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Under the still-controversial Affordable Care Act, health insurers are gearing up to enroll previously uninsured individuals, beginning in October. In preparation, the region’s biggest insurance company wants to raise premiums for those people, saying they’re likely to be in poor health and need expensive care. But the law’s advocates are crying foul. Kojo examines what the influx of new customers will mean for insurers and what the options will be for consumers.
- Scott Gottlieb Resident Fellow, American Enterprise Institute; Practicing Physician; Senior official at the FDA and the Centers for Medicare and Medicaid Services during the Bush Administration
- Mila Kofman Executive Director, DC Health Benefit Exchange Authority
- Ron Pollack Executive Director, Families USA
MR. KOJO NNAMDIAre you a young adult with an entry-level job and no health insurance? You're just the person the insurance companies hope will enroll this fall under the nation's new health care law. But if you're an older adult with a medical condition that's made it impossible to get health insurance, you're the one who's making insurance companies nervous. Health insurers are gearing up for the start of the still controversial Affordable Care Act, which begins enrolling uninsured Americans in October.
MR. KOJO NNAMDIThe Affordable Care Act requires insurance companies to cover everyone who wants in regardless of age or health. But the companies don't know exactly who will sign up and how much it will cost to pay their doctor's bills. Last week, Maryland's biggest insurer, Care First, asked for a 25 percent hike in premiums for individual plans, saying costs are likely to skyrocket when the law takes effect in January. But consumer advocates say insurers are overreacting and anticipating the worst.
MR. KOJO NNAMDIJoining me to look at how insurers are preparing for the new insurance marketplace and what it means for consumers is Mila Kofman, executive director of the D.C. Health Benefit Exchange Authority. Mila Kofman, thank you for joining us.
MS. MILA KOFMANThank you.
NNAMDIRon Pollack is executive director of Families USA. Ron, thank you for joining us.
MR. RON POLLACKGood to be with you, Kojo.
NNAMDIScott Gottlieb joins us by phone. He is resident fellow at The American Enterprise Institute. He's a practicing physician and a senior official at the FDA and the centers for Medicare and Medicaid services during the Bush Administration. Scott Gottlieb, thank you for joining us.
DR. SCOTT GOTTLIEBThanks for having me.
NNAMDIWe invited First Care -- or Care First to join this discussion but Care First declined our offer. You can join the conversation, however, by calling 800-433-8850. Are you uninsured? Do you plan to build an individual health insurance policy when the Affordable Care Act takes effect? Give us a call, 800-433-8850. Ron, refresh our memories. The Affordable Care Act passed in 2010 directs health insurers to cover anyone who wants insurance, regardless of their medical condition. How many currently uninsured people are expected to sign up and how do they do it?
POLLACKWell, there are 50 million people in the country approximately who are uninsured. And close to four out of five people of the uninsured will be eligible for coverage. Now we don't know how many yet will be signed up because A. you have to know about it. And in addition to knowing about it then you have to get enrolled. But this can add clearly tens of millions of people at least at some point as the Affordable Care Act is implemented over the next few years.
NNAMDIMila Kofman, individuals who don't get health insurance through their employers will be able to shop for a policy through exchanges set up in each state. You're heading up the District of Columbia's Health Benefit Exchange Authority. Who will you be serving?
KOFMANWe would like to serve everyone who lives here in the District as well as the small businesses who have operations here in the District. We're really excited about the Affordable Care Act and creating one big marketplace exchange. For the first time consumers will be in the driver's seat. Consumers and small business will be able to shop for health insurance that meets their needs, their budgets, able to be comprehensive. And we hope prices will be very reasonable. So we are really excited.
KOFMANSo no more the days of people being turned away because they have a medical need or may have had a medical condition in the past. For the first time women will be charged the same premiums as men because gender-based rating will be illegal. And people will be able to access coverage that actually covers their medical needs, so no more preexisting condition exclusions. We are very excited.
NNAMDIThe dates to remember, October 1, that's when the enrollment process begins. The first-time enrollment period will last six months, which is longer than in subsequent years, so it will end on March 31. And in future years it'll be October 15 to December 7. The coverage begins January 1, 2014. Scott Gottlieb, last week our region's biggest health insurer Care First said it wants to raise premiums 25 percent for people who buy individual coverage, That is people who do not have a group plan through their employers. What's the rationale for such a big increase?
GOTTLIEBWell, there's a lot of new regulation that's getting applied to the insurance marketplace, particularly the individual market and the small group market. And so the insurance products in this country have to get re-priced. And what you're going to see this fall is a one-time, you know, significant re-pricing of insurance in this country as a result of the new regulations. It's probably going to be higher in a lot of low-regulation states which didn't previously have a lot of mandates and a lot of regulation on their insurance products.
MR. DAVE ZIRINMaryland happens to be a high regulation state, so I think 25 percent is about the average that you're going to see in a lot of the higher regulations states.
NNAMDIBut why 25 percent?
GOTTLIEBWell, it's hard to tell why 25 percent because they don't even have a plan yet. They're sort of, you know, proposing a rate increase on something that doesn't exist yet. And so I think that they're just guessing. But my assumption is that 25 percent is going to be what you see a lot of states increase. So a lot of plans increase the premiums to accommodate the new regulation.
GOTTLIEBI'm talking to a lot of insurance brokers who are getting briefed by the insurance companies. They have no reason to mislead because they need to know what their products are going to cost this fall. And what the insurance companies are telling them are rate increases are on the order of 25 to 50 percent, depending on what state you're in and, you know, who you're talking about. It'll be more for young and healthy individuals, probably a lot less for older individuals who were previously paying a lot for insurance to begin with in a lot of these states.
NNAMDI800-433-8850. Do you run a small business? Do you offer your employees health insurance? Will that change when the Affordable Care Act takes effect? Give us a call, 800-433-8850 or send email to email@example.com. Mila Kofman, and then you Ron Pollack, what calculations do you think insurers are making about the influx of new customers they'll get and what that means for their costs and their premiums?
KOFMANI think what people have to remember is that when you buy a car without an engine it's quite cheap. But when you buy a car with an engine you have to pay for it and it's more expensive than a car that doesn't work. Just like with health insurance, when you live in a state that turns away people with medical needs or when insurance companies are allowed to take you in but not cover your medical needs, if they're not paying for sick people of course the underlying prices are going to be less expensive.
KOFMANI think what is really important to remember, and what most consumers probably don't know is that there's substantial tax credits that will be available from the federal government to help people afford premiums. So when people buy real health insurance that protects them when they're sick, not just when they're healthy, gives them access to medical care, they will be able to afford that good strong coverage because of the tax credits. In fact, the tax credits will be paid directly to the insurance company of your choice for the coverage that you...
NNAMDIWho is eligible for tax credits and how do they sign up for the tax credit subsidies?
POLLACKSo through the exchange people will be eligible for tax credits at a certain income level. So it -- and tax credits faze out at 400 percent of federal poverty level. So if you earn less than 400 percent of federal poverty level -- that's about $45,000 for a single individual or about a little under $95,000 for a family, you'll be eligible for tax credits to help with your premiums.
POLLACKKojo, I think there are four things to keep in mind with respect to this Care First proposed increase. Number one, this is a proposed increase. This is not the increase. And the insurance commissioner in Maryland is going to review this carefully. And I'll bet my bottom dollar that that increase is going to come down substantially. I must say, we purchase health coverage from Care First for Families USA staff, and we've experienced proposed increases of 35 percent, 25 percent. This'll come down.
POLLACKSecond thing, there're going to be a lot of other insurance plans that are going to be in these market places. In Maryland, Kaiser Permanente expects to offer nine plans. and so there's going to be competition, and any plan like Care First is going to have to worry about its competition if it raises premiums too much. The third thing I think to keep in mind is what Mila was mentioning a moment ago. These tax credit premium subsidies are very significant. Thousands of dollars by and large, so it's going to make the out-of-pocket cost for families and individuals much less expensive. In Maryland for example, where Care First has proposed this increase, there are 361,000 who are eligible for these tax credit premium subsides. 61,000 in Prince George's County, 53,000 in Montgomery County, 104,000 in Baltimore.
POLLACKThis is going to be very helpful. And the last thing is what I think Mila started with, and that is if you have a better plan that provides you with more coverage and less costs when you get care, your premiums may very well go up, but the back end costs when you seek care are going to go down. And so if you take all those things together, this is going to help people in their pocketbooks.
NNAMDIScott, you have said that health plans under the Affordable Care Act are likely to remind us of the HMOs of the 1990s with high premiums for bare bones coverage. Why is that and why won't competition alleviate that?
GOTTLIEBWell, they're being very tightly regulated in terms of what they can do to increase premiums or increase out of pocket costs to try to offset their own costs, and the benefits they need to provide is mandated by the federal government. So the only thing that they can really do to affect their overall costs structure is try to tamp down on medical utilization. The only way to tamp down on medical utilization is to either own the providers outright so you can get more control over the doctors, or offer a very narrow network plan where you only offer a few choice of physicians, and therefore you can get more control over the providers, and that's in fact what we're seeing roll out.
GOTTLIEBI think the exchange-based plans will be very narrow networks where you won't have a broad choice of providers like you see in some of the typical PPO plans in the existing private market. And if you go outside of your network, you're going to be slapped with very high co-insurance. And so if you say in the network it might be economical. If you go outside the network, it's going to be high co-insurance. Even with the benefit of the subsidies though, there's still going to be a lot of out-of-pocket costs. And so, again, if you're that young, healthy individual who doesn't think you're going to tap your insurance that much, these plans even with the with benefit of the subsidy aren't going to be very economical, and I expect that a lot of those folks are going to just pay the $95 penalty, because the penalty -- the so-called individual mandate really isn't much of a penalty.
GOTTLIEBIt's a very small penalty. They'll just pay it and go outside the exchanges and buy a non-conforming plan. It will probably be more economical. Certainly if you're an individual with a lot of chronic medical conditions who's going to use the insurance, this might be far more affordable than what you can in the existing market, especially if you have the benefit of the subsidies.
NNAMDIGot to take a short break, but all of our panelists would like to weigh in on that issue, and we have, oh, about 361,000 calls, Ron, waiting to join this conversation. So if you'd like to join it, go to our website, kojoshow.org, or send email to firstname.lastname@example.org. I'm Kojo Nnamdi.
NNAMDIWelcome back to our conversation about the Affordable Care Act as health insurers gear up for it and enrollment begins on October 1. We're talking with Scott Gottlieb, resident fellow at the American Enterprise Institute. He's a practicing physician, and a senior official at the FDA and the Centers for Medicare and Medicaid Services during the Bush Administration. Ron Pollack is executive director of Families USA. And Mila Kofman is executive director of the D.C. Health Benefit Exchange Authority.
NNAMDIYou just heard the conversation we were having with Scott about these health plans maybe reminding us of the HMOs of the 1990s. Mila Kofman, how do you think that will affect what's available here in Washington, D.C.?
KOFMANWe're just not seeing any of the predictions that Scott has just made. In fact, four major insurance companies, the largest in the District in the small group and the individual market have notified us that they plan to participate and sell coverage through the exchange, and that they plan to offer a variety of products. In fact, one insurance company told us that they planned to offer potentially between 100 and 150 different health insurance options to consumers. So in fact in the district we will have more choices and more options for both small businesses and individual consumers.
NNAMDIRon Pollack, won't -- can't that vary in jurisdictions that have administrations that are enthusiastic about the Affordable Care Act, and districts or jurisdictions whose leaders still maintain some hostility to the Affordable Care Act?
POLLACKWell, there will be differences from one state to the other. In about 33 states actually, the Federal government will be running these marketplaces. But, you know, and in some states and like the District of Columbia that has extraordinary leadership, you're going to see, I think a very significant number of plans that will offer significant options. There are a couple of things that Scott said that I think are worthy of remarking about. He's right in saying that it's important to get young people enrolled in coverage because that balances the insurance pool and allows premiums to be somewhat lower.
POLLACKBut it's very important to understand that these tax credit premium subsidies that Mila and I have been talking about, they're provided on a sliding scale. So you're eligible up to 400 percent of poverty, but you get bigger tax credits if you're at 200 percent of poverty than you do if you're at 300 percent of poverty. And I mention that because young people are the age cohort that is likely to have the lowest income.
POLLACKThey're the people in entry-level jobs, or they may not have a job, so they are disproportionately going to be benefitted by these tax credit premium subsidies, and that's important. One other thing I'd just say. Scott was concerned as some might be, about what do people actually get offered when they buy insurance. One of the good things among many of the Affordable Care Act is now people when they shop for a plan in these new marketplaces, they're not going to be reading gibberish and hieroglyphics that are hard to understand, and make it difficult to compare one plan with another.
POLLACKThere are now going to be comparisons that will provide all the information people will want about premiums, other out of pocket costs like deductibles and co-pays, what benefits are covered, and it will tell you about the network. So now for the first time, people will be in a much better position to shop wisely and get a plan that's good for their families.
NNAMDIGotta go to the telephones. Here is Michael in Columbia, Md. Michael, you're on the air. Go ahead, please.
MICHAELOh, yes. Thanks for taking my call. I already am a member of Care First here in Maryland. I have been for a little over three years. I got on them as an individual when I left the company I had that offered my insurance. My question is sort of twofold. Am I going to be subject to this new increase just simply because I'm already a member. I'm not joining like they're talking about uninsured people, and secondly, should I consider going to the exchange and getting my insurance that way, when it's available to me in Maryland?
POLLACKSo Michael, you're buying your insurance directly yourself, is that correct?
MICHAELYes. And am I 60 years old, and I have some medical problems, but I've been on this coverage for a little over three years now.
POLLACKSo there's several things to understand. First of all, because you have medical problems, as Mila was mentioning before, you're going to be protected. You're never going to be denied coverage due to a preexisting condition. You won't be charged a discriminatory premium because of your health status. The difference in terms of premium charges based on age will be much lower than they were before. But if you're buying coverage on your own and you're in Maryland, you may very well go into the exchange.
POLLACKThe exchange is not just for people who are uninsured. It's for people who are buying coverage on their own. They're going to have more choices, and if you're a person who has incomes below 400 percent poverty, $94,200 for a family of four, close to $46,000 for an individual, you will benefit from these tax credit premium subsidies which will substantially lower your out-of-pocket costs.
NNAMDIMichael, thank you for your call. Scott Gottlieb, does Care First request to raise its individual premiums represent a one-time repricing of that health coverage, or will steep premium hikes become -- or requests for steep premium hikes become an annual event. Oh, go ahead, please.
GOTTLIEBI'm sorry. Was the question to me?
GOTTLIEBI think that this is a one-time, you know, significant, frankly, repricing of insurance in this country to accommodate the introduction of all this new regulation. I think after we see this repricing in the fall we'll go back to some kind of implicit rate of overall inflation in the health insurance market. The administration would argue that that overall insurance inflation's going to less as a result of the Affordable Care Act. I would argue that it's going to be more because I think this disincentivizes competition.
GOTTLIEBThat's a long debate to have, but I think that the bottom line is after this we'll go back to a 5, 3, 7 percent overall rate of inflation in insurance premiums year over year. This is a one-time significant repricing, again, to accommodate the introduction of a lot of new regulation.
NNAMDIMila, last week Maryland became the third state to unveil insurance companies proposed premiums, but in a lot of states in the District, insurance companies cannot just raise premiums when they want to, they have to get approval from regulators. How does that work and what's the timeline in D.C. for making the proposals from insurance companies public?
KOFMANSo we've just recently started to accept products and rates for approval, and that information is going directly to the insurance department here in the District, and my understanding is they will make everything public as soon as all of the rates and products come in, so sometime mid May toward the end of May very likely. If I can just go back to something the Scott indicated. He mentioned that traditionally we've seen 5 to 7 percent rate increases. That has not been my experience.
KOFMANIn fact, until the Affordable Care Act was enacted, it was pretty common to see rate increases 20, 30, 40, even 80 percent in some states around the country. Certainly when I was the superintendent of insurance in Maine, year after year I saw rate increase proposals that were in the double digits and quite significant. And so it was only in recent years since the ACA was enacted that we've seen relatively small increases. So it's just important to remember what rates people have been struggling with year after year.
KOFMANOne other thing I would like to mention, here in the District we believe in real completion, and the way we are building our exchange is actually to encourage insurance companies to compete for your business by displaying all of the insurance company rates, and product information. Insurance companies will not want to overcharge. They'll want a price in a very reasonable way. You know that some of the largest companies will not want to lose business to their competition because their rates are high, and the smaller insurance companies will want to gain business.
KOFMANSo by forcing real price competition for your business, we believe that prices here will be pretty reasonable.
GOTTLIEBWell, in all fairness, the rate increases have been less in recent years, but that's largely due to the fact that utilization rates are so far down in the overall medical environment because of the recession. Kaiser just came out with some good data sort of documenting this phenomenon. I think that the exchanged-based insurance plants won't be all that price competitive because the insurance companies really have an incentive to price them richly to make sure that they don't cannibalize their small group market which is a lucrative market for them.
GOTTLIEBThey're not going to want to under price the insurance exchanged based plans and give employers a real strong incentive to dump insurance in the small group market and move their employees onto the exchange. So they're going to be very careful how they price that product relative to their -- to a small group market. I think the incentives are actually to try to price them at a premium because you're worried about cannibalizing your existing business. You're also worried about adverse selection in the exchanges. Until you figure out how that's going to shake out, you want to make sure you price yourself with some margin because you know you're just going to have to rebate to the government any excess profitability anyway. You might as well shoot high and then give it back to the government, or give it back to consumers.
POLLACKI would -- I would just...
NNAMDI...if premiums for individual health plans go up, I guess what we're talking about here now is whether that will have any impact on group plans which are how most people with full-time jobs access health insurance.
POLLACKWell, first, you know, I would say that any plan that -- any company that decides to significantly increase premiums is really hurting itself in terms of market share. And there is going to be extraordinary competition. I mean, Mila was mentioning what's -- there are a lot of companies offering a number of different plans here in the District. In Maryland, there are a whole bunch of companies as well, and in states across the country, we're seeing a very encouraging number of companies that are offering their wares.
POLLACKBut there's one think about the Affordable Care Act that hasn't been mentioned that relates to pricing that's very important. Under the Affordable Care Act, and insurance company now has to spend at least 80 cents out of the premium dollar for health care, not for marketing, advertising, agent's fees, administration, and profits. For the larger plans it’s 85 cents out of the dollar, and that's going to create substantial cost efficiencies that'll help to keep costs down. This is a big deal for consumers?
KOFMANIf I can just add, so when an insurance company sells a health insurance product through the exchange and outside, prices have to be the same. So I just want to make sure that your listeners are aware of that. Also, for small businesses, exchanges will offer options that currently do not exist in the insurance market. So for instance, if you're a small business owner, and you'd like to offer your workers a choice of different insurance companies, you cannot do that currently, and buying coverage through the exchange, you as a small business owner will have that option to offer your workers a choice of any of the insurance companies that are selling coverage.
KOFMANOr if you'd like to offer one insurance company but different options like an HMO and a PPO and different levels of coverage, you'll be able to do that, whereas now in the current private market, that is just not an option that exists for small business owners.
NNAMDIWe are almost out of time, but we got an email from Rob who asked, "Can small companies with less than 10 employees use the online marketplace to offer health insurance to their employees?"
KOFMANYes. And we welcome those groups. You will -- Rob, you will have many choices that you currently don't have. If you're in the District, we will open for business October 1, with coverage becoming effective in January of 2014, and I would love your business.
NNAMDIMila Kofman, she's the executive director of the D.C. Health Benefit Exchange Authority. Ron Pollack is executive director of Families USA, and Scott Gottlieb is resident fellow with the American Enterprise Institute, and a practicing physician. Thank you all for joining us, and thank you all for listening. I'm Kojo Nnamdi.
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