ALBUQUERQUE, N.M. — Presbyterian Health Plan’s decision, announced this week, to stop selling to individuals and families on the state health insurance exchange next year says as much about the difficulties of insuring individuals as it does about the Affordable Care Act, the federal law, also known as Obamacare, that established insurance exchanges.
Companies have been offering health insurance to individuals in New Mexico since at least 2005, nine years before the first ACA-mandated insurance exchanges opened for business. The products have been a headache for insurers and consumers almost from Day One. Companies repeatedly requested double-digit increases in premiums long before Obamacare. Consumers would find their policies didn’t cover some fairly ordinary conditions, such as pregnancy and childbirth. Sometimes that was all right with the customer, but I have heard from plenty of readers over the years who were shocked to find themselves pregnant and uninsured.
Companies refused to insure some individuals because they were too sick or the policies they offered specifically excluded coverage of a medical condition the customers already had.
And even then it was hard to make money on the products. Hence, the relentless increase in premiums.
Obamacare made it more difficult to make money selling to individuals. The law banned products that did not provide what the government defined as minimally adequate coverage. That means, for example, that pregnancy has to be covered whether the customer needs the coverage or not. The law prohibited the medical underwriting that allowed companies to decline to insure people they felt would be too expensive to cover. They could no longer exempt pre-existing conditions from coverage.
And the law required coverage to be affordable, as measured by the percentage of a family’s income that had to be spent on insurance. Families that meet income guidelines get help paying for insurance with a federal subsidy provided that they buy insurance on the exchanges.
Presbyterian insures 16,000 individuals with products it sells off of the insurance exchange and 10,000 more on the exchange. A Presbyterian executive said that the people who bought insurance on the exchange, 80 percent of whom receive federal subsidies, used 30 percent more medical care than individuals who bought coverage off of the exchange.
Despite the relatively lower utilization of services by individuals who buy insurance off of the exchange, Presbyterian is still seeking a 21 percent increase in premiums on average to cover them. Compare that to group health plans of the type bought by employers: The Segal Group reported that this year premiums nationally would increase on average from 6.8 percent for HMO plans to 9.9 percent for fee-for-service plans.
To repeat, it is hard to make money on individual products, whether they are sold on an insurance exchange, by a broker, or directly by the insurance company.
As far as I can tell, no one has evaluated in any detail how customers who buy through New Mexico’s insurance exchange differ from people who buy off the exchange or are in a group plan. If there has been such an evaluation, it hasn’t been released publicly.
The conventional wisdom nationally is that individual insurance customers who buy through the exchange are sicker than others. The idea is that these are folks who have been without insurance for some time and have pre-existing conditions that can now be treated. Because younger and healthier people are still relatively slow to obtain coverage, in spite of the tax penalties the law imposes on those without coverage, people with individual plans probably skew older and sicker. That will drive up premiums faster.
Could be, but individual insurance premiums rose much faster than group premiums in the years before Obamacare. Insurance companies hate raising premiums so high so quickly; it’s bad marketing. They just seem to be surprised regularly by how much it costs to pay individual plan members’ bills.
The insurers’ problem is that it is hard to anticipate in the short run what a random collection of individuals will cost to treat, and it is even more difficult to manage their care in a way that keeps costs down. Insurers can evaluate a large employer group statistically, examine the group’s medical history, adjust for factors like age and health status, and come up with a fairly good idea of what it will cost to pay the medical bills. Premium increases for large groups tend to track fairly closely with medical inflation over time. The data and the tools used to set premiums for 10,000 people who happen to show up at the insurance exchange just aren’t that good yet.
Employers who are trying to control benefit costs have every incentive to work with the insurer to improve their employees’ health, so they support the insurance company’s wellness programs and managed care efforts. Insurers, with some exceptions, haven’t been nearly as successful promoting individual wellness and managing individuals’ care.