A New Health Insurance World 
Is on the Way...

By Wendell Potter

August 29 2013--If you pay attention and listen closely, you can hear it.

That's the sound of the death rattle.

Soon we'll need to put the undertakers and gravediggers on notice.

It is just a matter of time, no more than a few years, before we will be bidding farewell to the U.S. health insurance industry as we have grown to know it.

The big New York Stock Exchange--listed insurance firms have known for several years that their core business models are not sustainable, but they have dared not talk about it publicly.

The demise of those companies started way before Barack Obama was elected president but, with the passage of ObamaCare, it has accelerated.

It is ironic, but the companies have become victims of their own success, or more accurately, victims of the prevalent industry business practices that contributed to that success.

Even more ironic: these companies, which got their start by assessing and assuming risk, have gone to great lengths in recent years, because of pressure from Wall Street, to shun as much risk as possible.

That's why with one notable exception--WellPoint--the big for-profit "insurers" are not looking at the new health insurance marketplaces, which will go online October 1, as opportunities.

Aetna, Cigna and UnitedHealthcare have all said they will be participating in only a few of those state-based marketplaces, at least in 2014.

The big companies turned away from risk after realizing they could better meet shareholder profit expectations by simply administering the health care benefits of large employers, most of which now assume the financial risk of providing coverage to their workers.

As the big "health services companies"--the firms previously known as insurers--have competed aggressively for those clients, they have jacked up the premiums for their individual and small business customers to the point that both "covered lives" and revenues from the real insurance they sell have dwindled.

Only about 15 million Americans--less than 5 percent of the U.S. population--have sufficient resources to buy coverage on their own in the so-called individual market these days because of the hefty premiums.

Many Americans who have been sick in the past can't buy coverage at any price because insurers won't sell it to them.

And far fewer small businesses offer coverage to their employees now than a decade ago for the same reason: the premiums have become unaffordable.

That is why almost 50 million of us are uninsured.

But just because the big companies are taking a wait-and-see approach to the new insurance marketplaces doesn't mean there won't be plenty of smaller companies competing for millions of individuals--individuals who work for small employers that no longer can afford to provide health benefits.

One of the good things about ObamaCare is that by banning the discriminatory practices that have defined the industry for years, and requiring much more transparency in pricing, insurers will no longer be able to cherry pick the customers they want or entice us into buying plans that are profitable for them but of limited value to us.

And other provisions of ObamaCare will lower the barriers to new entrants in the health insurance market. New York, for example, recently granted a license to a new insurer--called "Oscar"--which has the potential to revolutionize the marketplace.

New Yorkers and residents of at least 20 other states will also have new non-profit co-op health plans available to them on the online marketplaces.

Because these companies will not have the huge and costly bureaucracies of the big firms--and won't have to answer to Wall Street--they will be able to offer policies with more affordable premiums than we've seen in the past.

And the federal government will provide subsidies to millions of Americans to help them pay their premiums.

The big five "insurers"--Aetna, Cigna, Humana, UnitedHealth and WellPoint--have all changed radically in the past 25 years.

Humana in 1989  was known primarily as a hospital company.

Cigna and Aetna were  multi-line insurance corporations.

Both had big property, casualty, and financial services divisions.

Under pressure from shareholders and Wall Street financial analysts, they sold those divisions to focus on managed care.

The other big multi-line insurers at the time were Prudential, which sold its health care operations to Aetna in 1999, and Travelers and MetLife, whose health care businesses are now part of UnitedHealthcare.

United, now the largest of the big five, has only been around as a publicly traded company since 1984.

WellPoint, the second largest, just turned 21 this year.

Big stock companies change rapidly in response to changes in the marketplace and the changing expectations of shareholders.

Five years from now, those companies will be largely unrecognizable.

Health "insurance" divisions will have been dispatched to the dust bin of business history.

If not the cemetery.

Not confused enough yet about how much health insurance might cost some of us next year when the consumer protections in Obamacare kick in?

Just wait.

It's likely you'll soon be far more confused--and alarmed--than you already are.

Take, as an example, the CNNMoney story from last week, headlined, "Where Obamacare premiums will soar."

The subhead was equally scary: "Get ready to shell out more money for individual health insurance under Obamacare...in some states, that is."

The first thing you should keep in mind when you read such stories is that very few Americans will be affected by how much insurers will charge for the individual policies they'll be selling in the online health insurance marketplaces beginning Oct. 1.

The CNN story doesn't mention, as it should have, that in a country of 315 million people, only 15 million--less than five percent of us--currently buy health insurance on our own through the so-called individual market because it's not available to us through the workplace.

Although the CNN story focused exclusively on the individual market, nowhere in the story was it explained that, according to the U.S. Census Bureau, the vast majority of Americans--about 55 percent of us--are enrolled in health insurance plans sponsored by our employers.

Another 32 percent of us are enrolled in Medicare, Medicaid and other public programs.

That means that almost 9 out of 10 of us will not be affected at all by rates insurers will charge next year in the individual market.

The Americans who will be affected most by Obamacare are the millions who are uninsured because they either cannot buy coverage at any price today as a result of pre-existing conditions or they cannot afford what insurers are charging.

Although the CNN story didn't mention that one of the main reasons for Obamacare was to make it possible for the uninsured to at long last buy affordable coverage, it is the uninsured who will be most directly affected by the reform law, and most likely to benefit.

That's because insurers next year will no longer be able to refuse to sell coverage to people who've been sick in the past.

And because most people shopping for coverage on the online marketplaces will be eligible for federal subsidies to offset the cost of the premiums.

Not until deep in the CNN story are we informed that "Americans with incomes up to $45,960 for an individual and $94,200 for a family of four will be eligible for federal subsidies."

That's a huge point to bury, especially considering that the median household income in this country is still just around $50,000.

It's just a small percentage of folks buying coverage through the online insurance marketplaces that will have to pay the full premium price on their own.

Below the headline of the CNN story was a startling graphic showing the states of Ohio and Florida with the numbers 41 percent and 35 percent right below them, leading one to believe that all residents of those states would see their health insurance premiums skyrocket.

As I did my own research of those claims, I found that not only did those numbers apply to just the individual market, but they did not take into account the subsidies that will be available.

So not only will very few Ohioans and Floridians see their premiums increase by that much, many if not most will pay less than they do today thanks to the sliding-scale subsidies.

I also found that officials in those states were being disingenuous in the way they calculated their "Obamacare" figures.

Ohio and Florida and many other states permit insurers to sell policies today that are so inadequate they will be outlawed beginning Jan. 1.

The reason those kinds of policies are being outlawed is because, even though they are profitable for insurers that sell them, people who buy them often find out when it's too late--after a serious illness or accident--that their policies are essentially worthless.

As The Miami Herald noted in a story about the projected rates announced recently by Florida's Office of Insurance Regulation, the source for the CNN graphic, "The OIR compared 'apples to oranges' by failing to factor into its projections the fact that statewide averages for pre-Obamacare premiums included a wide variety of low-value plans--including plans with extremely limited benefits, such as no prescription drug coverage; and high-deductible plans, where the insured first must pay hefty out-of-pocket costs before the insurer begins to cover services."

Considering all the intentionally misleading information we are being subjected to about Obamacare from politicians and special interests with an obvious agenda, it will be vitally important for reporters to be more responsible in their reporting.

Sensational media stories with attention-grabbing headlines but inadequate analysis will only add to Americans' confusion about a law that in reality will help the vast majority of us.
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Wendell Potter
is an author, consultant, columnist at Center for Public Integrity and healthinsurance.org