John R. Graham writes:
A patient with HIV/AIDS can expect to pay over $1,000 out of pocket for medicines, if he buys a policy on the ObamaCare health insurance exchange in Florida.
“woman-in-hospitalAffordable”? Surely not. This perceived injustice has caused legal activists to file a lawsuit against four insurers, which offer plans in the Florida exchange, alleging discrimination.
Readers of this blog know that we have long warned against this consequence of ObamaCare. Insurers are not allowed to charge premiums appropriate to applicants’ expected medical claims. …
An ObamaCare Silver policy must pay 70 percent of expected medical costs, while covering 100 percent of “preventive care” (as defined by the federal government). However, the plan is designed for the average patient. So, it is easy for a health plan to design a plan that imposes very high medical maintenance costs on very sick, chronically ill people. High co-payments or co-insurance for prescriptions is one obvious method.
Our prediction: There will be many more such lawsuits.
In February, Graham blogged about this article from The Hill, which reports: “Consumers who use specialty medications may face higher costs on ObamaCare’s marketplace plans, many of which include co-insurance rather than copayments for the drugs, a new analysis warned.”
Last week, Graham illustrated one more example of insurers avoiding sick patients, this time in relation to how insurers use ObamaCare subsidies:
[P]lans apply more of the subsidy to the deductible, somewhat less likely to apply it to specialist charges, and much less likely to apply it to the most expensive tier 4 drugs on the formulary. What this means is that generally healthy patients who go to see their primary-care physician occasionally, but need no specialist care or specialty prescriptions, are most likely to benefit from the cost-sharing reductions. Those who need specialist care and, especially, tier 4 drugs will be less likely to benefit.
Back in 2010, Peter Suderman wrote about how insurers tailor their plans to attract the healthy & avoid the sick:
Indeed, because insurers will be limited in terms of how they can charge based on health risk factors, the new rules may encourage plan providers to avoid investing in resources that help the sick.
For example, a 1997 New England Journal of Medicine study looked at billing records for elderly Americans participating in Medicare HMOs in Florida. The study found that, despite exchange-like regulations guaranteeing access to any HMO plan and prohibiting insurer cherry picking (or “medlining,” as it’s sometimes called), insurance companies managed to lure in the healthiest—and cheapest—patients, while leaving the sickest, most expensive patients on publicly funded Medicare.
When premiums are regulated so that they cannot reflect expected costs, four things will happen:
- On the buyer side, people who are under-charged will over-insure and people who are over-charged will under-insure. This is basic economics. If the price you are asked to pay is artificially low, you will buy more than you otherwise would; if the price is artificially high, you will buy less. If you are sick and require a lot of medical care but can pay the premium ordinarily charged to a healthy enrollee, for example, you will likely choose the richest plan you can find.
- In order to avoid attracting high cost enrollees, health plans will respond by scaling back their benefits and their provider networks until the richest plans look pretty much like every other plan. In the individual market today, in most states you can buy a BlueCross plan that covers almost all doctors in your area and practically every hospital, including all the best hospitals. I predict those plans will never see the light of day inside the (ObamaCare) health insurance exchanges. See Monday’s Health Alert on the race to the bottom with respect to access to care.
- At the same time, health plans will seek to attract the healthy. Of course, to a certain extent they are doing that today. But with an electronic exchange in which healthy people tend to buy on price and sick people tend to buy on benefits and software that makes it easy to do those things, the insurers will be even more pressured to reconfigure their offerings to make them more attractive to the healthy and less attractive to people who need medical care.
- Finally, the perverse incentives do not end at the point of enrollment. They continue. Health plans will have perverse incentives to over-provide to the healthy (to keep the ones they have and attract more of them) and to under-provide to the sick (to avoid attracting more of them and encourage those they have to go elsewhere).
See also this Reuters article: “Chronically ill facing high drugs costs under U.S. health law“:
Insurers say they had to move toward greater cost-sharing due to higher prices for new drugs, some of which can cost more than $100,000 annually per patient.
Researchers also say the higher rates help insurers bankroll low monthly premiums to attract healthy young enrollees.