It started with an email, forwarded from a friend in Austin, containing the following:
EFFECTIVE FRIDAY, the laws governing insurance claims in Texas will change to your detriment. To take advantage of current law, which is more favorable to you the consumer, YOU MUST FILE YOUR CLAIM, IN WRITING, BY THURSDAY, AUGUST 31, regardless of whether your damage occurred before that date. That is, it does not matter if your DAMAGE occurred before the effective date. To take advantage of current law you must actually file a claim by Thursday. It must be (1) IN WRITING, and (2) SPECIFIC ABOUT WHAT DAMAGE YOU ARE CLAIMING OCCURRED.
Pretty soon we were seeing similar tweets and Facebook posts urging people whose homes were damaged by Hurricane Harvey to file insurance claims before September 1st when a new Texas law, HB 1774, goes into effect. The law does make it more difficult for homeowners to sue their insurance companies over weather-related damage claims, but it does not change the actual claims process.
As misinformation about the law spread we began to see panicky tweets about the impending deadline for filing claims, some implying that claims filed after September 1st might not be paid in a timely manner (or at all!).
Yesterday we were contacted by a reporter at Snopes.com who was fact checking this story. Here is what he wrote:
In the past 24 hours numerous other media outlets have also covered the new law. While most reported accurately, some of the headlines probably didn’t help the situation. For example, this headline from The Daily Beast:
The story itself is a reprint of a Texas Tribune article, which has a much less sensational headline.
Other good coverage appeared in the The Wall Street Journal :
and on Vox.com which provided a useful “explainer” about the law.
Our hometown paper, the Austin American Statesman did a fair job as well.
UPDATE: The New York Times has now picked up the story too, and adds the following:
But the law does not affect most people in Texas whose property has been flooded. Only about 15 percent of homes in Harris County, which includes Houston, have flood insurance, according to an Insurance Information Institute survey.
Of the small number who have flood insurance, the vast majority bought it from the federal government’s National Flood Insurance Program, which is exempt from state laws. Neither the existing Texas penalty nor the new one applies to the federal program.
The law also exempts the Texas Windstorm Insurance Association, the state-run insurer of last resort for wind damage in coastal areas. So most homeowners in the flood zone can safely ignore the warnings, said State Senator Kelly Hancock, who sponsored an amendment to the law that lowers the penalty.
Most of the homes currently underwater in the Houston area are probably not covered by flood insurance. Only around 15% of homes in Harris County (the county encompassing much of the metro Houston area) are in a designated flood zone. To get a mortgage on a property in a flood zone, homeowners have to purchase flood insurance from the National Flood Insurance Program.
Few who are not required to buy flood insurance do so. Many people wrongly assume their homeowners insurance policy covers flooding. It doesn’t. The standard homeowners insurance policy excludes flood damage. Wind damage is covered.
The standard homeowners policy most people purchase is the HO-3 or “Special form” policy, developed by the Insurance Services Office (ISO). It provides the minimal level of coverage required by mortgage providers. HO-3 is what is known as an “all risks” policy because it covers all perils not specifically excluded in the policy.
You can download a sample of the entire form here.
Before they act to repeal, replace, or repair the Affordable Care Act, the Trump administration and GOP legislators should understand how the U.S. healthcare system currently works.
This is what our healthcare delivery system looks like today:
This is what it looked like before the ACA:
And how it might look in the future:
Notice what all three graphs have in common?
Health Insurers as Financial Intermediaries
Health insurers are at the center of the U.S. health care system, a position they are likely to maintain under any repeal/repair/replace scenario. Health insurance companies serve as the system’s financial intermediaries, meaning they act as the middlemen between those who seek healthcare and those who provide it. Money flows from consumers/patients/employers/governments to health care providers through health insurers.
Many people think the main role of health insurers is to act as gatekeepers to the health care system. Health insurance companies do manage access to health care services through their ability to approve or to disapprove payment for services (based on approval guidelines which may be dictated by private contracts or government regulation). But this secondary managed care role has grown out of the their primary role as financial intermediaries.
Health Insurance Markets
The U.S. health insurance marketplace is actually five different markets, each covering a different segment of the insured population.
In future blog posts we will delve into each of these segments in greater detail.
Group Health Insurance / Employer Coverage
Federal Employee Health Insurance
Individual Health Insurance (includes ACA Marketplaces)
The first three markets (Group, Federal, and Individual) are administered almost entirely by health insurance companies (this includes third-party administrators of self-insured group plans). But health insurers can also act as intermediaries in the Medicare and Medicaid markets. While Medicare is considered a single payer system, Medicare beneficiaries can choose to be covered by a Medicare Advantage plan (also called Medicare+Choice or Medicare Part C), with premiums paid by the Medicare Administration. Medicare Advantage plans are primarily managed-care plans, like HMOs and PPOs, administered by private health insurers. Medicaid beneficiaries may also receive coverage through managed care plans. Medicaid managed care providers (insurers) contract with state Medicaid agencies to provide care for a set amount per member per month, with the premiums covered jointly by the Federal and State governments.
In the U.S., insurance regulation is primarily the purview of the states. How the states came to regulate the insurance industry will have to be the subject of a future post. You can also see what we wrote about the subject way back in 2003. State insurance regulation includes licensing, financial oversight, consumer protection, and rate-regulation. Before the passage of the Patient Protection and Affordable Care Act (PPACA) of 2010, aka the Affordable Care Act (ACA), aka Obamacare, the federal government had made limited headway into insurance regulation. Federal oversight of the insurance industry expanded with the passage of PPACA, along with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. But state governments still serve as the primary regulators of insurers operating in their states.
The consequences of state regulation are pretty obvious. Today, despite federal requirements for who and what services health insurers must cover, insurance companies still have to be licensed separately in every state where they operate. They cannot sell insurance across state lines (as some ACA replacement plans would like to allow them to do). Under the ACA, some states set up their own health insurance exchanges, while others (often for political reasons) chose to provide coverage through the federal marketplace. At this point we actually have four different types of ACA marketplaces (See below).
How well each of these state insurance markets operate is similarly varied. The steep premium increases (cited repeatedly by House Speaker Paul Ryan), affect some states much more than others. Likewise, the number of insurers offering marketplace plans vary by state. Next, add Medicaid expansion (32 states participate as of Jan. 2017) to this kaleidoscope of coverage.
FEMA has provided a useful resource for checking claims you may see online:
The Medicaid cuts in the Senate Republican’s “new and improved” Better Care Reconciliation Act (BCRA) are not just cruel and unpopular, but they also threaten to undermine a thriving private insurance market, which is something Republicans claim to support.
In all the recent outrage over the Senate bill, no one mentioned a central fact about Medicaid: More than half of all Medicaid recipients receive their coverage through private insurance companies, who contract with state Medicaid agencies for a set fee per beneficiary. This means that the insurance companies both take on the risk and reap the rewards. And Medicaid expansion has been profitable for insurance companies. (Our ongoing research supports this finding, but we can’t provide details here while we pursue academic publication).
The Medicaid/CHIP program provides health insurance for 20% of the U.S. population. In some states, more than a quarter of residents are covered by the program. In 2016 health insurers filing with the National Association of Insurance Commissioners (NAIC) reported nearly 40 million Medicaid members, representing 54% of Medicaid beneficiaries (In 2016 monthly Medicaid enrollment averaged 73.8 million). Private insurer participation in the Medicaid market has grown significantly since the early 2000s (along with overall Medicaid enrollment). In 2001, only around a quarter of Medicaid members were covered by private health insurers.
The current Senate bill proposes not just to roll back ACA Medicaid expansion, but also to impose per capita caps on the funds states could receive. A longer term projection of the effects of the BCRA by the Congressional Budget Office (CBO) estimates Medicaid funding cuts of 35% by 2036.
Are Medicaid insurers making money by providing low-quality care or denying services? Medicaid opponents would have us believe the system is broken, that few doctors will accept Medicaid patients and those who do, provide inferior healthcare.
One particularly notorious claim, that Medicaid is actually worse than no insurance, is based on data from a single study. Critics have similarly latched on to the few other reports that seem to support their viewpoint, conveniently ignoring the dozens of academic papers that show positive effects of Medicaid expansion.
Recent pieces in The New York Times and the Los Angeles Times do a good job of explaining what the “negative” studies actually say and how they’ve been misrepresented. Yet the naysayers persist. See for example this article published last week.
A new survey of Medicaid recipients further dilutes the negative depiction of Medicaid, with the majority of respondents indicating high levels of satisfaction with their healthcare. The National Medicaid Consumer Assessment of Healthcare Providers and System (CAHPS) survey included over 270,000 adults enrolled in Medicaid in the fall of 2013. The survey sample represented 46 states and included four categories of Medicaid recipients: 1) people with disabilities, 2) dual Medicare-Medicaid enrollees (the elderly), 3) non-disabled adults in managed care, and 4)non-disabled adults in fee-for-service medical care.
The managed care members (those covered by private insurers) reported satisfaction levels comparable with the total sample results. Non-disabled adults enrolled in managed care were slightly more likely to report they were able to access care and had a primary healthcare source than those in fee-for-service Medicaid.
In his defense of the Senate healthcare bill, vocal Medicaid opponent Avik Roy praised the plan for replacing Medicaid expansion “with tax credits so that low-income Americans can buy the coverage of their choice at an affordable price.” At the heart of Roy’s argument is a belief that private insurers (the market) can do a better job than government bureaucrats.
But when it comes to Medicaid, private insurers are already doing that job – not just administering funds, but taking on the risk and managing the care of millions of Medicaid recipients. They are profitable and their customers are satisfied. So why are Republicans intent on undermining the one part of the Affordable Care Act that is working for both insurers and insured?
Why is subsidizing coverage on the individual market so much more acceptable than paying for similar (or even better) coverage through Medicaid? Is a bronze-level marketplace plan with a high deductible and co-pays and limited provider networks really better than a Medicaid plan with similarly narrow networks but no out-of-pocket costs?
Proponents of single payer healthcare would like to have insurance companies removed from the U.S. healthcare system entirely. Realistically, however, any universal healthcare plan we are likely to see in the near future will involve insurance companies. Health insurers have the necessary infrastructure and the expertise to manage the unwieldy beast that is the U.S. healthcare system. And good luck getting universal healthcare through Congress (even a Democratic Congress) without insurance industry by-in. In Medicaid we already have a model for a successful public-private partnership.
Don’t demonize insurance companies. I know it’s tempting. After all, they are trying to make money off of people’s health. But guess what? We live in a capitalist society and this is the system we currently have. Some type of single payer (and yes there are many versions, just look at the different countries in the EU) may be the ultimate progressive goal. But we can’t get there from here overnight. In fact, the only way we can get there is probably by bringing the insurance industry along.
The success of Medicaid Expansion under the Affordable Care Act is due in no small part to insurer participation in the Medicaid marketplace. Insurers specializing in the Medicaid market are profitable, and that’s a good thing.
Who do you think covers most of the people on Medicaid and many on Medicare? Who has the expertise? State Medicaid agencies contract with insurers to cover Medicaid beneficiaries. The insurance companies take on the risks, not the states. Similarly, many Medicare recipients chose to be covered by Medicare Advantage plans run by private insurers. Insurance companies are already deeply embedded in our so-called “entitlement” programs.
Right now everyone is worried about how to keep insurers in the individual market. The ACA originally provided several mechanism to help insurers deal with the uncertainty of the individual marketplace, including Risk Adjustments, Reinsurance, and Risk Corridors. You can find a good explanation of these three programs here.
The Risk Corridor program was supposed to last three years, ending in 2016. But it never really got a chance to work, because of a provision added to a must-pass 2015 budget bill by the Republican congress, requiring risk corridors to be revenue neutral. (At the time, Senator Marco Rubio characterized the risk corridors program as a bailout for insurance companies.) As a result, the federal government owes insurers billions of dollars, meant to offset losses on the exchanges. Several lawsuits are currently in progress. Is it any wonder some insurers have left the individual marketplace? Funding the risk corridor program and extending its life a few more years could help reverse this trend.
If the Feds aren’t up to the task, another solution for states with too few insurers offering policies on the individual marketplace is the “public option.” While this may seem like a more radical option, that’s not necessarily the case. I see two possible results:
Insurers would out-compete the public option, rendering it obsolete
Insurers would flee such markets, leaving only the public option.