What the ACA Decision Really Means for the Future of Private Health Insurance

Did the Supreme Court save private health insurance, or just drive another nail in its coffin?

Ironically, it might well turn out to be the latter.

Keep in mind that from a consumer perspective, much of the Affordable Care Act was about trying to keep private insurance affordable in America.  But “affordable” is a relative term.  When your employer pays most of the cost, insurance is a lot more affordable than if you’re paying the bill yourself. 

At over $20,000 per year for a typical plan providing family coverage, health insurance now costs around 40% of the median household income of $49,445!

Being mandated to take on that expense – even with the generous subsidies ACA provides – understandably rankles people.  It’s no wonder that millions of healthy people may still choose to roll the dice and go without.

But even though we have spent so much time arguing about the cost of insurance and the private insurance market, the fact is that it pays only a small part of the nation’s health care bill.

An August 2011 article in the New England Journal of Medicine reported that private insurance paid only a little over a third of all health care costs, and even less – one quarter – of mental health care costs.

Even those small numbers are high.  When you take into account (1) the share of private insurance that is subsidized by the government through tax benefits and (2) the share of private insurance that is paid by all levels of government on behalf of public employees, the percentage of care paid for by privately-funded private insurance is only in the teens.

Even if members of the public can’t recite the data, they have a sense that health insurance is simply no bargain.

One of the best illustrations of this is in the Pre-Existing Condition Insurance Program (PCIP), the short term solution devised by the federal government and put into place through ACA to provide guaranteed health insurance to adults with pre-existing conditions.  The program will run from 2010 until 2014, targeted to people with pre-existing conditions who were uninsured and uninsurable.

If you meet the eligibility criteria, then enrolling in PCIP is like winning the lottery.  It almost guarantees that you receive more in benefits than you pay for insurance.  In fact, this was true – in its first year or so, it paid out $1.30 for every dollar it took in.

The government estimated that 4 million people were eligible for the program, and that 375,000 of them would enroll.  As of this April 30, only 67,482 had.

What does it say about the future of private insurance when people won’t even buy it when they know it will pay out more than it costs?

It shouldn’t come as a surprise to anyone that so many people – up to 67% - wanted the individual mandate to be overturned by the Court, according to a NY Times/CBS poll taken in March.

Even people who support universal coverage find fault with a system so stacked against the consumer – in which the cost of insurance bureaucracy alone is twice what we pay for our entire system of public health, and more than we pay for all nursing home care, home care, dental care, or veterans services in America. 

It’s not like insurers are highly regarded.

For all the good they’ve done in this country – and they have often done the hard negotiating work of keeping prices of health care under control (for evidence of this I need only look at the statement for my most recent blood tests.  The lab accepted $8.57 as payment in full from the insurer for tests it for which it would have charged me $57.85 if I were paying the bill on my own), insurers have lost touch with the desires of their customers, and are now seen more as obstacles to health than facilitators of care.

And the $1.1 billion in bureaucratic overcharges ACA is forcing them to pay back this year doesn’t help their reputations at all.

The only strategy ACA proponents could come up with to shore up insurance was to mandate people to have it.

Organizations like the Heritage Foundation introduced the individual mandate to our healthcare debate twenty years ago as an alternative to “Medicare for all” proposals.  They understood that Congress was going to have to drag people kicking and screaming into the insurance marketplace.

In the aftermath of the Supreme Court decision, that’s even more obvious.

This is the third in a series of five OHPM columns on the impact of the Supreme Court decision on the Affordable Care Act. Monday: the impact of the ACA decision on Medicare and Medicaid.

America's Health Insurance Myth

The recent heavy-handed action by Blue Cross and Blue Shield of Florida (BCBSFL) to terminate and amend all of its contracts with mental health providers brings to light a well-kept national health care financing secret.

It is an American myth that we rely on private insurance companies to finance our healthcare delivery system. 

America’s privately-financed private health insurance companies pay so small a share of the nation’s healthcare bill today that they could vanish tomorrow and we would barely notice anything but the cheering.

Insurance companies have been marginalizing themselves by years of short-sighted actions against both providers and patients. They are well on the way to becoming little more than bundles of administrative costs and profits. And it may already be too late for them to do anything about it. 

According to the Centers for Medicare and Medicaid Services (CMS), our total U.S. health care expenditures in 2009 were just under $2.5 trillion.   Privately-financed private insurance pays a stunningly small percentage of that – far, far less than most people believe and far less than the sky-high health insurance premiums they often charge would suggest.

Like it or not, it is the government that pays most of the bill. 

Medicare and Medicaid pay over one-third.  According to the Office of Management and Budget, Medicare paid $517 billion in 2009-2010 – 21% of the total.  CMS calculated that the combined federal and state Medicaid share was $374 billion in 2009, which accounts for 15%.

Other direct governmental health care expenditures account for another 20%, or $510 billion.   These include mental health and substance abuse spending, workers compensation, Indian Health Services, vocational rehabilitation, maternal and child health, CHIP, Department of Defense, Veterans Affairs, and other federal, state, and local expenditures.

As a result, the government’s direct share of health care expenditures comes to approximately 56% of the nation’s total healthcare bill.

But there’s more.  Government workers account for around one-sixth of our national labor force.  Their private health insurance is paid for by governments.   The Federal Employee Health Benefits Program costs $40 billion.  And according to a source at the Manhattan Institute, state and local benefit programs cost an additional $132 billion in 2008. Government-fundedprivate insurance therefore accounts for another7% of total health care spending.

But we’re not finished yet.

The government also subsidizes private insurance through tax deductions for premiums.  The Kaiser Family Foundation estimatedthat the value of this tax expenditure was around $200 billion in 2007.

When you add that in, too, it brings the government’s share to around 71% of the total.

According to CMS, private insurance paid $801 billion, or 32%, of our total health care bill in 2009.  But when you remove the $372 billion of government contributions to this share, the privately-funded private insurance share of health care costs goes down to $429 billion, or to around 17% of the nation’s health care bill.

CMS reported that in 2009 the remaining 12%, or almost $300 billion, was paid out-of-pocket for health care, through co-pays, deductibles, and other direct payments by or on behalf of individuals.  

But here’s the thing about the 17% paid by private insurance companies using private dollars.  It costs us all at least one-third of that to pay for their profits and administrative expenses. 

Private insurers regularly keep at least 15-20% of every public or private premium dollar they collect for profit and expenses.  This means that we have to pay insurance companies something like 6% on top of the 32% they pay toward health costs for their profits and administration.  If we didn’t have to cough up that 6% in fees, we could spend it all on healthcare.

 This means that the net value of the privately-funded private insurance share of the nation’s health bill is something like 11% of the total, just about what we already pay out-of-pocket.

It is maddening that private insurers pay out so little for the privilege of treating providers and patients so shabbily.  According to one Florida mental health provider, BCBSFL is also adding new paperwork requirements, random and aggressive auditing, other intrusive requirements, and even “legibility reviews” to the mental health treatment manual it will release to its new provider network in December.    

We need our government to be more aggressive by enforcing mental health parity laws and the consumer protections in the Affordable Care Act.  It must improve its regulation of an industry where the administrative bloat is already at least half as big as the benefit, and the benefit is no bigger than what we already pay in co-pays and deductibles. 

But the most telling anti-consumer position was staked out in an August 17, 2011 letter from the Deputy Insurance Commissioner of Florida to a representative of a coalition of mental health parity advocates: "I would note that the Office of Insurance Regulation has no jurisdiction with respect to enforcement of federal law."  Since Florida also denies the authority of the federal government to enforce insurance mandates, who's left to advocate for consumers? 

Where private insurance is concerned, it seems that we have laws with teeth, but regulators with no bite.  I wonder why.

 

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