Critical Thinking and Health Insurance

23 October 2010 |

Last week the U.S. House Committee on Energy and Commerce published a report on the findings of the committee’s investigation into the denial of health insurance coverage to individuals with pre-existing medical conditions. The report, “Coverage Denials for Pre-Existing Conditions in the Individual Health Insurance Market,” states:

From 2007 through 2009, the four largest for-profit health insurance companies, Aetna, Humana, UnitedHealth Group, and WellPoint, refused to issue health insurance coverage to more than 651,000 people based on their prior medical history. On average, the four companies denied coverage to one out of every seven applicants based on a pre-existing condition.

Janet Adamy, a reporter with The Wall Street Journal, discussed the findings in an article entitled “Insurers Denied Coverage to 1 in 7.” No one was shocked that the committee produced a report criticizing private health care insurance and supporting of the health insurance reform legislation passed in 2009 and signed into law by President Obama in March of this year, I found it surprising that a reporter for The Wall Street Journal simply summarized the committee’s report without critically examining it.

The “news” of the report was statistical in nature, but statistics need to be evaluated carefully, because they can so easily be manipulated to promote a point of view, as American novelist and humorist Mark Twain pointed out with his famous quip, which he attributed to British Prime Minister Benjamin Disraeli:

There are three kinds of lies: lies, damned lies, and statistics.

The first thing that jumped out to me about the report was the time span covered: three years. 651,000 sounds like a large number, but that works out to less than 220,000 per year. Not quite as impressive of a number as 651,000. The authors of the study grouped the coverage denials of last three years to make the number larger. Why not group the last four years? The last ten?

More importantly, three years is adequate time for a person denied coverage by one health insurance company to reapply and be denied by another, and another. It is possible that the 651,000 denials do not represent 651,000 individuals. Since four health insurance providers were studied, it is possible that the same people applied to all four health insurance companies and were denied four times. That would reduce the number of people denied by a factor of four: from 651,000 to 162,750 over three years.

Another source of duplication in the numbers comes from people who applied to the same company more than once and were denied more than once. For example, a person may have been denied coverage because of high blood pressure, then re-applied when the blood pressure was under control, yet been denied again for another reason. Any duplication of numbers throws into doubt the number of people being affected.

So the real question is: If an applicant in the study received a denial from one health insurance provider, did he or she apply to another, or reapply to the same one? If so, how often did this occur? This is the type of question I would have expected a Wall Street Journal reporter to ask.

After all, the implication of the report is that there are 651,000 people walking around who wanted health insurance but could not obtain it, and that the health reform legislation solved that problem. The committee wrote:

The insurance company practices described in this memorandum are those that exist in today’s market. In all likelihood, they would continue unabated in the absence of federal health reform legislation. One of the major benefits of the Affordable Care Act, which was signed into law on March 23, 2010, is a ban on the practice of denying coverage based on pre-existing conditions.

The report tried extrapolate the sampling from the four largest health insurance companies to the rest of the market, stating that “approximately 15.7 million adults under 65 received their health care coverage through individual health insurance policies.” Keep in mind, that while 15.7 million people seems like a large number of people, it represents only 5 percent of the U.S. population. The other 95 percent of the population cannot be denied health insurance coverage due to preexisting conditions, because it is against the law for group plans and government programs to deny coverage based on preexisting conditions.

Nor does the report state that 15.7 million people applied for health insurance coverage during the three-year period covered by the report, only that they comprise the individual health insurance market. For the number of denials of coverage to have any meaning at all, the report should have said how many people applied for individual insurance over the period covered by the report.

The report did say that 1 out of 7 applicants was denied coverage, and that 651,000 people were denied coverage by the four companies. That means that the four major insurers received 4,557,000 applications over three years. We already know, however, that the number of applicants denied coverage could be as much as four times greater than the number of people denied coverage, due to duplication of applications. When the group is widened to all people seeking individual coverage, it is possible that some people with preexisting conditions applied to more than the four largest health insurance providers, and were denied more than four times.

For the sake of argument, however, let us assume that each person in the study with preexisting conditions was denied coverage four times in three years. Then the number of individuals denied would be 1 in 28, rather than 1 in 7. Let us also assume that some but not all of the 15.2 people in the individual market applied for coverage in the three-year period. Since 4.5 million applied to the largest four companies, let us say that half of the entire individual health insurance market—7.6 million—applied for coverage during the three-year period. That would mean that 271,428 individuals were denied coverage nationwide over the last three years, or 90,474 per year. That seems like a large number until you realize that in a country of 310 million people, it represents less than three ten-thousands of the population.

As I have written before, if American taxpayers want ensure that those denied individual health insurance coverage are able to get coverage, our elected officials could set up a superfund cover their excluded medical bills. This would be much less costly and far more efficient than undermining the private health insurance industry with unsustainable mandates for coverage.

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Changes to Health Insurance Coverage Now in Effect

5 October 2010 |

In my preceding post, I described a vital change to health insurance coverage that went into effect on September 23 due to a mandate of the Patient Protection and Affordable Care Act: the end of lifetime caps on health care insurance benefits. For the first time in the history of private health insurance, insurers will not be able to place limits on how much they spend for an individual’s health services, such as hospitalization, maternity and newborn care, emergency care, chronic disease management, ambulatory patient services, laboratory tests, and prescription drugs.

The end to benefits caps was not the only mandate of the new health care insurance reform legislation that took effect on September 23. Here is a quick review of other required changes that could impact your care or the care of members of your family:

Removal of Annual Benefit Caps
Health insurance companies must begin to phase out annual benefit caps for health insurance plans renewed or sold after September 23. By 2014 annual caps will be abolished.

No Medical Cancellations
Health care insurance companies are barred from retroactively cancelling a policyholder’s coverage due to medical conditions. The health insurers may continue to cancel policies because of nonpayment of premiums or fraudulent claims.

Full Coverage for Preventative Healthcare
Health insurance companies must cover any preventative healthcare that has been recommended by the Centers for Disease Control (CDC) in full. Cost sharing such as co-payments, deductibles, and co-insurance are banned for CDC-backed tests, treatments, and care. Preventative healthcare services for infants, children, and women that have been recommended by the Health Resources and Services Administration also must be covered without cost-sharing.

Extended Coverage of Adult Dependent Children
Health insurance providers must extend coverage to the adult dependent children of policyholders up to age 26.

End of Exclusions for Pre-existing Conditions in Children
Health care insurance providers cannot exclude children age 19 and below from coverage because of any pre-existing medical condition. (This requirement does not apply to some existing health insurance plans.)

Selection of a Primary Care Provider
Health insurers no longer can limit the selection of Primary Care Providers (PCPs). The policyholder has the right to choose any PCP accepting new patients. In addition, policyholders can designate pediatricians and OB-GYNs as their PCP.

No Pre-Authorizations for Emergency Medical Care
Health insurance providers no longer can require pre-authorization for emergency health services. Health insurance plans must cover emergency services at the same rate, regardless of whether they were obtained inside our outside a network of preferred or participating healthcare providers.

Internal and External Appeals
Health insurance companies offering group plans must give policyholders a process of appealing claims that conforms to regulations of the U.S. Department of Labor. Health insurance providers offering individual insurance plans must give individual policyholders a process of appealing claims in line with regulations of the Secretary of the Department of Health and Human Services (HHS). All health care insurance plans must include an external appeals process comporting with existing law or the NAIC Uniform External Review Model Act.

All of these changes benefit consumers. I encourage my clients to take advantage of them. At the same time, I am mindful that these mandates will cost health insurance companies untold billions of dollars in claims over the coming years. Those costs are far too great to be paid for with reduced profits or slashed executive salaries: The increased risk will be shared by the members of the insurance pool. In other words, premiums will go up. But even increased premiums might not be enough to off-set the mandated costs.

Open-ended benefits have never existed before because they do not conform to the actuarial model of private health insurance. Caps on benefits were not adopted because insurance providers are greedy or hard-hearted. They were adopted as a means of keeping risks low, costs low, and premiums low. Without them, private health insurance—the mechanism that has delivered high quality health care at an affordable price to millions of Americans—is at risk.

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