Perhaps the most publicized point of the Obama health care bill has been that insurance companies can no longer deny people for pre-existing conditions. How will this work in practice?
Will they have to cover people for pre-existing conditions? I understand there is a mandate to purchase health insurance so in principle there are no pre-existing conditions, but at the very least there is a transition period where previously uninsured (or uninsurable) people will have to buy their first health insurance. Are the companies that insure a person for the first time obligated to pay the costs of a condition the person had before he enrolled in those companies insurance plan?
If yes, what prevents a company from charging huge premiums that accurately reflect the average costs of covering a person with that condition? I.e. let’s say the company says “OK, prospective patient, you have diabetes. Our actuaries have calculated that we need to charge you $34,000 a year [obviously made-up number, I have no idea how much it costs to insure a person with diabetes] to keep from losing money on you.” Is there any part of the bill to prevent them from doing that? What is the penalty and how is the legal premium chosen in that case?
This may be a fool’s errand, but please try to keep the answers as apolitical as possible.
Ban on pre-existing conditions is simple. When assessing if they will insure you, they cannot say “but we won’t cover your diabetes or results of it” or similar exclusion; either tehy cover you or they don’t. If they would pay for the treatment for Joe who was helathy and suddenly needed it, they must pay it for you too once you are insured.
I guess they can set a premium that’s justifiable for your conditions going in. There’s soemthing that was mentioned about proving 80% of the premiums went to actual medical bills, so they can’t just arbitrarily say “$500,000 please” to be sure you walk away. Also, if you are joining a group plan (i.e. just got hired) you get the same coverage as everyone else. What they do to premiums is your employer’s problem. As someone pointed out in a different thread, if they jack up the rate too much, the employer can shop around.
Yeah, the danger is that premiums will jump. If they do, well, then that 80% rule kicks in. Another risk is that employees over their limit or with excluded conditions will suddenly rejoin the group costing their employers more too.
This is the problem with private insrance in any form (sorry for the editorial from the Canadian) but a private company has to break even at least. Tax-paid systems can spread the load to EVERYONE.
IIRC one of the other reforms was to spread the cost rather than letting insurers adjust their rates per individual customer (employer); so everyone with “Plan A” pays the same result, even if one employer is healthy and the other has too many diabetics or heart patients. This would at least level the field.
In 2014, the law will kick in that says insurers are no longer allowed to discriminate on the basis of pre-existing conditions, medical history or gender, among others. That means that if you apply for an insurance plan in 2014, they have to accept you onto that plan even if you have cancer, and they’d have to pay for your cancer treatment.
There are two rules that are going to come into play that prevents this scenario:
80% of net profits have to be spent on medical treatment: Starting in 2011, health insurers will be required to spend 80% of the money they get from premiums on medical treatment. They will get reviewed every year and may have to provide receipts to prove it. This doesn’t mean they have to spend 80% of your premiums on your medical treatment (if you’re sick they’ll spend more than 100% on you, if you’re healthy they’ll spend 0% on you), but they have to spend that percentage in total, so they can’t make huge and obscene profits by raising everyone’s premiums at once.
It will be illegal to raise premiums because someone is sick: More importantly, starting in 2014, Obama’s bill makes it illegal for insurers to raise your premiums based on anything except family size, geographical location, age or smoking (and even those have limits). So they can’t say, “sure, we’ll cover you even though you have cancer, because the law says we have to, but your premiums will be $1 million a year. We’ll leave that up to you”. They have to offer you the normal premium levels they offer everyone else who is healthy.
You mention “how the legal premiums are determined” - they’re determined by the insurance companies themselves. They have to spend 80% on treatment, so roughly their premiums will add up to whatever that is, plus 20%.
I don’t understand. Does this mean that everybody pays the same premiums, no matter what their risk factors? Is there no tying of likely costs to premium?
Also, I don’t know what cancer costs to treat per year, but it is no doubt expensive. Let’s say a new client who has cancer comes to an insurance company , and they estimate it will cost $100K per year to treat (assume this is accurate). Are you saying they can’t charge that person $100K in premiums per year, and since they have to accept the person as a customer, they either have to lose money or make up the difference by raising the premiums of all the healthy people on their rolls?
I think there’s also a maximum ratio they’re allowed between the highest premium price and the lowest. So if they want to set your premium at a million dollars per year, they’d have to set everyone else’s at several hundred thousand (which of course would result in them getting no business at all).
They will not, however, be on the hook for any expenses you incurred before getting insurance. So if you’ve just had a $100,000 course of chemotherapy while uninsured, and then get insurance, they’ll have to pay for your future treatment, but not for that previous chemo.
Nope. It will illegal to tie the level of someone’s premium to the likely cost of insuring them (except, with limits, for: family size, geographical location, smoking and age). That’s why it’s so crucial to include the ‘individual mandate’ that forces everyone get insurance: otherwise there’d be no point in healthy people buying insurance.
They cannot charge that person $100k in premiums. It would be illegal. In theory they won’t have to lose money or raise anyone’s premiums either, because all the healthy people’s premiums will be enough to cover it. That’s how insurance works right now - if you have health insurance, you won’t have to pay them $100k if you get cancer, you just pay your premiums and they cover it. Plus remember, the individual mandate forces everyone to buy insurance. That means there will be an extra 30 million mostly healthy people on insurance company books. The premiums paid by healthy people should be enough to cover the relatively few people on the books who need expensive cancer treatment. That’s the whole idea of insurance, it spreads risk.
You’re right that there’s a ratio, and you’re right that raising premiums will be a bad strategy from a capitalist perspective, especially in the marketplace of the exchanges that will be set up where it’s easy to compare and switch between plans. But they wouldn’t be allowed to raise all their premiums to $1 million/$200k unless 80% of that money ends up going towards medical treatments. Which it wouldn’t. They’d end up being forced to rebate almost all of that money back to their customers.
There’s no rule that says insurance companies have to index their premiums to people’s income. But income is relevant in two ways: firstly the subsidies provided by the government become more generous the lower your income is. Secondly, if insurance would exceed about 9% of your income, you become exempt from the individual mandate (i.e. you don’t have to buy insurance if you don’t want to, and you won’t get fined for not having it).
Correct. Except I would say “all the people,” not just healthy people.
Current premiums, however, are set for a population that does not include people with pre-existing conditions. People with pre-existing conditions currently get excluded because the insurer expects them to cost more in terms of coverage payouts. Once those higher-cost individuals are added to the risk pool, average premiums will have to rise for everyone.
Seems there is less of an incentive now to get insurance. Even with the mandate in place ( the penalty for not having insurance is very low IIRC 2% of income). If I were diagnosed with a costly illness 3 years from now I could just get the insurance then. I will have saved 3 years worth of premiums which would likely more than cover the penalty.
What I’m saying is that an significant portion of uninsured people are young and presumeably healthy. They are currently ok with the risk that they are taking with not having insurance and the new law will likely do little to change that.
This seems to negate an important part of the plan. That is to spread risk over a larger group that includes more ‘healthy’ individuals, enabling the coverage of pre-existing conditions without bankrupting the system.
Thus the reason for the mandate. Plus, if you had to get expensive treatment (like for a heart attack) before being able to get insurance, you are stuck for it.
Everyone should note that not all pre-existing conditions are expensive. Yes, there is cancer, but I have a heart condition that would count, and treatment costs a couple of hundred bucks a year at most. My wife has an eye problem which now involves one doctor visit a year, no drugs at all. Yes we are higher risk, but we aren’t costing the insurance company much.
Before the bill, any insurance company wishing to take on people with pre-existing conditions would be at a competitive disadvantage. Now they can raise premiums if these people do cost more, which is reasonable, and assuming no or very little more overhead, profit can increase also. So, having the government force all insurance companies to accept people like me can actually improve their profitability.
Current privately purchased insurance premiums. Group rates already reflect the fact that not everyone is healthy. Basically what the legislation is making it so that privately purchased insurance is offered at the same rate as group insurance. Not all that radical.
And only the first year or so of privately purchased insurance.
The way privately purchased insurance goes is that when you buy it, you’re put in a group, much like you are when you get group insurance through an employer. So you and everyone else who signed up in a certain time period are a “group” and at first, you get good rates.
Then it gets different than employer-based insurance: as people come and go from the insurance group, the group gets smaller. And sicker. And eventually ends up with only people who are truly sick, and who are stuck in that group because they can’t change insurance because in between the time they got the insurance and now, they developed a condition that makes changing insurance impossible.
So now the group consists of a bunch of sick people who are uninsurable elsewhere. And the rates go up, and up, and up.
This is what the new legislation fixes: everyone has to get insurance, insurance companies can’t refuse sick people, and rates can’t be based on health quality. So for healthy people, rates might go up a little bit, but if/when they get sick, their rates won’t be totally crazy, and if they want to shop around, they can.
Is there a ban then on cheap “emergency-only” insurance? If not, the rational economic choice would be to purchase such insurance, have it cover you during the emergency and its immediate aftermath, then move on to some other company for cheap long-term care. Not trying to debate here, just figure out the possible unintended consequences.
Firstly, current premiums also do not include the 30 million mostly healthy people who will soon have to buy insurance. Secondly, most health insurers currently take more than 20% of their premium revenue as profit, which from next year will be illegal. The CBO has estimated that most people’s premiums will go down by 0% to 3% because of Obama’s plan, and no premiums for comparable plans will rise. Your contention that this plan will cause premiums to rise is not backed up by any evidence.
[QUOTE=Curious MikeSeems there is less of an incentive now to get insurance. Even with the mandate in place ( the penalty for not having insurance is very low IIRC 2% of income). If I were diagnosed with a costly illness 3 years from now I could just get the insurance then. I will have saved 3 years worth of premiums which would likely more than cover the penalty.
What I’m saying is that an significant portion of uninsured people are young and presumeably healthy. They are currently ok with the risk that they are taking with not having insurance and the new law will likely do little to change that.
This seems to negate an important part of the plan. That is to spread risk over a larger group that includes more ‘healthy’ individuals, enabling the coverage of pre-existing conditions without bankrupting the system. [/QUOTE]
You’re right, this is one of the potential problems with the system. The penalty for not buying insurance is either $695 or 2.5% of income, whichever is higher. That means that for a lot of people, simply paying the fine would be cheaper than buying insurance. Lawmakers have figured that the combination of subsidies making insurance much more affordable (subsidies would make insurance very cheap for people on low income) and our inherent aversion to paying large fines for nothing in return will result in most people buying insurance. Plus there are some costs such as preventive and dental care for which you need insurance. The CBO agrees, estimating that less than 10 million people would choose this option - a level which would not be damaging to the system - and if it started to become a problem, it would be fairly easy for Congress to just raise the fine (insurance companies would be screaming for it). But you’re right, it could be a problem.
That, or they accept you, but then the moment you get sick and start costing them more than they’re getting from you, they look back in the records and discover, oops, it looks like you had a pre-existing condition, and shouldn’t have been eligible in the first place.
I asked this a week ago and basically it was “assume everyone has insurance…” I wonder what happens to people who are heathy so pay the fine THEN get sick.
