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How Health Insurers Became Cable Companies

Blue Cross Blue Shield logo on the side of a brick building
photo by Tony Webster

The folks living in Pinal County, Arizona, just went from being a singular cautionary tale to being part of a worryingly large crowd.

Last month, I wrote about the prospect that Pinal County residents could find themselves without options on the health care exchanges this fall, after Aetna announced it would pull out of Arizona. That would have made Pinal the first county in the country to offer no Affordable Care Act Marketplace plan at all, leaving residents without access to federal subsidies (though still subject to the penalty for not carrying health insurance if they were unwilling or unable to buy any).

After Aetna’s announcement, however, Blue Cross Blue Shield of Arizona said it would reverse its previous decision to exit the marketplace in Pinal County. Now, instead of no coverage, Pinal residents will be able to choose among any plan – as long as it’s offered by Blue Cross Blue Shield. This puts the county in good company; according to a recent analysis by the Kaiser Family Foundation, 31 percent of U.S. counties will offer marketplace enrollees only one provider option this fall.

Welcome to the cable company model of health insurance. Everyone knows how much customers love their cable companies.

The irony is that the law was supposed to decrease costs and promote competition. Instead, we have ended up in many places with monopoly insurers who offer plans only because there is no competition there. Indeed, Jeff Stelnik, the senior vice president of strategy, sales and marketing for Blue Cross Blue Shield, seemed to reflect the assumption that Aetna had been primed to take advantage of the opening left by other insurers’ departure. “We were caught a little bit by surprise that Aetna would not enter Pinal County,” he told The Arizona Republic.

This is not to say that the picture will immediately be rosy for even monopoly insurers. In June, Blue Cross Blue Shield of Arizona announced that selling to consumers in Pinal County, and neighboring Maricopa County, was just too costly. The insurer reported that it lost $185 million on individual marketplace plans in 2014 and 2015.

Now that it has changed its mind about Pinal – though not nearby Maricopa – the insurer will provide Affordable Care Act plans in 14 of Arizona’s 15 counties next year. It expects to be the only marketplace option in all but one of those places. As the insurer is not a charity, it is unsurprising to hear that it has requested permission to dramatically increase its rates – by more than 50 percent, according to CNBC.

Now, as ever, the Affordable Care Act supporters’ answer to such spikes is that consumers need not worry about the real cost of their insurance plans. After all, the reasoning goes, customers will qualify for subsidies anyway. Some will, but some won’t and some will get less in subsidies than they expect.

Rates will also continue to rise every year, especially in places with a single provider. Why wouldn’t they? Many of the people who will pay these monopoly rates have pre-existing conditions, so they have incentive to pay even hiked-up prices as long as they can. As the cable provider would say, why not raise rates when there is no alternative? Don’t worry – insurers can probably bundle HBO and landline service along with your high-deductible, limited-network health care plan, which may or may not get you in to see a doctor when you need one.

The single provider per county model could also create another pricing issue. While insurers have pricing power in many places because of their customer volume, they also must organize a provider network in the areas they offer Affordable Care Act plans. Consider Alaska, one of the states expected to have one insurer in most or all of its counties (they call them “boroughs” up there) next year. A recent column for the Alaska Dispatch News investigates the state’s above-average medical costs and suggests the main culprit may be the limited number of doctors, especially those with relatively rare specialties, among whom insurers can choose.

Alaska may be an extreme case – the state’s version of Blue Cross Blue Shield reportedly covers the cost of patient travel to have expensive procedures performed by network doctors in the Lower 48 because it is the more economical option – but it is not hard to imagine such price pressure on even a smaller scale. If you are the only orthopedic surgeon in a given area, you have no incentive to lower your prices at an insurer’s request. After all, if the monopoly insurer doesn’t like the prices you set, where else will it go?

In the midst of all of this, President Obama has been urging insurers to just hang in there while regulators do what they can to strengthen the exchanges. He invited insurance executives to the White House last week to discuss the state of the industry, though Politico reported that Aetna and UnitedHealth were notably absent. The president and the insurance executives, however, are all well aware that the ultimate fate of the Affordable Care Act will hinge on the upcoming elections. The law that unofficially bears Obama’s name will soon be out of his hands.

For now, as Pinal County has discovered, the law is working precisely backwards. The Affordable Care Act was described as a way to create competition in the health insurance market and drive costs down. In many places, it has done just the opposite, driving companies out of the market and clearing the field for whoever is left.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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