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How to punch yourself in the face

By Jay MacDonald · Bankrate.com
Friday, September 24, 2010
Posted: 7 am ET

Here's a fun exercise: pull your writing hand as far away from your body as possible, make a fist, then drive that fist as hard as you can into the side of your face. That's precisely what a Who's Who of major insurance companies did this week when they stopped selling health insurance policies for children because they didn't like the terms set forth by the Affordable Care Act, or ACA, that went into effect Thursday.

The Los Angeles Times reports that the nation's top health insurance underwriters, including Aetna, Anthem Blue Cross, Cigna and UnitedHealth Group, have decided to cease writing new "child-only" policies in various states rather than comply with the new healthcare reforms.

The major reason: the ACA requires insurers to cover people younger than 19 regardless of their health histories or preexisting conditions. A good bet as runner-up reasons: Insurers can no longer put lifetime dollar limits on benefits or cancel policies when the insured gets sick.

The report cites state and national experts as saying "as many as an estimated 500,000 children nationwide could be affected." Affected as in shut out.

In response, Anthem Blue Cross explained its decision this way: "Unfortunately, this has created an unlevel competitive environment." The companies say they sell relatively few kids-only policies anyway. Which I guess means their shareholders are cool with dropping the little underperformers.

In response to the health insurance cabal's response, White House Press Secretary Robert Gibbs shot back: “It's obviously very unfortunate that insurance companies continue to make decisions on the backs of children and families that need their help." The assumption is that, lacking a private insurance option, very sick kids will end up on the already-stretched-thin public health program.

Big insurance doesn't walk away from any potential revenue stream easily or without careful consideration. And given their public image of late, they're hardly inclined to invite criticism. Standing on the yacht and deciding not to throw a lifeline to a drowning kid would seem foolhardy at best in any "competitive environment."

And yet, there it is. Business decision, don't you know. Uneven playing field and whatnot, pip pip. Terribly inconvenient for us but we'll soldier on.

Tell it to the parents. Tell it to the kids.

Can someone please explain how cutting off sick children is the right thing to do? I'd especially love to hear from any health insurance brokers and agents out there.

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11 Comments
Ann H
September 28, 2010 at 12:13 pm

Thank-you, Jay.

Jay MacDonald
September 28, 2010 at 11:35 am

Hi, Ann: I know it sounds contrived, but server problems delayed the posting of your (and other) comments, including mine, for several days. My apologies. And I would like to point out that my blog about insurance companies dropping child-only policies was aimed solely at those companies, not at any individual agent or broker. Why would I taunt agents? We're all in this together, which is pretty much my working definition of insurance. As you say, this is a knotty issue compounded by politics that warrants a closer look. Like most of the populace, I'm trying to decypher the fine points of the ACA. Fortunately, thanks to this forum, we have an opportunity to hear from longtime agents like yourself who are steeped in these products and their ramifications. Thank you for sharing. As for the courage to amend my miscommunication, I encourage you to stay tuned for upcoming blogs on this subject.

Jay MacDonald
September 28, 2010 at 11:28 am

Thanks for your response, Stevie. The kids-only insurance portion of the ACA is intended to correct a gaping hole in insurance regulation that allows issuers to deny coverage or cap benefit amounts to children based solely on pre-existing medical conditions. This can easily occur when a child has been treated prior to being included under their parent's health policy, for instance when a parent changes jobs. Your concerns that the new regulations could lead to adverse selection, with insurers being forced to accept a flood of sick kids, have been addressed by the Act. In your first example, Timmy could not simply enroll on the way to the hospital. Issuers are still free to restrict enrollment of those under age 19 to specific open enrollment periods. Here are a few other tools that issuers are free to use under the Act to reduce their risk exposure, directly from the health.gov Web site:
• Adjusting rates for health status only as permitted by State law (note: the Affordable Care Act prohibits health status rating for all new insurance plans starting in 2014);
• Permitting child-only rates to be different from rates for dependent children, consistent with State law;
• Imposing a surcharge for dropping coverage and subsequently reapplying if permitted by State law;
• Instituting rules to help prevent dumping by employers to the extent permitted by State law;
• Closing the block of business for current child-only policies if permitted by State law; and
• Selling child-only policies that are self-sustaining and separate from closed child-only books of business if permitted by State law.
The need to provide a safety net for sick kids is so great that some states are considering requiring issuers who offer family coverage to also offer child-only policies.
The reason that insuring sick kids is the right thing to do, aside from what should be society's moral obligation to do so, is that, to quote health.gov: "Research has shown that, compared to those with insurance, children who are uninsured are less likely to get critical preventive care including immunizations and well-baby checkups. That leaves them twice as likely to miss school and at much greater risk of hospitalization for avoidable conditions."
In other words, they're likely to cost society down the road if we don't help them early.
As for any fears of forcing insurance companies out of business, they hardly need President Obama's help: their rate increases and outdated business models have been doing that job quite well, in my opinion. The decision by these health insurance companies to take their football and go home on this issue because the game isn't going their way is yet another example of greed over need.

C. Burke
September 28, 2010 at 10:12 am

All I can say is, how could you NOT see this one coming? Now part 2 will come up when companies start dropping company sponsered insurance because it's cheaper to spend $2,000 on a tax penalty (or is it $5,000, I can't remember, sorry!) per employee than $8,000 on an insurance policy. Again, business decision. "Let the government pay for it", they'll say.

Ann H
September 27, 2010 at 11:29 pm

Because the insurance companies would go bankrupt and we would all be without insurance.

Ann H
September 27, 2010 at 11:19 pm

I likewise submitted a comment TWICE and now is the 3rd time. You asked for comments from insurance agents. Why are you refusing to publish it? Below is the 3rd submission of this comment. Let's see if you publish this one.

Thank you for asking for input from a health insurance agent/broker. I have been a health insurance agent for 30 years. Sounds like I'm your enemy, right? No. I have 3 kids that I've adopted from the foster care system, a spouse, and I house and care for my mentally retarded sister. Yes, agents have a heart and care about the weak and vulnerable. We care about sick children.

We can still get children covered, but just UNDER A PARENT'S policy. All that the insurance companies did was discontinue selling policies IN THE FUTURE to a child by himself. The new healthcare reform law stated that insurers had to pay for the pre-existing conditions for children, WHEN COVERED UNDER A PARENT'S POLICY. So they discontinued the future sales of "child-only" policies where a parent is not insured.

It struck fear in Americans when they heard something like "insurers dropping coverage for children". Some people thought their children would be dropped from their current coverage. People who currently insure their children under a "child-only" policy were especially fearful that the in-force child-only policy would be cancelled. Not true. I have communicated with many parents and helped calm their fears over this. Yes, agents have hearts. Yes, agents work to insure people, not uninsure people.

This decision by insurance companies is for future sales. In the future, in accordance with the language in the healthcare reform law, insurers must pay for the pre-existing condition of a child, when that child is covered UNDER A PARENT'S POLICY. That's the way the law reads.

Politicians have made a heydey out of flagrantly inflammatory language over this, trying to blame those bad insurance companies. Actually, the politicians who wrote the healthcare reform bill did a sloppy job of this provision from the start. Actually, the law states that the insurance company has to pay for the pre-existing condition of children, without a waiting period or exclusion. It doesn't state that insurance companies have to approve the applications for sick children at all. These are 2 different issues. Approval of the application, regardless of the health history, is called "guarantee issue" in insurance terminology. That's one issue. No waiting period/exclusion for the pre-existing condition is the other issue. So, when congress wrote this provision in the bill, they didn't put "guarantee issue" in it, just no waiting period/exclusion for pre-existing conditions. But the insurance industry nearly 6 months ago, agreed to go ahead and do guaranteed issue anyway. Bad insurance companies? They didn't have to, you know. Kathleen Sebelius, the secretary of the Health and Human Services made another heydey out of this pretending that the insurance companies were so bad. Actually Congress wrote the bill sloppily. If they wanted "guaranteed issue" and "no pre-existing condition waiting period" to both be in there, they should have written it so. So, when the insurance companies responded by saying they would include "guarantee issue" even though it wasn't written in the law, the insurance companies through AHIP stated that they would do so when the child was insured UNDER A PARENT'S POLICY, just like the law states, and the insurance companies reminded Kathleen Sebelius that there would be a cost for this in increased premiums because you can't expect them to insure an influx of more medical expenses without raising premiums. Kathleen Sebelius agreed, and heralded her communication with insurance companies by stating, "Insurance Companies back down...".

Insurance companies are allowed to leave any market that forces them into bankruptcy, you know. We're lucky they are staying in this market, and we can all be thankful we all have our policies after the sloppily written, ramrodded bill was passed. We're lucky they agreed to "guarantee issue" the applications for children when covered under a parent's policy, because the "guarantee issue" language is not in the law and insurance companies didn't have to do it. We're also lucky that insurance companies fixed another one of Congress's blunders when insurers began including children to age 26 BEFORE that particular provision of the law took place. Congress wrote that provision sloppily, too. Congress made it effective 9/23/2010 or the policy anniversary date thereafter, but many of those adult children graduated from college in May and would have been without coverage from May to September or even later. The insurance companies moved in and covered that gap voluntarily, because they saw that Congress made a whopping mistake. And for another mistake Congress made, insurance companies are now voluntarily allowing children to age 26 to be insured on most dental and vision plans across the nation, even though Congress very sloppily only made that provision apply to medical plans, not the children's dental & vision plans. Bad insurance companies?

Once again, I thank you for asking an insurance agent to respond, even though your offer sounded like a taunt. I have a request for you. Do you have enough courage to amend your miscommunication by rewriting your article and clearly telling the American people to not fear that their children are being dropped from insurance, because this decision is only about future sales, only about no child-only polices, and insurers will still insure a child (without a waiting period/exclusion for pre-existing conditions) when that child is covered UNDER A PARENT'S POLICY, exactly as the healthcare reform law states.

John O’Meara
September 24, 2010 at 11:12 pm

Forgive me if this posts twice but I gave it a long time and do not see it yet.

For someone writing on a financial website, I find your argument incredibly ignorant of the effect of incentives on human behavior. You note that companies aren't in the habit of both walking away from a significant revenue stream as well as inviting public criticism but you don't even attempt to comprehend why they might do so. Of course the answer is that they will lose significant money if they continue offering child-only policies. They will lose money because people who might have bought the policies now have all the incentive to wait until the child is sick before getting the coverage. They will lose money because every family without current coverage that has a child with a preexisting condition will buy a child-only policy because it is an immediate financial benefit for them to do so, but those family's whose children don't have preexisting conditions will not buy them because they can wait until the child is sick. They will lose money because families buying individual plans, or those whose insurance is offered through their employer but is mostly or completely paid for by the employee will buy plans that cover themselves and their spouse but not their children. I get mailed a rate sheet by a health insurance broker and employee/spouse only plans are 15%-25% cheaper than family coverage. Why would anyone pay a few hundred dollars more for family insurance when you can get the cheaper coverage and then buy the child policy only if needed? Insurance companies refer to it as adverse selection so perhaps you should look up the term and think how it applies to the current market for child only policies. And then perhaps you should read up on Bastiat and the unseen effects of laws. In this case how many more people would be interested in the child only policies if they are available on demand.

Explain how cutting off children is the right thing to do? It is for a company if continuing to offer the policies means driving itself out of business. If that happens the company's own employees and shareholders are the ones who are devastated and the company is no longer even in the position to continue insuring children or anyone else. But I guess you don't have to worry about such silly things as long as someone else is paying the bill.

John O’Meara
September 24, 2010 at 10:03 pm

I find your argument incredibly ignorant of the effect of incentives on human behavior for someone writing on a financial website. You note that companies aren't in the habit of both walking away from a significant revenue stream as well as inviting public criticism but you don't even attempt to comprehend why they might do so. Of course the answer is that they will lose significant money if they continue offering child-only policies. They will lose money because people who might have bought the policies now have all the incentive to wait until the child is sick before getting the coverage. They will lose money because every family without current coverage that has a child with a preexisting condition will buy a child-only policy because it is an immediate financial benefit for them to do so, but those family's whose children don't have preexisting conditions will not buy them because they can wait until the child is sick. They will lose money because families buying individual plans, or those whose insurance is offered through their employer but is mostly or completely paid for by the employee will buy plans that cover themselves and their spouse but not their children. I get mailed a rate sheet by a health insurance broker and employee/spouse only plans are 15%-25% cheaper than family coverage. Why would anyone pay a few hundred dollars more for family insurance when you can get the cheaper coverage and then buy the child policy only if needed? Insurance companies refer to it as adverse selection so perhaps you should look up the term and think how it applies to the current market for child only policies. And then perhaps you should read up on Bastiat and the unseen effects of laws. In this case how many more people would be interested in the child only policies if they are available on demand.

Explain how cutting off children is the right thing to do? It is for a company if continuing to offer the policies means driving itself out of business. If that happens the company's own employees and shareholders are the ones who are devastated and the company is no longer even in the position to continue insuring children or anyone else. But I guess you don't have to worry about such silly things as long as someone else is paying the bill.

Stevie Nichts
September 24, 2010 at 7:24 pm

I just resubmitted a comment I submitted hours ago. Jay, any particular reason why you're shunning it?

Just curious.

Stevie Nichts
September 24, 2010 at 5:16 pm

I'm not an insuror, and don't work for one. Unlike a lot of people, though, I know how insurance is supposed to work: A whole bunch of people buy insurance. They pay premiums that go into a pot o' cash. Most of them don't get sick a lot, so the pot o' cash grows. The few who DO get sick get doctors who are paid from that pot o' cash... to which the sick people have contributed. In other words, the sick are subsidized by the well. There may even be cash left over; that's called "profit."

Now, ObamaCare does away with this time-tested risk-sharing plan. A parent now doesn't have to bother insuring their child - or paying for insurance - until he becomes very ill. Then, they could literally enroll little Timmy on the way to the hospital. Since Timmy's parents haven't paid anything into the insurance pool, they're getting more out than they paid in. To put it in words that may sound familiar, they're getting more than their Fair Share.

Now, if Jane's parents do that -- and why not? It's legal -- it makes the problem worse. And if a whole lotta parents do that, at some point there won't BE any money in that pot. But the insurance company still has to pay for Timmy's or Jane's health care. That means that the insurance company will not only NOT make a profit; they will LOSE money.

What's to stop a lot of parents from doing that? It's a rational decision: You sign up Timmy, pay a premium, and Timmy gets scads of health coverage. And then... what's to stop them from cancelling the insurance? The insurance company can't, but the parents sure can. Then, if Timmy gets sick again, rinse and repeat.

If enough people do that, insurance companies will lose a whole lotta money. If a company loses too much money -- even the evil insurance company -- that leads to something called "bankruptcy." Then they don't offer insurance at all.

Can someone please explain how legislation seemingly designed to force insurance companies out of business is the right thing to do?