Open enrollment for individual health insurance policies is coming up. It is important to be aware of significant changes that will affect those applying for new coverage or changing coverage. Being familiar with these changes will help you successfully keep your health insurance and enroll. Since January, there have been multiple attempts to formally repeal the Affordable Care Act, which all ultimately failed in the Senate. Unfortunately, there is a clear trend that steps are being taken to weaken the ACA.
There is no further pretense: It is Trump vs. the Affordable Care Act. Failing to work with Congress, Trump has through executive actions and the announcement to terminate the payment of cost-sharing subsidies, thrown the entire health insurance ecosystem into greater chaos. The termination of the cost-sharing subsidies is a short-term issue while the executive actions are slightly longer-term.
These actions will cause further instability in the health insurance marketplace as it is almost certain that fewer people will enroll in health insurance plans this year. The reduction will mostly come from younger, healthier people, which will lead to a pool of people who have health issues and will have higher claims. Higher claims mean higher premiums. And higher premiums will lead to fewer enrollees leading to a tougher, but not failing market.
Michael Che of Saturday Live summed it up accurately with the comparison of Trump tweeting: “The Democrats ObamaCare is imploding. Dems should call me to fix” to Godzilla tweeting: “Tokyo is totally imploding right now. I alone can solve!”
Here’s what you need to know about the termination of the cost-sharing subsidies:
Insurance companies must continue to offer policies with subsidized premiums to those who qualify (58% of the 11.1 million Americans enrolled in ACA plans). The ACA requires insurers to charge lower out-of-pocket costs to low-income consumers, and the CSR payments compensate insurance companies for doing so. So, CSR payments are not a bail-out for insurance companies. And insurance companies are suing the government to make these legally obligated payments.
Insurers have already filed their premium rates for 2018. Insurance companies can still attempt to raise rates or even pull out of some markets. The loss of the CSRs is a huge cost for any insurance company that didn’t price in the possibility of the CSRs being eliminated. However, given that Trump has consistently threatened to not make the CSR payments, insurance companies have for the most part taken this into account; in other words, they were not surprised. Insurance companies can terminate their contact with the federal exchange if cost-sharing reductions are terminated. However, they are still subject to state laws on withdrawing from the marketplace. They can only terminate their exchange enrollees if they fail to pay their premiums, which many people would likely do if an insurance company left the exchange and they no longer received the advance premium tax credit (APTC).
A number of states allowed insurance companies to file dual rates, with one set assuming CSRs and the other set assuming no CSRs. Some states had already ordered insurance companies to add a surcharge to cover the potential loss of CSRs. For example, California required an additional 12.4% surcharge on silver plans. To find out how your state is allowing insurance companies to deal with the uncertainty over cost sharing reductions, check out this compilation of data.
In fact, Trump’s action would lead to an increase in enrollments in ACA plans in many states, including California, where about 90% of enrollees pay subsidized premiums. Covered California, the state’s Obamacare exchange, calculated in January that the reduction in net, or after-subsidy, premiums in gold, platinum and bronze plans resulting from the higher subsidies would lead to an enrollment increase of 20,000 people, or 1.4%, in subsidized plans. That’s good. What’s not so good is that the change would batter the unsubsidized population — those with income higher than 400% of the poverty level.
Bottom line, insurance companies will get less money from the government for helping low-income people with out-of-pocket costs on silver plans, causing silver plan premiums to increase to compensate. That will then trigger the federal government to increase all APTC-based subsidies to make sure people can still afford insurance. And to take advantage of the ATPC and avoid the higher-priced silver plans, people will move to bronze, gold and platinum plans. In fact, Trump’s health subsidy shutdown could lead to free insurance.
According to a report by the Congressional Budget Office released in August, “The Effects of Terminating Payments for Cost-Sharing Reductions,” this will result in about 1 million fewer people covered in 2018. However, by 2020, the effect on coverage would stem primarily from the increases in premium tax credits, which would make purchasing non-group insurance more attractive for some people. As a result, a larger number of people would purchase insurance through the marketplaces, and a smaller number of people would purchase employment-based health insurance. The CBO report does not take into account the other changes made by Trump and his administration.
Here’s what you need to know about open enrollment:
Increased tax credits for those who qualify (84% of enrolled): The ACA includes an additional subsidy that is designed to reduce the cost of premiums, ensuring that family budgets are largely unaffected — it’s called the Advance Premium Tax Credit. CSR payments are applied only to silver plans. Insurance companies will add a premium surcharge, then, to the silver plans. Silver plans are the basis for the amount of the APTC that consumers receive. So, for most consumers, an increase in the silver premium will be offset by an increase in the APTC. Because of the application of the CSR linked premium surcharge to silver-tier plans, nearly four of five consumers will actually see their premiums remain the same or decrease as the amount of premium assistance they receive will rise.
To qualify for the APTC, your income must be between 133% and 400% of the federal poverty level. The premium increase impact will be heaviest on those who do not qualify for Advanced Premium Tax Credits. Because more people qualify for APTCs, the net cost to the federal government will actually rise. Find out if you qualify for the APTC here.
If you are in one of 19 states that did not expand Medicare, your premiums will be higher because there will be a larger number of enrolled who qualified for the CSRs. This will be offset by higher Advanced Premium Tax Credits.
Increased premiums for those in silver plans in 2018: Silver plans are the only plans that qualify for cost-sharing subsidies. Without the CSRs, silver plans may no longer be the best choice for many people.
The individual mandate remains in place, and there is a minimum penalty ($695 for adults and of $347.60 for children under age 18) for not having health insurance. The maximum tax penalty is $2,085 per household. The IRS has announced that it will not accept a return that does not have the health coverage question completed.
There will be a shorter open-enrollment period of six weeks, rather than the 12 weeks in previous years. Open enrollment starts on November 2017 and ends on December 15, 2017. It is important to act quickly and to be aware of this much-earlier deadline. Open enrollment is the only time when you are able to change to a completely new plan on the public marketplace or switch cover tiers, with changes taking effect on January 1. There are special enrollment periods for those who meet certain criteria, such as losing group health insurance coverage.
Certain state exchanges have longer open enrollment periods:
California: runs through January 15, 2018
Colorado: runs through January 12, 2018
District of Columbia: runs through January 31, 2018
Massachusetts: runs through January 23, 2018
Minnesota: runs through January 14, 2018
Rhode Island: runs through December 31, 2018
Washington: runs through January 15, 2018
Note: Insurance companies were in favor of this because the hope is it will encourage healthier people to enter the risk pool. This was also a recommendation in my Health Insurance Roadmap in conjunction with limiting special enrollment periods, which encourages people to keep their policies throughout the year (and keep their paying premiums) rather than hopping in and out of the risk pool.
Reduced access to healthcare.gov: HHS has announced it will shut down the federal exchange site for 12 hours for all but one Sunday during the open-enrollment season (December 10) as well as on the first day of open enrollment (November 1). More than 36 states use healthcare.gov for their marketplace.
HHS has reconfigured its website to make enrollment information harder to access.
This limited access could have a secondary impact because of additional website outages with greater numbers of people using the site at one time, compounded by the shorter enrollment period.
Website key point: More than 12 million people enrolled on the state and federal marketplaces for 2017 coverage — with nine million of those enrollments being on the federal exchange.
Marketplace outreach funds have been significantly reduced by 90% (from $100 million to 10 million). Budgets have been restricted to mostly being online — so no television, radio or print ads.
So don’t wait for any advertising for healthcare.gov .
Earlier this year, the administration pulled paid advertising for sign-ups on HealthCare.gov.
HHS has, instead, produced videos designed to undermine public support for “Obamacare” with funds that were intended to help promote enrollment in the ACA. These “testimonial videos” feature individuals claiming to have been harmed by the ACA.
These actions have prompted an inquiry by a federal inspector general into these decisions and regarding whether they have had a negative impact on sign-ups.
Less help with open enrollment, cuts of 90% to navigators — this reduces the ability to get advice to review different plans. For the most recent open enrollment period at the end of 2016, navigators received over $62.5 million in federal grants while enrolling 81,426 individuals for an approximate cost per enrollee of $768. For this open enrollment period, CMS plans to spend $10 million on education activities. (Source: CMS Policies Related to the Navigator Program and Enrollment Education for the Upcoming Enrollment Period.)
Funding for in-person outreach has also been cut in half, from $62.5 million to $36 million. The Trump administration has ended contracts with firms that have provided in-person assistance to states using healthcare.gov.
Regional representatives from the HHS will not be participating in open enrollment events in states and with health advocacy groups as it had done in the past so to reach uninsured populations by helping with sign-ups in terms of explaining, enrolling and shopping. Here’s what HHS press secretary Caitlin Oakley had to say last month: “Marketplace enrollment events are organized and implemented by outside groups with their own agendas, not HHS. These events may continue regardless of HHS participation.” She went on to say, “As Obamacare continues to collapse, HHS is carefully evaluating how we can best serve the American people who continue to be harmed by Obamacare’s failures.”
Navigators from multiple states are reporting issues with the online training certification videos.
Review the total costs of premiums and deductibles and estimate co-payments and coinsurance.
Make sure the plan covers your medical providers and medications.
Use the optimal insurance deductible calculator to find the deductible that provides the most value to you.
Here are some resources to help you with open enrollment:
healthcare.gov — Check it out before open enrollment to review your options so you can be prepared.
State insurance departments. Find a link your state insurance department here.
Private groups, consumer advocacy groups and insurance companies. For example, a new campaign, “Get America Covered,” is going to run digital advertising and will partner with employers, community organizations and other entities. Its staff and co-chairs draw heavily from people who worked on ACA enrollment in the Obama administration’s HHS. The campaign draws on a mix of health-policy wonks, celebrities and political figures: Democratic activist Van Jones, actress Alyssa Milano, actor Bradley Whitford, ousted health insurance CEO Mario Molina and former Obama health care official Andy Slavitt. Other advocacy groups include Out2Enroll, Young Invincibles, Community Catalyst and the Get Covered Coalition. Unfortunately, HHS is the only entity that has access to records of who’s insured, so the lack of data will lessen the impact.
If you have group health insurance through your employer, be aware of your open enrollment period and options.
The best outcome is that this might finally spur a true bipartisan effort. Trump’s actions can be remedied by Congress acting to guarantee funding the cost-sharing subsidies. And while a bipartisan deal, the “Bipartisan Health Care Stabilization Act,” has been reached by Senators Lamar Alexander and Patty Murray, President Trump has repeatedly switched from supporting it to not supporting it. The other question is whether Senate Majority Leader Mitch McConnell will do the right thing and put this deal up for a Senate vote, with the speculation being that he won’t. Currently, the bill has 22 additional co-sponsors (11 Republicans and 11 Democrats), so it seems feasible that it could actually pass in the Senate.
Then the question becomes getting the bill through the House, where Speaker Paul Ryan has come out against it and may not let it be put to a vote. House members have already approved an Affordable Care Act change bill, H.R. 1628, that would continue funding for the cost-sharing reduction subsidy program for two years. The other likely scenario is that with budget talks coming up, an Obamacare fix could end up in year-end package. Either way, this would not remedy any cost-sharing subsidies not paid and may come too late for insurance companies to change their 2018 premiums.
So, please start early and be prepared. As you should always do with any type of insurance, it’s important to understand what your health insurance options are and obtain coverage accordingly. To get the best plan at the optimal price, shop and compare the different tiers.
The bottom line to get the best plan at the best price: shop and compare all plans, even if you currently have a policy.
Welcome to this special edition that will look at some simple solutions to the myriad of issues facing health insurance, Medicare, Medicaid and long-term care insurance, as well as the high cost of health expenses in retirement. Please note that the concepts that follow do simplify very detailed areas and as such are not complete solutions; rather, this article is to point out some ideas to consider that take what currently exists and improve upon it.
With full repeal of the Affordable Care Act less likely, the big question is the extent of the “repairs” that will happen. Quite a change from earlier in the year. It may be that more people have realized that the Affordable Care Act IS Obamacare and that they have insurance through Obamacare (a nickname for the ACA).
It is clear that there are so many moving parts to how the question of paying a medical (or related) bill is broken down by a wide variety of insurance programs. Finding a solution is challenging because there is a conflict between costs, access to care and quality of care. It is not possible to have it all; trade-offs do need to be made.
The Insurance Bill of Rights provides guidance on setting up a successful road map covering areas of disclosure, clarity and removing complexity. And, in a time of incredible advances, technology can and should be part of the solution.
Complex issues have to be addressed on a step-by-step basis, so let’s start with the desired outcomes, then look at where we are, the simplest solution and what will make this plan work.
To make this happen is going to require compromises, common sense and dealing with reality. There is no perfect plan, but it is entirely feasible to have a plan that addresses the above criteria for almost every American in ways that will not cost significant amounts of money.
What is the current health insurance breakdown?
The Affordable Care Act is an incredible achievement, but it still leaves consumers with a complex mix of health insurance plans including: individual health insurance, small business health options program (SHOP), employer/group health insurance, Medicare, Medicaid, CHIP, VA insurance and other smaller plans.
Any person can obtain health insurance regardless of pre-existing medical conditions. The nonpartisan Kaiser Family Foundation estimates that 27% of adults under age 65 have health conditions that would likely leave them uninsurable under practices that existed before the healthcare overhaul.
The most recent Health Insurance breakdown by U.S. total population in 2015 was by: employer, 49%; non-group, 7%; Medicaid, 20%; Medicare, 14%; other public, 2%; uninsured, 9%. Sources: Kaiser Family Foundation estimates based on the Census Bureau’s March 2014, March 2015 and March 2016 Current Population Survey (CPS: Annual Social and Economic Supplements).
What is required to make this or any other health insurance solution work?
The basic principles of risk management must be applied: In Warren Buffett’s annual letter, he summarized: “At bottom, a sound insurance operation needs to adhere to four disciplines. It must (a) understand all exposures that might cause a policy to incur losses; (b) conservatively assess the likelihood of any exposure actually causing a loss and the probable cost if it does; (c) set a premium that, on average, will deliver a profit after both prospective loss costs and operating expenses are covered; and (d) be willing to walk away if the appropriate premium can’t be obtained.”
What is the simplest solution?
We must start with a baseline of easy-to-understand, cohesive and coherent health insurance for all Americans. Then the next step is simplifying and standardizing all of the different types of health insurance out there. This means eliminating all of the varied programs and plans that are redundant both in terms of coverage and oversight while making the rules simple.
If this sounds like Medicare, then we’ve come to the same conclusion. Medicare expansion is the best outcome, as it takes the largest existing U.S. health insurance program and updates it for expanded capacity and today’s reality.
What follows are factors that would affect how this could be done. Why reinvent the wheel. Yes, Medicare is not perfect, but it gets the job done and has a long history.
At some point, all Americans have to move to Medicare from whatever plan they currently have. There are rules about when Medicare has to be applied for that can have a permanent impact on Medicare premiums. Depending on the current health insurance plan, many Americans have to choose new physicians and learn how to use their Medicare plan.
And we already have a plan used by 44 million Americans (15% of the population). Enrollment is expected to rise to 79 million by 2030. And currently only one in 10 beneficiaries rely solely on the Medicare program for healthcare coverage. This shows that there is still an important role for insurance companies and that Medicare is a base rather than a complete solution. Here’s how it could work:
Medicare Part A Expansion for everyone at no cost. Medicare Part A is free for most Americans already. This would include basic emergency health care services (hospitalization) at no cost to cover all. This includes: hospital care, skilled nursing facility care, nursing home care, hospice and home health services. Medicare Part A is free. Emergency healthcare for all has existed in the U.S. for more than 20 years, through the Emergency Medical Treatment and Labor Act of 1995. Under this act, all hospitals are required to treat individuals in need of emergency care regardless of their insurance. If someone is uninsured, they will go to a hospital, and the hospital will treat them. So, very basic healthcare is already provided to all. What is not provided to all is the means to pay for the healthcare. Research finds that each additional uninsured person costs local hospitals $900 per year. Hospitals are therefore acting as “insurers’ of last resort. Hospitals do receive some compensation through Disproportionate Share Hospital (DSH) payments, which are owed under federal law, to any qualified hospital that serves a large number of Medicaid and uninsured patients. However, these payments are not enough to cover hospital costs. It is estimated that hospitals absorb about 2/3 of the cost for this uncompensated care. Therefore, because this minimum level of care is mandated by federal law, then this minimum level of care should be included under a baseline expanded Medicare plan. The care is already being provided, but it’s not fully funded.
Medicare Part B revision: Match the benefits offered by Medicare Part B preventative (outpatient services) with the essential benefits offered by Medicare Part B. This solves the issue of areas where there are minimal or no choices of insurance for consumers. If insurance companies withdraw, consumers could purchase Part B from Medicare to cover essential benefits. Most of Medicare’s preventive services are available to all Part B beneficiaries for free, with no co-pays or deductibles, as long as you meet basic eligibility standards. These are services not covered by Part A: Mammograms; colonoscopies; shots against flu, pneumonia, and hepatitis B; screenings for diabetes, depression, and heart conditions; and counseling to combat obesity, alcohol abuse and smoking are just some of Medicare’s lengthy list of covered services. (to get these services for free, you need to go to a doctor who accepts Medicare “on assignment,” which means he or she has agreed to accept the Medicare-approved rate as full payment. If you have Medicare Advantage, your plans are also required to cover the same free preventive service). The ACA requires plans to provide these essential health benefits: outpatient care, trips to the emergency room, treatment in the hospital for inpatient care, care before and after your baby is born, mental health and substance use disorder services (including behavioral health treatment, counseling and psychotherapy), prescription drugs, services and devices to help you recover if you are injured, or have a disability or chronic condition, lab tests, preventive services including counseling, screenings, and vaccines to keep you healthy and care for managing a chronic disease and pediatric services. This includes dental care and vision care for kids. Therefore, the main substantive changes would be moving emergency room care to Part A, adding pediatric care to part B and adding prescription drugs to Part D.
Medicare Part C (Medicare Advantage Expansion): This allows consumers the choice of having a private health insurance company for Parts A & B along with the optional Part D. It gives private insurers a chance to use Medicare Part A and Part B subsidies to provide an alternative to traditional Medicare coverage. It may provide additional coverage, such as vision, hearing, dental and even health and wellness programs.
Medicare Part D expansion: Including current ACA and other health insurance plan participants in Part D would allow them to continue to have prescription medications. It would also allow for coverage of certain over-the-counter medications as currently covered by Medicare. Covering these OTC medications is important as medications oftentimes go from being prescription to being OTC and are still necessary for healthcare consumers.
Medigap Supplement Expansion: This would allow consumers access to the current range and possibly new versions of coverage to supplement Parts A, B & D (replacing the ACA metal tiers).
Add Medicare Part LTC: Offer a standard long-term-care insurance policy backed by the federal government.
Additional options and coverages can be provided through insurance companies, as they currently do for Medigap insurance supplements and Medicare Advantage. This provides choice and flexibility to consumers.
Yes, this would grow Medicare significantly. However, this would streamline the administration services provided by the Department of Health and Human Services, which oversees the Center of Medicare Services. Fewer programs to administrate means increased efficiency and lower costs if done properly.
Will there be any underwriting?
Medicare does not require underwriting. Expansion would allow for the continuation of guaranteed access for those with pre-existing conditions with no evidence of insurability.
Wait, isn’t Medicare going bankrupt?
Before, we move on to potential funding for a basic Medicare Type A plan available to all, let’s be clear: Medicare is not going to go bankrupt. This is a common fallacy. The 2016 report of Medicare’s trustees finds that Medicare’s Hospital Insurance (HI) trust fund will remain solvent — that is, able to pay 100% of the costs of the hospital insurance coverage that Medicare provides — through 2028. Even in 2028, when the HI trust fund is projected for exhaustion, incoming payroll taxes and other revenue will still be sufficient to pay 87% of Medicare hospital insurance costs. The share of costs covered by dedicated revenues will decline slowly to 79% in 2040 and then rise gradually to 86% in 2090. This shortfall will need to be closed through raising revenues, slowing the growth in costs or most likely both. But the Medicare hospital insurance program will not run out of all financial resources and cease to operate after 2028, as the “bankruptcy” term may suggest.
The 2028 date does not apply to Medicare coverage for physician and outpatient costs or to the Medicare prescription drug benefit; these parts of Medicare do not face insolvency and cannot run short of funds. These parts of Medicare are financed through the program’s Supplementary Medical Insurance (SMI) trust fund, which consists of two separate accounts — one for Medicare Part B, which pays for physician and other outpatient health services, and one for Part D, which pays for outpatient prescription drugs. Premiums for Part B and Part D are set each year at levels that cover about 25% of costs; general revenues pay the remaining 75% of costs. The trustees’ report does not project that these parts of Medicare will become insolvent at any point — because they can’t. The SMI trust fund always has sufficient financing to cover Part B and Part D costs, because the beneficiary premiums and general revenue contributions are specifically set at levels to ensure this is the case. Read more about why Medicare is not “bankrupt.”
Is the Affordable Care Act really affordable?
The U.S. uses a lot of healthcare. Expenditures were projected to reach $3.2 trillion (yes, trillion) in 2015 – or about $10,000 per person (Centers for Medicare & Medicaid Services, 2015). That’s a lot to pay for and more than most Americans can pay each year. Whether it can be paid for or not, the cost still remains.
Here’s how each dollar is spent: Prescription drugs – 22.1 cents, Physician services – 22.0 cents, Outpatient services – 19.8 cents, Inpatient services – 15.8 cents, Operating costs – 17.8 cents and Net Margin – 2.7 cents.
In a recent study, HealthPocket found that the percentage of monthly income needed to pay the average unsubsidized ACA premium can present considerable financial challenges to older adults. For example, when examining an individual who makes $48,000 annually (just above the $47,520 cut-off for individual premium subsidy eligibility in 2017) 60-year-olds would need to spend 22% of their income to afford the average silver plan premium while 30-year-olds would only need to spend 9%.
Average cost for an average annual worker and employer contributions for single and family (Kaiser Family Foundation): Single coverage, all firms: total $6,445 (employer share, $5,306; employee share, $1,129). Family Coverage: total $18,142 (employer share: $12,865, employee share: $5,277). In 2017, the maximum allowable cost-sharing (including out-of-pocket costs for deductibles, co-payments and co-insurance) is $7,150 for self-only coverage and $14,300 for families.
Most marketplace consumers have affordable options. More than 7 in 10 (72%) of current enrollees can find a plan for $75 or less in premiums per month, after applicable tax credits in 2017. Nearly 8 in 10 (77%) can find a plan for $100 or less in premiums per month, after applicable tax credits in 2017.
Two recent Kaiser Health Tracking Polls looked at Americans’ current experience with and worries about healthcare costs, including their ability to afford premiums and deductibles. For the most part, the majority of the public does not have difficulty paying for care, but significant minorities do, and even more worry about their ability to afford care in the future. Four in ten (43%) adults with health insurance say they have difficulty affording their deductible, and roughly a third say they have trouble affording their premiums and other cost sharing; all shares have increased since 2015. Among people with health insurance, one in five (20%) working-age Americans report having problems paying medical bills in the past year that often cause serious financial challenges and changes in employment and lifestyle.
Even for those who may not have had difficulty affording care or paying medical bills, there is still a widespread worry about being able to afford needed healthcare services, with half of the public expressing worry about this. Healthcare-related worries and problems paying for care are particularly prevalent among the uninsured, individuals with lower incomes and those in poorer health. Women and members of racial minority groups are also more likely than their peers to report these issues.
Making health insurance affordable again
Medicare Part A is currently available with no premium if you or your spouses paid Medicare taxes. Medicare Part A can continue to be offered for free to those who pay taxes and for those who qualify for Medicaid.
Medicare Part B premiums are subsidized with the government paying a substantial portion (about 75%) of the Part B premium, and the beneficiary paying the remaining 25%. Premiums are subsidized, with the gross total monthly premium being $134. This amount is reduced to $109 on average for those on Social Security. Depending on your income, the premium can increase to $428.60 monthly. View information on Part B premiums here.
Medicare prescription drug coverage helps pay for your prescription drugs. For most beneficiaries, the government pays a major portion of the total costs for this coverage, and the beneficiary pays the rest. Prescription drug plan costs vary depending on the plan, as does whether you get extra help with your portion of the Medicare prescription drug coverage costs. Higher earners pay more.
Beneficiaries enrolled in Medicare Advantage typically pay monthly premiums for additional benefits covered by their plan, in addition to the Part B premium. Kaiser Family Foundation figures.
How is Medicare financed?
Medicare Part A is financed primarily through a 2.9% tax on earnings paid by employers and employees (1.45% each) (accounting for 88% of Part A revenue). Higher-income taxpayers (more than $200,000/individual and $250,000/couple) pay a higher payroll tax on earnings (2.35%). To pay for Part A, taxes will need to go up, but the trade-off is that premiums for the supplemental coverage will be less because it covers less – net impact to the consumer is zero.
Medicare Part B is financed through general revenues (73%), beneficiary premiums (25%), and interest and other sources (2%). Beneficiaries with annual incomes over $85,000/individual or $170,000/couple pay a higher, income-related Part B premium, ranging from 35% to 80%. The ACA froze the income thresholds through 2019, and, beginning in 2020, the income thresholds will once again be indexed to inflation, based on their levels in 2019 (a provision in the Medicare Access and CHIP Reauthorization Act of 2015). As a result, the number and share of beneficiaries paying income-related premiums will increase as the number of people on Medicare continues to grow in future years and as their incomes rise. Premiums would be less than under current individual insurance plans because certain essential benefits would be covered by the expanded Medicare Part A.
Medicare Part D is financed by general revenues (77%), beneficiary premiums (14%) and state payments for dually eligible beneficiaries (10%). As with Part B, higher-income enrollees pay a larger share of the cost of Part D coverage.
Medicare Part C (The Medicare Advantage program) is not separately financed. Medicare Advantage plans such as HMOs and PPOs cover all Part A, Part B and (typically) Part D benefits. Beneficiaries enrolled in Medicare Advantage plans typically pay monthly premiums for additional benefits covered by their plan in addition to the Part B premium.
The public need for increased plan choice and market stability
Health insurance exchanges haven’t worked so far. Currently, there are only 12 state-based marketplaces; five state-based marketplace-federal platforms, six state-partnership marketplaces; and 28 federally facilitated marketplaces. A list of State Health Insurance Marketplace types can be be found on the Kaiser Family Foundation website.
The Congressional Budget Office said that although the ACA’s markets are “stable in most areas,” about 42% of those buying coverage on Obamacare’s exchanges had just one or two insurers to pick from for this year. Currently, one in three counties has just one insurer in the local market, significantly less choice than the one in 14 counted last year, according to the nonpartisan Kaiser Family Foundation. And five states have a single insurer: Alabama, Alaska, Oklahoma, South Carolina and Wyoming. Moving to a Medicare-based system would mean that, if an insurance company decides to leave a county or state, the residents still have access to health insurance. There are parts of Tennessee where there may not be any exchange insurance options for 2018. And Oklahoma’s insurance regulator warned last week that his state’s lone carrier may quit the market.
With issues facing the Affordable Care Act on subsidies, Medicaid expansion and other potential changes, consumers may end up with few choices as insurance companies decide to not participate in the exchanges in the future. Humana has announced that it will drop out of the 11 states where it offers ACA plans. Other major insurance companies, including Anthem, Aetna and Molina Healthcare, have warned that they can’t commit to participating in the ACA exchanges in 2018.
Medi-gap supplements and Medicare Advantage will boost choice. Medicare Advantage has proven to be popular, and enrollment is expected to increase to all-time high of 18.5 million Medicare beneficiaries. In 2017, this will represent about 32% of Medicare beneficiaries. Typical Medicare Advantage plan providers offer managed care plans.
Access to the Medicare Advantage program remains nearly universal, with 99% of Medicare beneficiaries having access to a health plan in their area. Access to supplemental benefits, such as dental and vision benefits, continues to grow. More than 94% of Medicare beneficiaries have access to a $0 premium Medicare Advantage plan. 100% of Medicare beneficiaries – including Medicare Advantage enrollees – have access to recommended Medicare-covered preventive services at zero cost sharing.
Consumers have access to information to improve plan choice. Medicare beneficiaries are allowed a one-time opportunity to switch to a five-star Medicare Advantage plan or prescription drug plan in their area any time during the year. Medicare has a low-performing icon on Medicare.gov so beneficiaries know which plans are not performing well. Medicare Advantage plan sponsors are also required spend at least 85% of premiums on quality and care delivery and not on overhead, profit or administrative costs.
According to a recent fact sheet from CMS.gov, Moving Medicare Advantage and Part D Forward: Some counties have low Medicare Advantage penetration rates because the number of hospitals and doctors is too low for use of a managed care network to make much sense. This mirrors some of the reasons why there are few marketplace options in certain counties and state and is exactly why there needs to be a plan available through the federal government, as with the current Medicare Parts B & D.
When retirees are unhappy with Medicare Advantage plan provider directories, they typically combine traditional Medicare coverage with Medicare supplement insurance, or Medigap coverage. Retirees using Medigap coverage with traditional Medicare can use any provider that takes Medicare.
Consumers are better able to control their Medicare Advantage Plan (Part C) premiums by choosing a plan without a monthly premium, having a plan that pays part of Medicare Part B, having a deductible, choosing a copayment (coinsurance) amount, choosing the type of health services, setting their limit on annual out-of-pocket expenses and choosing whether they go to a doctor or other medical service supplier who accepts assignment (from Medicare).
Balancing the risk pool
The risk pool must be sufficiently large to take advantage of the law of big numbers. Insurance companies reflect healthcare costs, and their mission is to spread the risk and be balanced. If the risk pool is unbalanced by covering too many sick people and not enough healthy people, the insurance company will have higher claims and will need to collect higher premiums. When this happens, healthier individuals are usually the first to drop coverage, which they feel is not needed, which leaves a growing proportion of “less healthy” individuals. At some point, the imbalance becomes unsustainable, and the carriers exit the market entirely.
The only reason healthy people buy health insurance is that they know that if they wait until they get really sick no insurance company will sell them a policy. The same principle holds true for all insurance products. You can’t buy auto insurance after you get into an accident. You can’t buy life insurance at a reasonable cost after your doctor has given you six months to live. The fact that your car is already wrecked, or your arteries already clogged, are pre-existing conditions that no insurance company would be expected to ignore.
Allowing voters the low-cost option to buy health insurance after they actually need it is very popular. It’s like promising motorists they can stop paying their monthly auto insurance premium and just buy a policy after they have an accident. If the government were to require this, all auto insurance companies would quickly go out of business (unless they were bailed out by the government).
Contrary to belief, younger people (millennials) do want want health insurance and consider it a top life priority, according to a study from research firm Benson Strategy Group. Eighty-six percent of millennials are insured, and 85% said it is “absolutely essential” or “very important” to have coverage, according to the survey. Researchers said most millennials get their insurance through an employer (39%) or Medicaid (20%).
Shifting work force and ending the current group health insurance market
The U.S. work force is shifting, with fewer Americans working at large employers and being covered by group health insurance. Americans are moving more to being “gig” employees, freelancers/consultants, part-time employees, job movement, cash employees and seasonal employees and continuing to start businesses.
For employers, counting employees for purposes of ACA compliance seems to be an expensive nightmare.
The size of your employer is a major factor on if health insurance is offered: 96% of firms with 100 or more employees offered health insurance, 89% of employers between 50 and 99 employees offer health insurance, while 53% of employees with three to 49 workers offered health insurance; the average is 56% of employers offering coverage. So unless you work at a big firm, you can’t count on health insurance anyway. And dependent on the size of the firm, there is no guarantee that it will offer coverage to spouses, dependents or domestic partners.
Even those with group health insurance received less value than historically. According to a recent LinkedIn study (2/2017), a total of 63% of respondents indicated that their healthcare benefits were either more expensive or stingier than in the previous year, and 40% saw both an increase in premium costs as well as higher out-of-pocket copays and deductibles when they used their health plans.
In a survey (2/2017), nearly one in five LinkedIn members in the U.S. (or 19%) indicated that health insurance has been their primary reason for taking, leaving or keeping a job.
If health insurance is available as proposed through individual, portable insurance plans, there will no longer be employer health insurance programs. Excluding premiums from taxes was worth about $250 billion in forgone tax revenue in 2013, according to the Congressional Budget Office. Some health economists have argued that the exemption artificially drives up health spending. Employer-provided health benefits, often worth thousands of dollars a year, aren’t taxed as wages are. People who have to buy coverage on their own don’t enjoy the same tax advantage. Currently, employers do offer supplemental benefits to their employees that they often pay at least part of the premium.
Medicare premiums do not increase with age. Medicare premiums do increase based on income. If someone age 85 is not paying more than someone age 65, why should someone age 50 pay more than someone age 35? Why should a basic health insurance plan work any differently?
Yes, healthcare costs increase with age. Per-person healthcare spending for the 65 and older population was $18,988 in 2012, more than five times higher than spending per child ($3,552) and approximately three times the spending per working-age person ($6,632). From NHE Fact Sheet (Centers for Medicare and Medicaid Spending)
Health insurance is currently priced by age bands starting at age 21. Thirty-year-olds have premiums that are 1.135 times more; 40-year- olds pay 1.3 times more; 50-year-olds pay 1.786 more, and 65-year-olds pay 3 times the cost listed. Based on a study by Value Penguin on the Average Cost of Health Insurance (2016).
Private insurance companies are required to offer the same benefits for each lettered Medicare supplement plan, and they do have the ability to charge higher premiums for this coverage. Medicare Supplement Pricing does allow for community-based pricing. And they also do have attained-age-rates where premiums increase as you get older. However, the issue-rated plans have premiums that are lower based on the age which you enroll.
Higher premiums for higher earners
Medicare does require higher-income beneficiaries to pay a larger percentage of the total cost of Part B based on the income you report to the Internal Revenue Service (IRS). Monthly Part B premiums are equal to 35, 50, 65, or 80 percent of the total cost, depending on what is reported to the IRS. This in keeping with the current progressive tax system (or at least the planned theory of a progressive tax system).
A big Medicare impact from the ACA came via financial improvements it put in place to help the program. It raised a bunch of taxes, including requiring high-income wage earners to pay higher Medicare payroll taxes and stiff premium surcharges for Medicare Part B and D premiums. Health providers and Medicare Advantage insurance plans were also willing to accept lower payment levels from Medicare in exchange for the law’s provisions that would expand their access to more insurance customers.
The individual mandate is not working
Besides being unpopular, the individual mandate is not working. The economics of the ACA are not sound for the long term as there is no balanced offset between how insurance companies typically operate from charging high-risk consumers more than low-risk consumers and providing coverage to all. A planned offset was the penalties on those who didn’t participate. The Supreme Court recognized this as a flaw and Justice Roberts argued that the relative lightness of the penalties was insufficient to compel anyone to buy insurance and, as a result, he considered them to be a “tax” that could be voluntarily avoided rather than a coercive penalty to force commercial activity.
The individual mandate requires nearly all Americans to have health insurance coverage. The individual mandate is an important as it met the critical issue of insurance companies guarding against anti-selection; having health people wait until they need health insurance to sign up. This was meant to be an incentive, however, it is a penalty.
The full penalty for 2016 was $695 per person, $347.50 for each child, up to a maximum of $2,085 — or 2.5% of your household income, whichever is higher.
It won’t ever work as it’s currently set up since the IRS isn’t allowed to collect this penalty the same way it collects on other tax debts. The IRS can deduct penalties you owe from future tax refunds, however, they cannot garnish wages.
The IRS last month quietly reversed a decision to reject tax returns that fail to indicate whether filers had health insurance, received an exemption or paid the penalty. While this has always been key to enforcing the individual mandate, the IRS had been processing returns without this information under the Obama administration.
The IRS attributed the reversal to Trump’s executive order that directed agencies to reduce the potential financial burden on Americans.
There are some who feel that since the IRS will accept a tax return without the penalty, that it can be skipped. The IRS has stated that: “Legislative provisions of the ACA law are still in force until changed by the Congress, and taxpayers remain required to follow the law and pay what they may owe,”. The agency added that “taxpayers may receive follow-up questions and correspondence at a future date.”
This uncertainty and lack of uniformity is not positive for anyone. And you catch more flies with honey than vinegar. Therefore boosting the benefits is going to work better than a straight out penalty. For insurers, figuring out how to prod younger, healthier Americans to sign up for coverage is critical. As covered elsewhere in this article, there are other, potentially more effective ways to accomplish this. Having a base plan like Medicare will shift some burden directly onto the U.S. Government.
Increasing the burden on the U.S. government and the NFIP
Yes, it’s going to take a lot of planning and conservative assumptions and could be set up along similar lines as the National Flood Insurance Plan (NFIP) created in 1968 by Congress to help provide a means for property owners to financially protect themselves. NFIP is administered by the Federal Emergency Management Agency (FEMA), which works closely with more than 80 private insurance companies to offer flood insurance to homeowners, renters, and business owners. In order to qualify for flood insurance, the home or business must be in a community that has joined the NFIP and agreed to enforce sound floodplain management standards. Coverage can be purchased through private property and casualty insurance agents. Rates are set nationally and do not differ from company to company or agent to agent. These rates depend on many factors, which include the date and type of construction of your home, along with your building’s level of risk. Check out the National Flood Insurance Plan overview. Read answers to common questions about NFIP. There are issues with the NFIP and it is scheduled for reform. The solution to this is to have flexible pricing for private insurance companies such as with Medicare Supplements and Medicare Advantage.
Revise tax credits
Providing tax credits helps low- and moderate-income patients afford health insurance. Premium tax credits protect consumers from rate increases. Marketplace tax credits adjust to match changes in each consumer’s benchmark silver plan premium. Additional consumers are eligible for tax credits. As Marketplace tax credits adjust to match increases in benchmark premiums, some consumers in areas that had low benchmark premiums in 2016 may be newly eligible for tax credits in 2017. Of the nearly 1.3 million HealthCare.gov consumers who did not receive tax credits in 2016, 22 percent have benchmark premiums and incomes in the range that may make them eligible for tax credits in 2017. In addition, an estimated 2.5 million consumers currently paying full price for individual market coverage off-Marketplace have incomes indicating they could be eligible for tax credits.
The Advance Premium Tax Credit is an ACA mechanism for helping some ACA exchange plan users pay for their health coverage. The enrollees estimate when they apply for coverage how much they’ll earn in the coming calendar year. The exchange and the IRS use the cost of the coverage and the applicant’s income to decide how much the applicant can get. If the applicant qualifies for APTC and buys an exchange plan, the government sends the APTC help to the health coverage issuer while the plan year is still under way. The enrollee does not get to touch the APTC cash.
The ACA currently requires consumers to predict in advance what their incoming will be in the coming year. The majority of consumers apply for individual health insurance during open enrollment for the following year in the preceding end of the year. So they are guessing what their income will be the following year. Then, they even up with the IRS the following year (almost a year and a half later).
Consumers who predict their income be too low and get too much tax credit money are supposed to true up with the IRS when the file their taxes the following spring. The IRS has an easy time getting the money when consumers are supposed to get refunds. It can then deduct the payments from the refunds. When consumers are not getting refunds, or simply fail to file tax returns, the IRS has no easy way to get the cash back.
The exchanges and the IRS also face the problem that some people earn too little to qualify for tax credits but too much to qualify for Medicaid. Those people have an incentive to lie and say their income will be higher than it is likely to be.
And it’s not even close to working, The Treasury Inspector General for Tax Administration, an agency that monitors the Internal Revenue Service, gave that figure in a new report on how the IRS handled ACA premium tax credit claims for 2014 and 2015. The IRS found that, as of June 30, 2016, the IRS had processed about 5.3 million 2015 returns that included claims for $20.3 billion in tax credits, part of which was $18.9 billion in APTC subsidy help. In June 2015, the IRS had processed 3 million 2014 returns that included claims for $9.8 billion in ACA premium tax credits, including $9 billion in APTC help. For the 2015 returns, which were processed in 2016, IRS program errors led to IRS premium tax credit amount calculation errors for 31,493 returns, TIGTA says. The programming errors led to 16,375 filers getting an average of about $300 too much help each, and 15,118 filers getting an average of $440 too little help each. ACA public exchange program managers send their own tax credit data files to the IRS. The IRS investigates when the gap between what the exchange reports and what the taxpayer reports is big, but not when the gap is small. Because of that policy, the IRS failed to investigate exchange-taxpayer data gaps for 903,488 2015 returns. A majority of the unexamined gaps seemed to hurt taxpayers, rather than helping them, TIGTA says. A review of the APTC gap data suggests that 511,384 affected filers may have missed out on an average of about $1,000 in help each, and that 392,104 may have gotten away with receiving an average of about $300 too much help each, according to TIGTA.
Another issue is that currently, eligibility to receive premium tax credits to purchase exchange coverage is determined by income and whether individuals and families have access to affordable employer coverage. However, many families are not eligible for premium and cost-sharing subsidies to purchase coverage on the exchanges because of the “family glitch,” because determinations about the affordability of employer-sponsored coverage are based on the cost of employee-only coverage, ignoring the cost of family coverage. As a result, these lower-income families are ineligible for subsidies to purchase coverage on exchanges. An estimated 10.5 million adults and children may fall within the family glitch, according to the Department of Health and Human Services’ Agency for Healthcare Research and Quality
Credits would be relative to income and would be lower for those in higher brackets to match our current progressive income tax system. These advance able, refundable tax credits would need to reflect income and location of the health insurance plan. Tax credits would be available to more Americans than under current ACA rules.
On the insurer side, risk-based subsidies can help ease the financial pressure posed by enrollees with high health care costs.
Subsidies under the ACA are available to help qualifying Americans pay for their health insurance premiums. These subsidies work on a sliding scale, limiting what you are personally required to contribute toward your premiums to a fixed percentage of your annual income.
The dollar value of your subsidies will depend in part on the cost of the benchmark ACA plan in your area. If the benchmark plan costs more than a certain percentage of your estimated annual income, you can get a subsidy in the amount of the difference. You may then use that subsidy when you buy a qualified ACA health insurance plan. The main factor is your income. You can qualify for a subsidy if you make up to four times the Federal Poverty Level. That’s about $47,000 for an individual and $97,000 for a family of four. If you’re an individual who makes about $29,000 or less, or a family of four that makes about $60,000 or less, you may qualify for both subsidies.
Subsidies would also need to be fair to older enrollees. Current subsidies under the ACA, allow eligible enrollees to obtain a plan for less than 10% of their income. Having the proper type of subsidy will be crucial. According to the Price-linked subsidies and health insurance mark-ups study from the National Bureau of Economic Research
Senior House Republicans have stated that they expected the federal government to continue paying billions of dollars in subsidies to health insurance companies to keep low-income people covered under the Affordable Care Act for the rest of this year — and perhaps for 2018 as well.The Republican-led House had previously won a lawsuit accusing the Obama administration of unconstitutionally paying the insurance-company subsidies, since no law formally provided the money.Although that decision is on appeal, President Trump could accept the ruling and stop the subsidy payments, which reduce deductibles and co-payments for seven million low-income people. If the payments stopped, insurers — deprived of billions of dollars — would flee the marketplaces, they say. The implosion that Mr. Trump has repeatedly predicted could be hastened. The annual cost of these subsidies is estimated at 7 billion dollars. See “Health Subsidies for Low Earners Will Continue Through 2017, G.O.P. Says”.
Keep the cost-sharing reductions
People who earn up to $29,000 not only get subsidies to pay for their health insurance premiums, they also receive “cost-sharing reduction,” or CSR, funds, to make out-of-pocket costs more affordable. Maintaining the CSR payments, which amount to $9 billion to insurers for 2017 is critical. Currently payment of these CSR funds have been halted by the House.
Wait, isn’t the ACA already costing too much?
It turns out that the ACA has turned out to much more cost effective than originally projected. The Congressional Budget Office now projects its cost to be about a third lower than it originally expected, around 0.7 percent of G.D.P. A report from the nonpartisan Urban Institute argues that the A.C.A. is “essentially underfunded,” and would work much better — in particular, it could offer policies with much lower deductibles — if it provided somewhat more generous subsidies. The report’s recommendations would cost around 0.2 percent of G.D.P.
Use a value-added tax (VAT) or other sales tax
Use the current Medicare Payroll Tax and supplement it with a sales/value added tax, that way everyone pays for the plan who would use it – underground economy, cash economy and those don’t file income tax returns This would encourage more people to file income tax returns to get the proposed (current) credit. This would be a boost to the US economy and the Federal Budget as this missed income tax revenue while reducing resources from the IRS in finding those who don’t file income tax returns.
Trade-offs needs to made and the only way to do so is to ensure that everyone has a baseline of benefits . Adding a value added tax/sales tax to help finance it would ensure that that plan is not solely supported by those who pay income, the plan is supported by anyone who makes a purchase, as let’s face it, some people don’t report income. Tax credits would still be available to those who qualify based on income. This would also encourage more people to file tax returns to make sure they received the credit if eligible. In fact, give everyone who files a $100 credit for their health insurance if they file, I’ll bet the number of income tax returns would rise significantly.
Stop tax evasion
If all tax evasion were stopped, this alone could pay for health care. Following are some stats on tax evasion from The National Tax Research Committee released by Americans for Fair Taxation: Estimated Future Tax Evasion under the Income Tax and Prospects for Tax Evasion under the FairTax: New Perspectives
To enable the federal government to raise the same level of revenue it would collect if all taxpayers were to report their income and pay their taxes in full, the income tax system, in effect, assesses the average household an annual “surtax” that varies from $4,276 under the most conservative scenario, to $8,526 based on the more likely to occur historical evasion trends. The IRS estimates that almost 40% of the public are out of compliance with the present tax system, mostly unintentionally due to the enormous complexity of the present system. These IRS figures do not include taxes lost on illegal sources of income with a criminal economy estimated at a trillion dollars.
Market stabilization – Risk-sharing modifications
Diversifying the risk pool and keeping the market stable is a critical factor in maintaining viability for insurance companies. The ACA included 3 components to help accomplish this goal:
Reinsurance provides payment to plans that enroll higher-cost individuals. This protects against premium increases in the individual market by offsetting the expenses of high-cost individual. It was expected that this would be profitable for the Government, however, while it has been able to meet its obligations, it has yet to turn a profit. As this has been a positive, the program should be maintained. Reinsurance must continue to be available for plans selling individual and small group products.
Risk adjustment redistributes funds from plans with lower-risk enrollees to plans with higher-risk enrollees. This is intended to protect against adverse selection and risk selection in the individual and small-group markets inside and outside the exchanges by spreading financial risk across the markets.
Risk corridors limit losses and gains outside of an allowable range. This is designed to stabilize premiums and protect against inaccurate premiums.Risk corridors protect plans that accumulate unexpectedly high risks by giving them access to funds collected from insurers that experience unexpectedly low risks. This has not worked so far and the programs owes more than $8 billion for 2014 and 2015. If 2016 losses are about the same ($7 billion in losses on $90 billion in premium revenue) the total ACA risk corridors program shortfall will increase to about $15 billion.
It is important to note reinsurance and risk corridors are used without controversy in the Medicare private drug-insurance market. Risk corridors though have been problematic for Medicare Part D. Several program modifications may be necessary at the same time—that is, a package of changes—to balance concerns about cost control and incentives for selection behavior. See sharing risk in Medicare Part D.
Maintain a medical loss ratio
Insurance companies profits should be reasonable so the medical loss ratio should be kept in place. The MLR provision “plays an essential role in holding insurance companies accountable for how they spend the premium dollars they collect from consumers. Weakening it could increase costs for consumers by allowing insurance companies to spend more on administrative activities like marketing and profits.
It’s important to remember that for a health insurance company (or any insurance company for that matter) to stay in business, is that must make a profit so that it can be around to pay claims. Premiums must be adequate to cover claims, administrative costs, taxes, and fees, and still provide a margin for profit or contribution to reserves and surplus. At bottom, carriers operate on a cost-plus model. Medical costs—principally hospitals, physicians, imaging and prescription drugs—are “what they are.” Insurance companies merely facilitate their payments. Of course, how payments are determined and made is enormously complex. Prices are negotiated (but only at the margins), incentives applied, and networks built and nurtured, all to gain incremental competitive advantages in the marketplace. Here’s the overall breakdown: Overall: Medical expenses are 80%, Operating Costs are 18%, net margin 3%. Per: America’s Health Insurance Plans (AHIP). Please visit the link for breakdowns on the costs and sources of information. Values exceed 100% due to rounding.
Adding incentives to education and prevention
Carrots always work better than sticks. It is important to emphasize the benefits of having health insurance. This can be stressed through education about preventative care and how it increases overall long term health. When we are young, it is hard to envision the health issues that happen as we age. Incentives to participate in wellness programs can be a consideration and do not have to be monetary. As an example, consider how some health insurance plans are experimenting with giving out “Fitbit’s” to plan participants. If someone signs up for a Medicare Advantage or Medicare Supplement plan and meets criteria of monitoring their health, they could receive a fitness tracker at a discount with software to help their health. This would lower costs over the long term. Education and prevention are key.
For some people carrot’s aren’t enough and in order to ensure fairness, there would need to be a cost penalty. Overall, there is not much written about dissatisfaction with Medicare penalties, so why not apply them across the board? For example, if you don’t purchase Medicare when you are first eligible, your monthly premium may go up 10%. You’ll have to pay the higher premium for twice the number of years you could have had Part A, but didn’t sign up. For example, if you were eligible for Part A for 2 years but didn’t sign up, you’ll have to pay the higher premium for 4 years. There are exceptions to this rule. However, this is fair to all and does create a penalty for waiting until you need to use care. Or we could go with the Part B penalty which is more stringent and increases the monthly premium for Part B by up to 10% for each full 12-month period that you could have had Part B, but didn’t sign up for it.
Limited open enrollment period
Continue the current Medicare open enrollment period. Limit the exceptions. Shortened enrollment period are necessary to ensure that people apply before they need coverage. Currently many people sign up for the exchanges during the year and then drop their plans during the year, this does not allow insurance companies to have a full year of premiums. Exceptions would have to be verified for reasons such as birth of a child (adoption, etc), marriage or other major life event. Insurers have done studies showing that claims costs are higher for those who’ve enrolled under the ACA special enrollment periods which means that it’s likely that people are gaming the system to just have coverage when they need it.
Continuous coverage requirement/premium penalty
Insurance companies can be more effective in setting reasonable premiums when they have more consistent data such as continued premium payments. When someone signs up for insurance companies project that they will continue the policy for the year. If they drop the coverage mid-year, there is less income to the insurance company. Consumers should be able to drop coverage at any time. However, just like with Medicare Part B, they would have to pay a higher premium of up to 10% for each 12 month period during which they didn’t have coverage (perhaps to a maximum of 40%) unless they had “good cause”. This would provide a disincentive to consumers purchasing coverage only when they need it. Just like it’s okay for homeowners to not be able to purchase coverage while their home is on fire, they should not be able to purchase health insurance only when they need it. Coverage would still be available to all.
Overdue premium payment requirement
Payment of any overdue premiums with shorter grace period for supplemental plans to match Medicare: Enrollees would have to pay overdue premiums before enrolling with the same insurer the following year. If you don’t pay your Medicare premiums, you risk losing coverage. But it won’t happen right away. You’re billed for Part B in 3-month increments, and you will have a grace period of 3 months after the due date. If you have not paid by the end of the grace period, you’ll receive a letter letting you know that your coverage will be terminated at the 4-month mark, unless you can pay in full 30 days after termination notice. Consumers would need to wait until the next open enrollment period, unless they qualified for a special enrollment period or had “good cause”.
Reduce fraud and billing errors
Fight fraud and billing errors. The exact amount lost to fraud, is of course, unknown. The National Health Care Anti-Fraud Association estimates conservatively that health care fraud costs the nation about $68 billion annually with other estimates ranging as high as 10% of annual health care expenditure, or $320 billion. Visit The Coalition Against Insurance Fraud for more statistics. Not really pocket change. And while there are are significant resources aimed at fighting fraud, it’s still not sufficient. Read this article to learn more about the challenges of health care fraud and why it is not a victimless crime. Insurance companies and the health care industry pass on the cost to consumers. Medical billing errors further compound the issue. If you suspect that there has been a fraudulent billing issue, read this FAQ. Each state insurance department would need to beef up their investigator’s department or we would need federal investigators from Medicare.
Increase insurance company oversight
There is a concern about insurance companies “gaming” the Medicare Advantage payment system by making patients look sicker than they are. This allows the insurance companies to increase their Medicare billing.
Overspending tied to inflated risk scores has repeatedly been cited by government auditors, including the Government Accountability Office. A series of articles published in 2014 by the Center for Public Integrity found that these improper payments have cost taxpayers tens of billions of dollars.
The Justice Department recently joined a California whistleblower’s lawsuit that accuses insurance giant UnitedHealth Group of fraud in its popular Medicare Advantage health plans. According to the attorney, William K. Hanagami, the combined cases could prove to be among the “larger frauds” ever against Medicare, with damages that he speculates could top $1 billion.
Healthcare cost containment
Health care costs are rising faster than inflation. It is not realistic to be able to keep up with this. Last year, Americans spent an equivalent of about 18% of Gross Domestic Product (GDP) on health care. Cost pressures will rise with our aging population. Much of the current spending is inefficient. Technology, discussed further on could help with these inefficiencies.
Between November 2015 and November 2016, medical care prices increased 4.0 percent. Health insurance prices and prescription drug prices both increased 6.0 percent during this 12-month period. Medical care commodities and services make up about 8.5 percent of the total Consumer Price Index for All Urban Consumers (CPI-U) market basket. The CPI-U for all items rose 1.7 percent over the year ending November 2016.From November 2010 to November 2016, medical care prices have increased 19.7 percent, driven by increases in the prices of hospital services (+32.5 percent), health insurance (+27.8 percent), and prescription drugs (+24.0 percent). Only the prices of nonprescription drugs have fallen over this 6-year period, declining 2.7 percent. Comparatively, the CPI-U for all items has increased 10.4 percent over the same period. U.S. Bureau of Labor Statistics
A strategy of requiring healthcare providers to publish their rates and offer the same discounts to all health plans could result in more competition and options for consumers. Full cost disclosure would include the premium along with the total maximum annual out-of-pocket costs. Regulating the discounts would make it easier for consumers to comparison shop accurately so they could take control of their spending and help bring down the cost of care overall, he adds.
This is part of the ACA, however it has been overlooked. This included holding providers of care accountable for costs and quality of services through value-based payments that reward clinicians and organizations that provide better care at lower costs. The price of a service is determined by the cost of the service rather than the insurance held. This does not meant they cannot set their own rates, however, they cannot charge different rates to different customers.
Congress must compel medical providers to play by the same rules that apply to all other sellers of consumer goods and services. They should remain free to set their own prices.
Legitimate pricing of health services will empower patients to be able to shop for fair value. This would make networks obsolete as there would be no distinction between in-network and out-of-network. Real free market competition by healthcare providers will reduce health expenditures by a minimum of 33% – overnight (and the USA would still have approximately the highest cost per person healthcare on earth).
A “Petition to End Predatory Healthcare Pricing” and to require legitimate pricing has garnered more than 100,000 signatures this year. As the petition states: a simple blood test for cholesterol can range from $10 to $400 or more at the same lab. Hospitalization for chest pain can result in a bill from the same hospital for the same services ranging anywhere from $3,000 to $25,000 or more. Price transparency initiatives are futile when prices may vary by a factor of 100 for the exact same service performed by the same provider.
Improved data sharing
Bloomberg explained in a report that the pooling of data is important, especially for small insurers that do not have extensive databases that larger insurers have. The data is used to determine actuarial rates that reflect the risk attached to coverage offered by insurers, which helps them accurately assess exposures and price premiums.“One of the main benefits of the exemption is that it allows insurers to share information on insurance losses so that the insurance industry can better project future losses and charged actuarially based prices for their products,” the statement also said.
Additionally, the Property Casualty Insurers Association of America said in a February testimony that, “(anticompetitive) price fixing, bid rigging, and market allocations are generally illegal under state anti-trust laws.” This would hold true for health insurance companies as well. The Bloomberg report noted that measures are already in place to preclude anti-competitive practices in the industry in each of the states.
Increase wellness incentives/credits
This can be done by insurance companies, employers and other centers of influence. Using fit bits to encourage physical activity. Surcharge for tobacco cessation. Weight management. Lifestyle changes.
Increase virtual health care options
Increase the use of telemedicine/“skype” medicine – easier for everyone to not have to come in to see a doctor – reduces costs, saves time for consumer and still provides solutions. Implement more urgent care facilities to reduce the amount of emergency room visits. It is estimated that this could save $7 billion annually.
Healthcare savings account expansions
The cost of health care starts with the health insurance premium, however, it also includes deductibles, co-payments, co-insurance and whatever is not covered that are still medical necessities – think aspirin, allergy medicine, etc. In addition there are expenses such as travel to treatment, child care, special equipment or home modifications, or lost income caused by time away from work. Health insurance may really be 50-60% of your total annual health care outlay.
Implementing and allowing health care saving accounts for all would help offset all of these other costs and provide positive economic benefits. Moving from strictly being a reimbursement plan to being a reimbursement plan and a retirement plan would help increase American’s retirement savings and offset the guessing required on reimbursement accounts such as flexible spending accounts and dependent care spending accounts which are currently only available through employers.
Americans need assistance on saving more money and this will work better than FSA’s that can be use it or lose it. HSAs are now available only to people who have high-deductible health insurance plans. These plans should be open to everyone. The tax credit for an HSA would be set to a level sufficient to cover the maximum premiums combined with deductibles, co-pay and maybe an extra 25% for additional expenses outlined above.
This would also help offset the anticipated high cost of healthcare costs in retirement. According to a study by Fidelity in 2016, a couple starting retirement today would have estimated total health care costs $260,000. That’s a lot, so saving in advance for it would be beneficial. Currently health savings accounts have significant tax benefits and can be used an additional retirement account. Withdrawals after age 65 for general retirement purposes have no penalties, you simply withdraw the money and pay ordinary income taxes just like an IRA, 401(k) or other qualified retirement plan.
Allow states to take over rate reviews
Under the Obama administration, the CMS determined that all but four states have adequate rate reviews, and “we don’t see any reason why the federal government should be duplicating that review”. In a market stabilization proposed rule published Feb. 17 in the Federal Register, the CMS proposed allowing states to set standards for network adequacy. Deferring to states to take on more authority in implementing health-care reform has been a major theme of Republicans in Congress.
Under the current regulatory regime, this really should be handled by state insurance departments which currently oversee premiums for auto insurance, homeowners insurance, long term care insurance (lines of coverage differ by state).
Maintain current rules for insurance companies to not sell across state lines
Currently there is a mostly effective State based regulatory system centralized through the National Association of Insurance Commissioner. Overall, the NAIC has enacted some good model regulations. Under the current regulatory set-up, insurance companies can set up headquarters in states with weaker requirements which they already do anyway when they can. In the long run, this is not good for anyone. Currently, each state sets its own consumer protections and demands for what insurance must cover, if an insurance company could sell policies in a state without that state’s approval, then any state specific requirements would not apply resulting in fewer consumer protections, less-comprehensive plans and limit states’ ability to regulate insurance companies. Premiums would also not be lower since a key driver of health insurance premiums is local costs of health care. Another challenge is that almost all health care is delivered locally. To succeed, insurance companies need a significant toe-hold with hospitals and other providers in their local market; an out-of-state insurer would lack that and thus struggle in its negotiations to form a delivery network. This is why many new entrants to the health insurance market haven’t succeeded. Read more from the NAIC Center for Insurance Policy & Research: Interstate Health Insurance Sales: Myth vs. Reality.
Insurance agent value and compensation
Keep professional, trained insurance agents around. For example in Oregon, insurance agents earn about $400 per year for each Medicare supplement or Medicare Advantage policy they write, but only about $144 per year in commissions for selling an individual policy through the ACA public exchange system. This lower compensation level hurts consumers, by reducing their access to licensed professionals who can help them choose and understand coverage. Regulators should set and enforce commission payment standards.Neither the current law nor any reform effort will be successful unless a large number of healthy Americans decide to sign up for coverage. Agents play a critical role in the orderly delivery of health insurance.Traditional agents and brokers “do a much better job’’ of helping people get proper coverage than do the insurance counselors — called “navigators’’ or “assisters’’ — whose positions were created by the ACA.
This would require a shift in the calculation of the Medical Loss Ratio (MLR) Rule. Currently, if an insurance company spends less than 80 percent (or 85 percent in the large-group market) of premiums on medical care and efforts to improve the quality of care, it must refund the portion of the premiums that exceed this limit. Agent’s commissions are included in the administration category which must remain at 20% or below. Commissions should be removed from that category or the percentage increased to allow insurance agent to receive reasonable compensation.
Maintain the health insurance CEO tax cap
The deduction for any health insurance company executive is sharply limited by the ACA, which caps at a maximum of $500,000 the amount of an individual executive’s compensation that an insurer could deduct as a business expense. It’s estimated that this generates $400 million in tax revenue (according to recent testimony to the House Ways and Means Committee by Thomas Barthold, chief of staff for the Joint Committee on Taxation).
Technology will be a long term driver in reducing health care costs by streamlining data, underwriting, dispersing care, reducing fraud, improving wellness and other potential positive outcomes.
This is somewhere that an InsureTech company using Blockchain technology could make a difference. Consumers seem readier to accept digital products than just a few years ago. The field includes mobile apps, telemedicine—health care provided using electronic communications—and predictive analytics (using statistical methods to sift data on outcomes for patients). Other areas are automated diagnoses and wearable sensors to measure things like blood pressure.
58% percent of smartphone users in the U.S. have downloaded a health-related app, and around 41% have more than five health-related apps, generating data that insurance providers could use to fine-tune their individual premium pricing and encourage low-risk customer behavior.
Most of the efforts to integrate technology by insurers are simple and mainly designed as promotions, like awarding credits for a number of steps taken. This is the tip of the iceberg, big data could be used for adaptive premium pricing based on comprehensive health data for each customer. The problem is likely a skepticism toward new technology for which no historical experience is available.
Virtual healthcare includes healthcare services that are technology-enabled and are provided independently of location, such as video encounters with physicians, remote biometric tracking, and mobile apps for health management. According to a study by Accenture, using virtual health care for annual patient visits could save more than $7 billion worth of primary care physician time each year. For more, read: 78% of Americans Support This Revolutionary Healthcare Technology, but Only 21% Have Tried It
Continue Medicaid expansion
Currently 31 states, in addition to the District of Columbia have expanded Medicaid under the ACA. Kansas and North Carolina are in the process of expanding Medicaid while most other states are considering it. Find out where your State stands on Medicaid expansion.
Medicaid is the largest insurer with more than 70 million beneficiaries. Medicaid expansion has accounted for over 10 million of those enrollees. It is the main provider of long-term services for seniors and people with disabilities and pays for one-fourth of all mental health and substance abuse treatments. Forty percent of children rely on Medicaid through The Children’s Health Insurance Program (CHIP).
Under the ACA, the program has been opened up to more low-income adults with incomes of up to 138% of the poverty line — $16,400 for a single person — in states that opted to expand their Medicaid programs. Under the program, the federal government paid 100% of the costs of the expansion population for the first three years and is slowly lowering the reimbursement rate to 90%.
A July 2015 Government Accountability Office report — which relied on GAO’s past reports, documentation from the Centers for Medicare & Medicaid Services and interviews with CMS officials — also echoed other research: “Medicaid enrollees report access to care that is generally comparable to that of privately insured individuals and better than that of uninsured individuals, but may have greater health care needs and greater difficulty accessing specialty and dental care.” The report mentioned mental health care as a specialty area of concern. However some doctors do not take new Medicaid (or Medicare) patients do to lower reimbursement rates and additional paperwork.
A study published in JAMA Internal Medicine in 2016, that looked at survey data for three states and found Medicaid expansion “was associated with significantly increased access to primary care,” as well as “fewer skipped medications due to cost,” among other factors.
Adding long-term-care insurance (Medicare Part X):
According to the U.S. Department of Health and Human Services, a person turning 65 today has almost a 70% chance of needing long-term care services at some point in his lifetime. Long term care is a growing need with an aging American population. The individual long term care insurance marketplace has had many struggles with the current marketplace being reduced to just a few insurance companies offering individual long term care insurance policies (this does not include hybrid or combination life/annuity & long term care insurance policies or life insurance with long term care insurance riders).
It is important that long term care insurance be made accessible on a standardized, monitored basis as set forth in the NAIC model regulations. Since the private insurance marketplace has mostly not been successful, this is something that should be considered and made an option under the expanded Balanced Health Insurance Plan.
Medicare does not cover services that include medical and non-medical care provided to people who are unable to perform basis activities of daily living, like dressing or bathing. Long-term supports and services can be provided at home, in the community, in assisted living, or in nursing homes. Individuals may need long-term supports and services at any age. Medicare will pay for skilled nursing services, but it will only cover a maximum of 100 days in a nursing home, and it won’t pay at all for home aide services (when a person comes to your house to help you with ADLs and other basic activities). Medicaid will cover such services, but not until you’ve exhausted all other resources and are essentially broke.
Long term care insurance was included in the original Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, established a national, voluntary insurance program for purchasing community living services and supports known as the Community Living Assistance Services and Supports program (CLASS Act). The CLASS program was designed to expand options for people who become functionally disabled and require long-term services and supports.
The class plan would have allowed all working adults to enroll directly through voluntary premium contributions or through payroll deductions through their employer or directly. Benefits would have been payable to insured had multiple functional limitations, or cognitive impairments. The plan would have paid a monthly cash benefit that would be used for long term care insurance services (this is an overview).
The goal was to have the plan financed entirely through premiums of participants, however, at that time, the Federal Agency tasked with implementing the CLASS Act was not able to come up with a workable solution that would have had affordable premiums and had a useful benefit structure.
Another goal of the plan was to partially reduce the reliance on Medicaid. CLASS was to be the primary payer for individuals with Medicaid.
Planning and pre-funding long term care insurance needs is now more important than ever. Given the issues with the private long term care insurance market and that the CLASS program was not workable, then it is time for enacting a public-private partnership to make it work. Why can’t a long term care insurance program be set up with a similar public-private partnership as the NFIP (as discussed earlier)?
The Trump administration and Congress must support the ACA as is
House Speaker Paul Ryan stated after the recent defeat of the GOP’s/Trump’s “American Health Care Act” – “Obamacare is the law of the land, it’s going to remain the law of the land until it’s replaced.” Under Article II of the Constitution, the president is responsible for the execution and enforcement of the laws created by Congress. Therefore whether Trump likes or doesn’t like the ACA, which is his prerogative, he has a responsibility to all American citizens to support it.
The Trump administration therefore needs to act in good faith on the ACA. Unfortunately, The Trump administration pulled the plug on all ACA outreach and advertising in the crucial final days of the 2017 enrollment season. Individuals could still sign up for ACA plans, however, the administration stopped advertising that fact. This included halting all emails sent out to individuals who visited HealthCare.gov, the enrollment website, to encourage them to finish signing up. Those emails had proven highly successful in getting stragglers to complete enrollment before the deadline.
By taking these actions and threatening to take other steps to handicap the ACA, Mr. Trump is not fulfilling his constitutional duties to support something that is already law. As people, we’re faced all day in dealing with situations we don’t always like even if that includes eating our vegetables.
Members of Congress and the Senate must participate in the same way as everyone else:
Everyone needs to play fair. Documents obtained under the Freedom of Information Act show that unnamed officials who administer benefits for Congress made clearly false statements when they originally applied to have the House and Senate participate in D.C.’s “SHOP” Exchange for 2014. Notably, they claimed the 435-member House had only 45 members and 45 staffers, while the 100-member Senate had only 45 employees total.
The Federal Employees Health Benefits Program gives federal employees a choice of health plans and pays up to $12,000 of the premium. But the ACA kicked members of Congress and congressional staff out of the FEHBP, and said the only way they can get health benefits is through an Exchange.
The ACA bars businesses with more than 100 employees from participating in SHOP Exchanges. Until this year, D.C. barred businesses with more than 50 employees. By claiming that the House and Senate fit under those limits, they were able to draw money from the federal Treasury—i.e., a subsidy of up to $12,000 for each member and staffer.
What is the bottom line on the numbers discussed in this article?
Current total health care costs: healthcare expenditures were projected to reach $3.2 trillion (yes, trillion) in 2015 – or about $10,000 per person (Centers for Medicare & Medicaid Services, 2015).
Legitimate pricing: savings of 33% – $1 trillion
Terminating employer health insurance: Excluding premiums from taxes was worth about $250 billion in forgone tax revenue in 2013,
Fraud: health care fraud costs the nation about $68 billion annually with other estimates ranging as high as 10% of annual health care expenditure, or $320 billion
Virtual Health Care: $7 billion
Medicare Advantage overspending on inflated risk scores – $10 billion plus annually (Government Accountability Office).
Maintain the health insurance CEO tax cap: estimated $400 million in tax revenue (according to recent testimony to the House Ways and Means Committee by Thomas Barthold, chief of staff for the Joint Committee on Taxation).
Reviewing Medicare coding errors: $20 billion per year.
Cutting Tax Evasion: if all taxpayers were to report their income and pay their taxes in full, the average household would “earn” $4,276 to $8,526 based on the more likely to occur historical evasion trends – which is almost as much as spent per person each year on health care.
By simply adding legitimate pricing alone, there were would be no issue on health care funding. It’s simply a matter of implementing the principles of The Insurance Bill of Rights.
The bottom line
This will work because so much of this is already in place and a lot of the rest would be quick and easy to implement. As in all areas, knowledge is power. Consumers can take control of your insurance portfolio by becoming educated about insurance. Better education and understanding will lead to positive results for consumers and for the insurance industry. If a consumer purchases the right insurance coverage, they will meet their needs and the insurance industry will benefit from satisfied customers. Review The Insurance Bill of Rights and make sure that you understand how it applies as a consumer and a member of the insurance industry.
I have started a petition based on this artcle called “Fair Health Insurance For All” located at: https://www.change.org/p/fair-health-insurance-for-all. Please check it out and share your thoughts. And if you like this article, please forward it to friends, family and colleagues. Thanks for reading.
Love it or hate it, 2016 was a year that brought many surprises. And 2017 is looking like another year of unexpected outcomes. The saying goes, “May you live in interesting times.” And we are definitely living in interesting times, including in the insurance industry.
Here are 10 insurance questions for 2017:
1. Will this be the year that the U.S. insurance industry makes a definitive move toward level commissions or fee-based products across all product lines?
While no one knows for sure, it is unlikely that the ACA will be completely repealed any time soon. President-elect Trump, along with leaders in Congress, have vowed to repeal and replace, but doing so will be challenging given the lack of votes in the Senate. And while there are significant issues with the ACA, consumers do benefit. Also, healthcare organizations and insurance companies having spent millions of dollars to adjust to it. What is likely is that changes will occur on a gradual basis. The bottom line is that one of the most important benefits to U.S. citizens is the ability to purchase health insurance if you have any existing (or past) health issues. Prior to the ACA, it was challenging to get an individual health insurance policy, which created a bigger issue for individuals and for our overall society. Yes, premiums are increasing, and there are fewer insurers participating. At the same time, it is estimated that there are more than 20 million people with insurance under the ACA. Change will happen, just gradually. If the ACA is replaced, there remains the questions of how to fund it, if the current mandates (taxes and penalties) are stripped out. The funding is one of the core issues and does need to be revised. Insurance companies have also left the federal and state exchanges in a number of states, and they will need to be given incentives to return to the marketplaces.
3. What will happen with long-term care insurance (LTCI)?
The need for long-term care insurance is not going away; people are living longer, and healthcare costs are rising. Medicaid coverage is minimal and does not apply to most long-term-care expenses. Older LTCI policies have experienced significant premium increases for many reasons, but since the passage of the National Association of Insurance Commissioners’ Rate Stabilization Model Act, there have been fewer increases on newer policies (Read more: “What’s ahead for long term care insurance” ). Currently, hybrid long-term-care/life insurance policies are experiencing growth, but these complex policies are not a solution, as they are a step away from providing a direct protection against the specific risk being insured, which means they are more expensive than a stand-alone LTC policy. A new issue coming up is that some states have “filial responsibility” laws that obligate adult children to financially support their parents and are starting to be used by some nursing homes. Read about it here.
4. Will insurance agents go extinct?
No, insurance agents will not be going away. However, the way that insurance agents currently do business and have historically done business will be going away. With greater access to information and technology, insurance agents will become true advisers to their clients rather than simply transacting product sales. Professional insurance agents provide value to consumers when they help them understand how insurance policies work and when they assist consumers in making wise choices. The insurance agents who survive will be the ones who recognize that they need to align their interests with those of consumers and work in their best interests by recommending insurance coverage that consistently meets the needs of their clients. Insurance agents will need to follow the concepts outlined in The Insurance Bill of Rights. Mark Twain said, “The reports of my death have been greatly exaggerated,” and this certainly applies to insurance agents.
5. Will consumers finally discover the value of disability insurance?
Disability insurance is the most overlooked financial tool. Disability insurance is a necessity for anyone who depends on their income. If we are discussing a mandatory insurance coverage, disability insurance should be at the top of the list. Three in 10 workers entering the workforce today will become disabled for some period before they retire (Social Security Administration, Fact Sheet, January 31, 2017). This point was brought home by the fact that Colin Kaepernick did not play this year for the San Francisco 49ers until they purchased a disability insurance policy for him. Read more here.
6. Has the annuity marketplace hit its turning point?
The current annuity marketplace is filled with complex annuity options that are increasingly challenging for an insurance agent to understand, let alone being understandable for consumers, especially seniors, who are heavily marketed to. The annuity industry continues to face significant market conduct issues in terms of suitability and disclosures (Read about the investigation by the New York Department of Financial Services). Annuity companies that think outside the box and provide low-cost, easy-to-understand solutions will gain popularity. A number of leaders in the financial planning area are already discussing the value of single-premium immediate annuities in investment portfolios to help offset longevity risk (living too long). This will only happen with low-cost annuities and where agents can really provide value by recognizing and solving challenges that can only be addressed with annuities that serve the consumer by getting back to the core function of annuities.
7. Have we reached the tipping point for when the impact of the prolonged low-interest-rate environment will fully emerge on interest-sensitive life insurance policies?
The majority of universal life policies issued are facing the hidden danger of terminating long before they are expected to.This is due to lower-than-projected credited interest rates, which has led to reduced cash values. If a life insurance policy reaches a cash value of zero, it will terminate unless it has a no-lapse guarantee. The only way to keep the policies in force is to increase the premium, however, life insurance companies, for the most part, are not advising policy owners that they need to increase the premium and specifying the amount by which the premium needs to be increased. This situation has been exacerbated by the fact that a number of life insurance companies have had to increase their mortality costs (cost of insurance charges) to maintain profitability. Continuing to ignore this issue is going to have significant long-term ramifications for the stability and trust in life insurance companies and life insurance agents. This is affecting all types of life insurance that are not guaranteed products, just not as directly. Read more:Will Your Life Insurance Terminate Before You Do?
8. Is there truly an insurtech company that can add core value to the insurance process?
The insurance industry needs evolution, and not revolution. The majority of insurtech companies are really bringing us more of the same; they are really just “dressed up” insurance brokerages and insurance insurance companies. And while some do make use of technological breakthroughs, they are not making insurance breakthroughs, which is an important distinction. The real breakthroughs will come from when consumers can more easily understand insurance products and pricing and companies can use data to provide truly customized insurance product pricing, streamline underwriting, simplify products and riders and provide insurance products that people need, thereby eliminating those that don’t have a useful purpose.
9.Is it time for insurance policies to finally be used primarily for insurance purposes?
The insurance industry will recognize that it must get back to its core function, which is protecting against potential risks. When this happens, it will lead to better-optimized insurance products for consumers and longer-term business for insurance companies. This will especially be true in the areas of life insurance and annuities when the trend becomes using insurance to address non-insurance issues. Insurance is just insurance.
10. Will the insurance industry discover excellent customer service?
Quality policy owner service is not something that the insurance industry as a whole is known for. Companies that provide top-notch customer experiences thrive, are well-known for doing so and can be easily named (think: Nordstrom, Disney and Apple). Other companies are known for poor customer service, while most remain in the middle. FedEx, which used to be known for top service, now delivers packages at any time and leaves them all over the place. The point is that a quality policy owner experience will revolutionize the insurance process. If the insurance industry can learn to “delight” consumers at every step along the way from the policy selection process, policy application and underwriting process, policy monitoring and claims service, then the insurance industry will really move forward.
A significant part of the insurance industry and consumers have forgotten, for the most part, about why the industry exists. The policy holder pays into a pool through the insurance company and, if a certain event occurs, expects a claim to be paid. Very simple, right? So how has the insurance industry strayed so far from this simplest of concepts? And how have so many consumers purchased insurance products that have added so many complex layers to basic risk protection?
Yes, it is time for change in the insurance industry. Change is a part of life. And change is coming. The insurance industry needs to adapt to the current technological environment. At the same time, insurance consumers need to take advantage of all of the information available to them and increase their insurance literacy. Almost every single person in the U.S. has some form of insurance, but very few people have more than a general idea of what each of their insurance policies is and what it covers.
There is a constant buzz in the insurance industry about “disruption.” Why disruption? Is it because the term is trendy and has happened in other industries, or is it because disruption is actually needed in the insurance industry?
Is it more appropriate to say that the insurance industry needs to evolve, similar to how the investment world has already started to evolve?
Let’s look at the words themselves for the necessary direction, which will show why so many high-tech firms have failed in the insurance space and will continue to fail:
Disrupt: to cause disorder or turmoil in; to break apart; to radically change (an industry, business strategy, etc.), as by introducing a new product or service that creates a new market.
Evolve: to develop gradually or to gradually change one’s opinions or beliefs.
High-tech firms are focused on changing insurance like they have other industries, and it’s not going to work the same because they are focused on disruption rather than evolution. The insurance industry is one of the oldest industries in the world, with the concept tracing back centuries. Insurance is also a highly regulated industry. So just as it’s really difficult for a huge oil tanker to change course, it is equally challenging for an industry with the size and history of the insurance industry to change course or be subject to disruption. A slow evolution is what makes sense for the insurance industry.
The investment industry has evolved in many ways, and the technology firms that are entering the investment world are not focused primarily on disrupting the industry; rather, they are focused on more effective ways to provide advice, manage investments and gain greater efficiency.
The investment world is already further along than the insurance industry because there is already a fiduciary standard, with a greater expectation that the investment industry act in the best interest of their clients. Partially, this is because most investment advisers are compensated through some sort of fee arrangement rather than a commission.
The insurance industry has not changed in many ways and is just starting to adapt to our mobile society, new technologies, “big data” analytics and blockchain technology, among other factors. Currently, changes have been mostly limited to basic tasks like claims processing and some distribution activities. But really, most of the high-tech firms are still just selling insurance, rather than changing insurance. What is really needed is a change in the overall thought-process, including underwriting, policy servicing and home office operations.
Consumers expect and deserve more transparency, more efficient processes and more accurate results. When the insurance industry can deliver these, everyone will benefit. Insurance consumers also deserve advice that will help them best meet their insurance needs. Which is why The Insurance Bill of Rights was created.
What is really needed is to find a way to deliver insurance to the consumer in a way that makes the process more seamless, with optimized pricing for insurance products. Helping consumers become more insurance-literate and manage their insurance portfolio is where technology can help.
Compensation is a part of this and why I’ve written in the past regarding how the Department of Labor fiduciary rule will have a major impact long term on all insurance products, in addition to the ones it addresses inside qualified retirement plans. Major financial service firms such as Merrill Lynch are no longer offering commission-based products inside their retirement plans. While commissions in and of themselves are not necessarily bad, they can lead to market conduct issues and can increase unnecessary replacement of insurance products (and lead to churning of investment products).
Optimized insurance products and pricing are what will ultimately be of benefit to all. Consumers will be able to access insurance products that fit their needs and are priced more closely to their risk profile. Insurance companies will benefit from being able to have better data, which will help with their ability to price insurance products more efficiently. Insurance companies have had issues in pricing different types of insurance products, including long-term care insurance and life insurance. Technology and better use of data will help.
And where does that leave insurance agents? Insurance agents will still be necessary, as are investment advisers. Perhaps someday artificial intelligence will be able to replace a human, but that day is still not near. Consumers can benefit from the experience of a professional, dedicated insurance agent just as they can from the experience of other trained professionals. If Turbo Tax has not eliminated every tax preparer, then why would it be expected that insurance agents will be replaced by an automated process?
As Bob Dylan once sang, “The Time’s They Are A’Changin,'” and the next few years will bring a long-needed evolution rather than a disruption to the insurance industry.
If you would like to be a part of this positive change, please support the Insurance Bill of Rights and sign the petition at Change.org (here). If you are a member of the insurance industry, take The Insurance Bill of Rights Pledge. Let me know your thoughts.
As common as insurance is, most people do not understand this complex financial instrument.
According to the Bureau of Labor Statistics Consumer Expenditure Survey (2014), insurance is a consumer’s fifth highest monthly expenditure behind housing, transport, food and pensions. For many Americans, if you add up all types of insurance (auto, health, etc.), monthly total premiums can surpass housing costs.
But the insurance industry has its fair share of participants (companies, agents, wholesalers) who thrive on complexity and make sales that do not fit the client’s need. There has been a tendency — especially with annuities, life insurance and long-term-care insurance — to introduce insurance products with more options. And each time an option is added, it becomes more challenging to understand that product.
Often, this complexity is not a matter of intent; it is simply that even those within the industry or those who participate in the insurance procurement and review process (third party advisers such as financial planners, CPAs, etc.) do not understand insurance. The majority of people and companies do a good job, but there is a significant gap in insurance literacy in this country.
The Insurance Consumer Bill of Rights was created to provide simple, easy-to-understand guidelines for everyone involved in the insurance ecosystem, including consumers, insurance agents, wholesaler, insurance companies and financial advisers.
The Insurance Consumer Bill of Rights is based on the simple premise that insurance agents, wholesalers and companies should place the consumer’s interests first, to the best of their abilities. The Insurance Consumer Bill of Rights provides simple, clear and reasonable guidelines to accomplish this goal. It is a standard of excellence for all in the insurance industry.
The importance of this movement is that, for many years, insurance has been a black box, something people know they need, although they have no real, unbiased information about it. And most people do not have the right coverage to fit their needs.
In my 30-year career, starting as an agent before making the transition to a fee-based insurance consultant/litigation consultant/author/consumer advocate, I have seen that the situation behind the scenes is often not pretty. However, the majority of these situations could be avoided if all members of the insurance industry followed the Insurance Consumer Bill of Rights.
Insurance consumers should have the right to receive any information that they request in a timely fashion. They should also be provided with all relevant information needed to make a decision in an easy-to-understand fashion. The goal is to not flood the consumer with something like a mutual fund prospectus; rather, it is to provide them with useful information.
It is always a win-win situation when all parties come out ahead and are on the same side of the table. Truth always has a way of coming out, and, to get ahead in this digital world where there are fewer secrets and more information and choices, those who strive to provide the highest-quality service and information will thrive.
For many years, consumers have ended up with insurance they don’t need, with premiums they either cannot afford or really see no value in paying. It is time to change the conversation so that consumers end up with coverage that fits their needs, with premiums they can afford into the future.
The Insurance Consumer Bill of Rights is a playbook for consumers, agents and companies to follow that puts everyone on the same page.
Monitoring an insurance policy and making adjustments to an insurance portfolio is something that is almost always overlooked. Insurance needs change. Sometimes, the change is as simple as getting a new car, while other times it can be more complex and overlooked, like having a new child who is not added as a beneficiary to an existing life insurance policy.
This is where the Insurance Consumer Bill of Rights matters. Making these adjustments, just like having regular maintenance done on your car, is what will ensure that a consumer has the right coverage in place at the time of making a claim. If the right coverage is not in place at claim time, what is the point of having insurance?
While it is not a panacea, and there still would be bad actors and inappropriate sales, the Insurance Consumer Bill of Rights is a call to action and gives guidance to consumers on what to look for, what to expect and what they have the right to.
Knowledge is power, and the power should be in the hands of the customer. Having and knowing your rights will protect and benefit consumers, along with calling the insurance community to task when needed and helping consumers and agents optimize insurance coverage and minimize premiums. Join the Insurance Consumer Bill of Rights movement!
The Insurance Consumer Bill of Rights movement is gathering momentum, and I want to thank all of its supporters. Recently, the Insurance Consumer Bill of Rights has received numerous mentions in the press:
As part of a joint effort with Chris Huntley’s Whole Life Rebellion that called for signing the petition, Forbes.com’s Barbara Marquand stated: “Sign the ‘Insurance Bill of Rights,’ a petition created by Tony Steuer from InsuranceLiteracy.org. Among other things, the bill says agents should act in consumers’ best interest and recommend affordable and appropriate coverage. (Click here to view the article.)
In an article on PTmoney.com titled “The Truth About Whole Life Insurance — Ethical Obligations and the Insurance Consumer Bill of Rights), it states, “Doctors take the Hippocratic oath and financial advisers the fiduciary oath. These are ethical codes professionals swear to live by in the execution of their duties. As of today, the life insurance industry has no such code, which is a travesty. Tony Steuer (InsuranceLiteracy.org) has created the Insurance Consumer Bill of Rights on Change.org, which seeks to implement a similar code of conduct in the insurance industry requiring all agents to act in the consumers’ best interest. The desired result would be agents targeting consumers’ specific needs to provide them with the most affordable and appropriate life insurance for their unique circumstances. Insurance agents should be held accountable for the advice they offer.” (Click here to read the article.)
And that is just some of the talk. So, what’s the next step? Please continue to share the campaign via email and on social media. And you can now contribute to the Insurance Consumer Bill of Rights movement through the petition page on Change.org, or you can support the Insurance Consumer Bill of Rights movement on Indiegogo.