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Tuesday, Dec 6, 2022
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‘Affordable’ Heath Care Keeps Getting Pricier

The Affordable Care Act was supposed to provide insurance to all, improve care and rein in costs. But Jason Sandler, partner at Northridge-based brokerage OHM Benefit & Insurance, said many of his clients are receiving notices that their premiums are increasing approximately 17 to 30 percent next year. The increases are not as severe for group policies but still substantial, especially for small employers. The health care reform law, also known as Obamacare, was passed in 2010 and the insurance impact was phased in gradually, starting with online marketplaces in 2013. However, even with President-elect Donald Trump’s campaign promise to repeal Obamacare, Sandler does not foresee a solution to the price issues anytime soon and can’t imagine insurers reducing rates, even if the Affordable Care Act is dissolved. “With Obamacare, rates have gone up, plans have gotten worse and out-of-pocket costs have gone up for employees as well as individuals on these health plans,” he said. 2017 transition As the new year approaches, many of Sandler’s customers are asking why their insurance rates are spiking. The simple answer is during the first three years of the Affordable Care Act, the government implemented a reinsurance program that subsidized health care plans enrolling higher-cost individuals. The goal was to maintain affordable rates, stabilize the market and attract more customers. In the first couple of years, premium rates in California increased about 4 percent each year, according to state marketplace Covered California’s newly released plan rates for 2017. But this year, the weighted average change is above 13 percent, as stated in the report. Covered California attributes this rise to “continued increases in cost, utilization and proportion of overall health spending for specialty drugs.” Between 2012 and 2020, the report predicts health systems will quadruple payments for specialty drugs, reaching $400 billion in 2020. In addition to compounding costs, OHM’s Sandler said not enough people under 30 are signing up for coverage. He attributes this to young adults who can remain on their parents’ group policies until the age of 26 and the penalty for not obtaining insurance isn’t high enough to deter people from remaining uninsured. “It amounts to less than one or two months’ premium,” he said. “The penalty needs to exceed the cost of insurance in order for the design to work.” Denny Weinberg, chief executive of Agoura Hills-based Hixme Insurance Solutions Inc. and co-founder of insurer WellPoint Health Networks Inc., now part of Anthem Inc., said part of the reason for the higher costs passed on to consumers is due to the expansion of services covered under insurance. “Insurance was never designed prior to the ’90s to cover routine office visits, antibiotics or birth control,” Weinberg said. “Insurance was designed for infrequent, very expensive services and was very affordable. … Over the last 20 years, far more than high-dollar costs are expected to be covered by insurance premiums.” He compared health coverage to car insurance that only covers uncommon incidents like accidents or theft. He said if you added in oil changes, tire rotations and other routine services, the price of car insurance premiums would skyrocket, much like what has occurred in the health insurance marketplace. Obamacare expanded the services that must be covered, including annual wellness visits, counseling and immunizations. One objective of the law was to protect insured patients against unfair premium increases by implementing the rate review provision as well as the 80/20 rule. The rate review provision requires insurance companies to justify and post publicly rate increases more than 10 percent. Under the 80/20 rule, carriers must spend at least 80 percent of premium dollars – and 85 percent for small business group premiums – on insurance claims and improving health care, while the other 20 can go toward administrative, marketing and other operating costs. In addition, if the insurer cannot prove it used 80 percent toward care, then the policy holders receive a rebate. Barry Cohn, chief executive of RGEB Employee Benefits in Canoga Park, is seeing an increase between 15 and 25 percent for his customers on individual plans. He said it’s not just an issue with regulating insurance costs but with the health care industry as a whole. “The Affordable Care Act does nothing to control health care costs,” he said. “It just puts limits on what insurance carriers can charge. There are no limits on what drug companies, hospitals, imaging centers and labs can charge.” In response, insurers have created smaller networks of doctors and hospitals to limit administrative costs and expensive providers. OHM’s Sandler said a few of his clients who are Valley employers are participating in these narrow-network plans simply because they cannot afford broader, more expensive plans. “The problem is some (narrow networks) get so small that they may have less than half a dozen providers in it, which is terrible,” said Sandler. Other companies have turned to self-funded health care, where the employer provides health or disability benefits with its own money as opposed to contracting with a carrier to cover employees and their dependents. Innovative companies such as Weinberg’s Hixme are also providing alternative benefits options for employers dissatisfied with the current insurance market. Hixme’s business model allows companies to pay a set amount for each employee’s insurance. Then through Hixme’s online platform, the worker chooses his or her plan from a network of carriers. “We have a large number of employers in open enrollment moving to our platform as we speak,” Weinberg said. Trump effect One of Trump’s main platforms during his campaign was the repeal of the Affordable Care Act and health care reform. “On day one of the Trump administration, we will ask Congress to immediately deliver a full repeal of Obamacare,” his website stated. Many consumers are concerned their benefits may disappear right after Trump’s inauguration ceremony. RGEB’s Cohn said he was flooded with calls immediately following the election results. “We must have had 40 phone calls a day after the election,” he said. “In reality, the Affordable Care Act has been in place for six years, and it’s going to be difficult to repeal the whole thing.” In a “60 Minutes” interview that aired Nov. 13, Trump appeared more open to keeping some tenets of the law, including insuring people with pre-existing conditions. “It adds cost, but it’s very much something we’re going to try and keep,” he said during the interview. However, Eric Cheung, a partner in Beverly Hills-based law firm Ervin Cohen & Jessup’s health care and litigation practice groups, said Trump won’t be able to protect people with pre-existing conditions without requiring everyone to buy insurance, a clause Trump would like to remove altogether. (See accompanying story, “Trump’s Proposed Health Care Reforms.”) “The way insurance works, you have to have healthy people in insurance to supplement unhealthy people,” Cheung said. “Mandating buying health care or having to pay a tax is the reason we can permit pre-existing conditions.” What Cheung finds intriguing is Trump’s idea to increase competition in the pharmaceutical industry by removing barriers to entry for overseas drug companies that provide safe and reliable products. He said the way Americans currently purchase medications is flawed, because consumers can find the same products at a fraction of the price in countries like Canada and Mexico. Another aspect of the Affordable Care Act that both Cohn and Sandler believe will remain intact is the provision that young adults can remain on their parents’ plans until the age of 26, which has been a popular aspect of Obamacare. Yet, even though the brokers believe the clause is here to stay, they agree that it’s bad for the insurance business as it creates costs that trickle down to the consumer. Despite these conflicting ideas, the Affordable Care Act and the state of health care is a complex web that Cheung, Cohn, Sandler and Hixme’s Weinberg believe will take time to untangle – if Trump delivers on his campaign promise. “Don’t expect anything radical this year,” said Weinberg. “I wouldn’t be surprised if this was a three, four or five-year transition.” Overall, the insurance sector is staying on course should changes be implemented. “There is not a whole lot we can prepare for, because we don’t know what is going to happen,” said OHM’s Sandler. “I’m hoping things will get better, and we will see some improvements. But we will just have to wait and see what happens after the first of the year.”

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