      This meant dragging some of the population kicking and screaming into a new era of equal rights.
      The South turned Republican.

      The Affordable Care ACt is also about doing what is right for all of us–collectively. Congress finally
      decided that, as a society, we have a responsibility to make sure that everyone has access to high quality, affordable care.
      The Supreme Court agreed.

      That pretty much sealed the deal. And now that we have begun on the road to reform, there is no turning back.
      A great many children suffering from pre-existing conditions are now insured, thanks to the ACA.
      A great many hospitals and doctors have formed accountable care organizations, thanks to the ACA.
      Community Health Centers have been expanded.
      The individual mandate is here to stay. (If we didn’t have the mandate we couldn’t cover people suffering from
      pre-existing conditions; we need everyone in the pool, including young, healthy people. In three years, the penalty for not having insurance
      will be high enough that few people will want to pay it.)

      You’re right, people who have good employer-based insurance may feel “there’s nothing in this for me.” (Though many have
      adult children and other loved ones who will benefit.)

      Still, the upper-middle class (for instance a couple earning over $100,000 joint–which is far above median income) may
      not be enthusiastic. It depends on whether they are able to think about “the speck of self” to appreciate what the ACA means for other people.
      Some individuals who earn more than $200,000 may be less than enthusiastic–they will be paying higher taxes to help fund the ACA.

      But it really doesn’t matter. Neither they nor the media are going to undo the ACA– just as the fact that some white Southerns hated civil rights had no
      effect on the law.

      Sometimes, in this country “public opinion” rules. For a great many years, “public opinion” supported segragated schools. For a great many years, public opinion supported the notion that everyone should pay for their own healthcare. “Not my problem” if my median-income neighbor can’t afford good care for herself or her children.

      But when it came to civil rights and universal care, enough of our leaders had the spine to stand up–and leads.

      The 2012 election showed that, even though the population as a whole is confused about the ACA, they were not going to turn these leaders out of office.
      Obama was re-elected.

      Over time, we make progress. IN this case, we are joining the rest of civilized society. (We were the only nation in the developed world that did not support
      universal care.)

      Finally the demographics of the country are changing. The people who are most likely to be conservatives and opposed to the ACA are older white men.
      They are becoming the minority in the population as a whole. The percentage of Latinos and African Americans is rising. Already, this is affecting our
      elections. (The vast majority support the ACA). Women are also more likely to support the ACA, and they are joining the leadership of the country.

      Chances are excellent that Hillary Clinton will be our next president–if she runs. In any case, given what extreme Republcians have done to their party–and party unity– it is
      hard to imagine them capturing the White House next time around.

  9. Maggie, you make some excellent points here. Thank you.

    After much homework, I am very likely going to pay at least 75% more per month on premiums (same insurer) and will lose 2 of my 3 doctors (this is now an EPO network) and am not sure about access to hospitals…yet.
    The offered plans I have been perusing are all ‘precious metal’ ones, but sold directly by the insurer, since exchange rates are identical (to direct) if one does not qualify for a subsidy. This spans the gamut from Kaiser to Anthem.
    Receiving care outside of EPO networks could be hugely costly, and traveling out of state could also hurt, but perhaps less so if it is a genuine/beyond reasonable doubt emergency.

    So I’m sitting here and scratching my head about $200 extra/month (at least) in a narrowed network, and why it should be a ‘good thing’.


    • Ruth-

      I don’t know what your current plan covers or what the deductible & out of pocket expenses are.

      But I would be willing to guess that your new plan will cover more –though some of the “more” may be things you don’t use. (Maternity,
      dental and vision care for a child, psychiatric . . ) or things that you don’t think you will use (uncapped payouts for serious, expensive diseases such as cancer or Alzheimers–diseases that you might well develop in the future.

      In addition, if you stay in the Exchange, you have protection
      against the possibility that you lose your job, or are in an accident and unable to work for some period of time.
      If you buy a policy in the Exchange, and your income drops for any reason during the year, you would qualify for a subsidy at that point. This is an important reason to stay in the
      Exchange rather than buying directly. If the premiums are the same, I’m not sure why you would want to buy directly.

      As for “losing two of your doctors”— you really don’t know whether those two doctors are any better than the doctors who will be in your new network. What we do know is that when doctors are part of a network, there is a significantly better chance that one doctor will know what another doctor who you are seeing is prescribing. Good networks can be an answer to our badly fragmented, un-coordinated health care system.

      Finally,your higher premium helps pay for universal healthcare–not just what you may or may not need, but what everyone needs.
      We’re all pooling our money– and pooling the risks of being human. Some of us will be fortunate, and will remain relatively healthy–at least for a while.
      (Eventually virtually everyone becomes seriously ill at some point in their lives.) If we’re one of the lucky ones, we will need less care, and take
      less out of the system.

      This is a “good thing.” You will now be living in a nation that, like other civilized countries, believes that everyone deserves high quality care (you, your neighbors, your relatives) and that we all should help pay for it. There but for fortune. . . .

  10. Amazing and amazingly well-written article, Maggie! And coming from someone who has actually read the ACA, it makes this piece even better. The insurance industry sure did seriously underestimate the provisions of the ACA, didn’t it?

  11. The Republicans actually succeeded rather well in 2010 to convince seniors that the ACA was going to make Medicare cost more.

    The Republicans are now rallying the persons who have had cheap individual insurance against the ACA. The massive plan cancellations and changes feed into this campaign.

    Some employer plans will cost more because of the ACA.
    I do not have a mastery of the details, but limits on age rating and wellness discounts will hit the small group market.

    I just bring these items up to say that the political future of the ACA is not a sure thing. If the Repubs get a coalition of those who are harmed by the ACA plus those who think they are harmed, look out.

    • Bob–

      The reality of what Obamacare means will become clear to millions in the coming months.

      Large employers already cover all of the Essential Benefits, and conform with the rules of Obamacare.
      There insurance will not be more expensive because of Obamacare.
      And the trend shows that cost of employer-based insurance in no longer rising as rapidly as it was

      Obamacare is “breaking the curve” in the private sector as well as the public sector.

      I just finished a post about the Exchanges. While writing it I read about 70 stories which included quotes from
      individuals and small business owners. Virtually all said they were “surprised,” “relieved, “thrilled” that there new insurance would cost less than what they are paying now. Lower premiums and lower deductibles. Some said the policy cost more but it was worth it– “much bettter coverage” and “the coverage my family really needs.”

      The policies being cancelled are sub-standard policies. Most people will recognize that the coverage they can now buy– with a subsidy– will be much, much better, and may not even cost more.

      For small biz owners, premiums go down because insurers can no longer charge them more because a majority of their employees are women, or because
      4 employees are suffering from cancer. In addition, in the Exchange, they immediately become part of a large group, and it costs the insurer much less to administer the plan.

      Medicare patients soon will discover that Obamacare does not change their benefits.

      It will become apparent that the fear-mongers lies are just that.

      Finally, Republicans/conservatives have lost much of their credibility over the past year.
      And, as I mentioned, as the demographics of the country continue to change, they will have an even harder time getting elected.

  12. It feels kind of a like a race to the front of the media line —
    one side has its true stories about people getting a better deal from the Exchanges, as you found, and the other side has anecdotes about people paying more for insurance after the ACA and not seeming to be getting more out of it.

    May the best publicists win! ( I am just kidding, but so much of our politics does seem to depend on ‘the story’ at least in the short run.)

    Personallly I come out of the Dr Don McCanne/Woolhandler single payer crowd, and so I may listen to the right wing anecdotes more than I should. I personally would not tell Ruth as you did that her higher premiums are making health insurance better for all. If we want to make health insurance better, we should raise income taxes instead. If Ruth has a high income, she would then pay more to this good cause.

    In other words, I would rather see a senior citizen with a $100,000 income pay $1000 more in income taxes, than see a middle class person with individual coverage pay $1000 more a year in health insurance premiums. People who buy in the individual market are getting somewhat ‘beat up’ in the current process.