Six simple facts about health insurance reform

This Thanksgiving Day, let us be thankful that we live in a country where spirited debate is not only encouraged but also central to political progress.

The health insurance story you’re about to read is true. No names have been changed to protect the innocent.

Let us also remind those at our dinner tables who wish to debate the Affordable Care Act (ACA) and the health insurance exchanges to heed the approach of Detective Sergeant Joe Friday from TV’s "Dragnet." To cut through the fluff and fibs, Friday would demanded the facts – just the facts.

If we put aside the politics and finger pointing this holiday season, we’re left with six simple facts about health insurance reform.

We know that some people will pay more for health insurance through the exchanges and some will pay less. Some people will be able to keep their previous plans, and some will be forced to buy new ones, often at a higher price. The reasons are not difficult to understand. They reflect the decisions made three years ago when the legislation passed. The increase in costs for some was as inevitable as the loss of coverage for others. We may not like the facts, but they are just that: the facts.


Fact 1: For most people, the cost of health insurance premiums will exceed the cost of health care services required.
For any insurance approach to work, the insurance premiums for those who rarely use the services help pay for those who need them that year.

Take car insurance. Most people won’t get into a car accident in any given year. Thus, most people will spend no money on auto body repairs. Besides being required by states, individuals purchase insurance coverage to protect themselves in the event of an accident. Of course, the concept of insurance wouldn’t work if only those who got in accidents paid premiums.

Health insurance is similar. Under the ACA, healthy individuals pay more for insurance than they are likely to pay for health care services. Because of this fact, those who require intense medical care are able to afford health care services.

This is the fundamental principle of every insurance offering. That’s just a fact.


Fact 2: The relatively sick will find it easier and less expensive to obtain health insurance beginning January 1, 2014. The healthy will pay more as a result.
The ACA requires insurance companies to cover anyone who enrolls. This is called "guaranteed issue." Sick patients who previously could not obtain coverage can now purchase insurance.

Along with guaranteed issue, regulations shifted the market away from charging individuals and small groups different amounts based on their health. Instead, they use "risk pooling" – the practice of sharing cost across a larger population and limiting the difference in premiums among individuals. With this shift, there are winners and losers.

Not being able to charge different premiums based on the individual’s health status means that the premium will reflect "the average" health of the group. As sicker individuals come into the system, the average health of the group will be worse than before. As a result, premiums for individuals with better than average health will now be higher than they were in the past and lower for those with worse than average health.

In the past, the maximum difference in premiums for the same product based on age could be as high as 600 percent. The ACA limits that difference to 300 percent.

As a consequence – and by design – premiums for older individuals will be lower than they would have been under past rules. The premiums for younger participants will be higher.


Fact 4: The cost of insurance for men and women will be much more comparable.
For young women, one of the biggest health care expenses is related to pregnancy and delivery. As a result, younger women who bought health insurance on the individual market paid more for health coverage than men of the same age and health status – or they had to buy insurance policies that didn’t cover maternity-related expenses. The ACA outlawed these practices.

Therefore, insurance will be relatively cheaper for the young women (who will benefit from coverage of maternity services) and more expensive for young men (who also may benefit when they become fathers).


Fact 5: Mandated prevention coverage will increase the cost of health care, at least in the short-term.
The ACA requires that any insured individual receive free preventive services as defined by the U.S. Preventive Services Task Force. Since many of these services were not covered in the past and since more people will have access, the total cost of providing health care will rise.

Although these investments in prevention may slow the growth rate of health care costs in the long run – and will improve the health of the population – the cost of prevention exceeds the dollars saved.

One way or another, the cost to provide these added benefits will be paid.


Fact 6: Those who purchased "skinny" coverage in the past will pay more in the future.
When someone bought an insurance policy designed to cover only catastrophic events, the plan was "skinny." It often paid as little as 40 percent of the projected average expense for someone in that particular age bracket.

The ACA prohibits any insurance company from selling a policy that costs less than 60 percent of the expected average health care spend. Plans that fall below this threshold are considered too "skinny." People with "skinny" coverage will be required to change to a more comprehensive plan. As a result, they will also pay more. This is the fundamental reason why some who liked their plans will be forced to change.

Under the original rules, these individuals would have been required to have more comprehensive coverage starting in January. But pending state insurance commissioner agreement, that timing may be altered based on the recent decision by President Barack Obama to allow individuals to keep these bare plans for up to one year.


These are "just the facts" of health care reform.
Each of these outcomes could have been predicted when the legislation was passed over three years ago. These facts reflect the decisions made by Congress. And they reflect the values of those who voted for the legislation. Had Congress made different choices, there would have been different winners and losers. There was no way for everyone to come out ahead. That is just a fact.

Should the healthy subsidize those who are sick? Should the young subsidize those who are older? Should men share with women the costs of maternity coverage? Should prevention and comprehensive coverage be provided to all? All of these can be debated.

But no one should say that the economic consequences of the ACA legislation constitute a "last-minute surprise." We could not have been certain of the magnitude of some of these changes, but anyone who read the fine print three years ago could have predicted each of these results. Those are the facts – just the facts.

Source: Forbes