At the end of the day Tuesday, HHS quietly announced that the administration will allow junk health insurance company Mega Life and Health, in Maine, to evade rules under the federal health reform law that require insurance companies to spend 80% of premiums on actual patient care, instead of profits and overhead.
The limited-benefit insurance policies sold by Mega Life and Health (a subsidiary of Goldman Sachs/ Blackstone-owned HealthMarkets Inc.) don’t pay the bills when consumers get sick. A typical policy in Maine puts payment caps on benefits, like a $2500 per day limit on chemotherapy treatments that can typically cost 2 to 8 times that amount. As HHS explained it (in the letter granting the waiver):
Although Maine residents can purchase high-deductible policies from both Anthem and MEGA, Anthem policies are typically more comprehensive than MEGA policies. All Anthem policies, in addition to having no coinsurance requirements, provide coverage of a wide range of benefits not covered under MEGA policies, including maternity expenses, prescription drugs, and skilled nursing care. Likewise, all Anthem policies cover certain other benefits like physician office visits and mental health care, which must be purchased at an additional cost under a MEGA policy.
Dana Christensen of California was left with $450,000 in medical bills when her husband Doug died of bone cancer, and Mega refused to pay in spite of the special chemotherapy coverage they had purchased just in case Doug’s cancer returned.
Mega sells exactly the kind of junk insurance that the medical loss ratio rule was intended to eliminate. The 13,000 Maine consumers with Mega insurance policies could certainly use the protection. Worse, although the waiver is supposed to be only until the reform law takes full effect in 2014, there’s nothing to stop them from trying to extend it.
No insurance company should be allowed to continue selling policies that don’t provide the benefits they promise to consumers. But Mega had Maine and HHS over a barrel. The company threatened to pack up ship and leave the state if they had to limit the outrageous executive compensation, and outsized fees they pay to brokers, in order to spend more money on patient care (see Unite HERE’s letter on HealthMarkets’ dismal record.)
The administration shouldn’t let insurance companies bully them into gutting whole sections of the federal reform law.
Because the Maine waiver was granted, every insurance company in America is probably meeting with state insurance commissioners to make the same threat – that they’ll stop selling insurance if they have to follow consumer protection rules. Regulators should assume that such threats are little more than insurance companies blowing smoke.
In California, when auto insurers swore they would abandon the state if voters approved a strong rate regulation initiative on the ballot in 1988, Proposition 103, nothing of the sort happened. In fact, California’s auto insurance market is one of the most competitive in the nation today.
Federal health reform should result in the death of junk insurance companies like Mega, or at least force them to sell better products to consumers. If endless exemptions are granted to preserve the status quo, we'll be left with a law that's more loophole than reform. But Maine is unique in a number of ways that made Mega’s threat to leave both more likely (no matter how greedy) and makes either solution perilous for consumers.
First, there’s Mega’s history. The last time Maine implemented a minimum medical loss ratio, in its small group market in 2004, the company did abandon the state rather than give up its huge profit margins.
Maine is also grappling with the fact that, if Mega were to leave, there is just one other insurance company – Anthem – for the vast majority of those consumers to turn to. Anthem's policies are typically twice as expensive, because they provide real benefits.To make premiums comparable to Mega's, consumers would have to accept deductibles up to $30,000 for a family. The likelihood is that, if Mega pulled out of the market, consumers would forgo insurance because they couldn’t afford the alternative. Maine’s insurance commissioner is counting on provisions in the federal reform law to expand access, including the creation of two mandatory multi-state insurance plans and a nonprofit co-op, so that by 2014 consumers have real alternatives.
There’s a good argument that consumers would be better off saving their money than paying into an insurance policy that may not pay out when they get sick. But, faced with two evils – no coverage for many Maine consumers or Mega coverage – HHS chose Mega and approved the waiver. Along the way, Maine had to provide hard data from the insurance company to detail the current situation, and what would happen if the waiver wasn't granted. HHS should have also, at a minimum, required Mega to steadily improve its medical spending over the three-year period, rather than giving it free rein to continue with the status quo. As it is, consumers in Maine will have to cross their fingers for the next three years and hope they aren't unlucky enough to have medical needs that Mega won't cover.
The medical loss ratio is supposed make health insurance companies more efficient and end such lose/lose situations for consumers. If a parade of waivers in other states follows Maine's exemption, it will make the rule meaningless.