A Cynical Search for Loopholes

by Wendell Potter on May 27th, 2013

Insurers have discovered ways to avoid providing ‘essential benefits.’

There is an age-old tradition in this country: if you don’t like a law and can’t get rid of it, look for a loophole.

That’s what some companies that don’t want to comply with an important Obamacare requirement have done, and it appears they’ve hit pay dirt.

The provision of the law mandating that all new insurance policies must cover certain “essential” benefits will take effect January 1, 2014. From that date forward, all polices offered on the online insurance marketplaces in every state must cover 10 categories of benefits that range from prescription drugs and lab services to hospitalization and maternity and newborn care.

The sponsors of the law hoped the provision was among those that would all but eliminate the need for Americans to file for bankruptcy because of medical debt.

The United States is alone among developed countries in having medical debt as the leading cause of bankruptcies, even among people who have health insurance. That’s because a lot of the policies being sold today have such limited benefits, high deductibles and annual and lifetime coverage limits that many people realize after a serious illness or injury that their policies provide little help in paying medical bills.

“No longer will American families be a car accident or heart attack away from bankruptcy,” said Senate Majority Leader Harry Reid in response to the Supreme Court’s decision last June upholding the constitutionality of the law.

But as reported by the Wall Street Journal last week, corporate loophole hunters have invalidated Reid’s statement, which honestly was an overstatement even then. While Obamacare will make affordable coverage available to millions of Americans for the first time, several million others-primarily low and middle-income workers-will still be left out.

According to the Journal, regulations written by the Obama administration pertaining to employers are being interpreted by health insurance benefits consultants as applying only to small businesses that buy coverage for their employees in the state online marketplaces. Those marketplaces, also called exchanges, were created for employers with up to 100 workers and individuals who cannot get coverage through the workplace.

So the good news is that anyone buying coverage through a state exchange will have the assurance of knowing that their policies will cover essential benefits and have lower deductibles than many policies being sold today.

The bad news for millions of others, however, especially those who work in low paying jobs at places like chain restaurants, retailers and nursing homes, is that many of the consumer protections that apply to policies bought through the exchanges will not apply to them. The adequacy of their coverage will depend on how much money their employers are willing to devote to health insurance.

We’ll probably never know, but I suspect the language in the law pertaining to employer-sponsored coverage was written in a purposefully ambiguous way by lobbyists for insurance companies that have found selling inadequate coverage quite profitable. Some of the biggest insurers, including Aetna, Cigna and UnitedHealthgroup, bought companies several years ago that specialize in so-called limited-benefit plans. You can be certain they would try to protect their investments, especially considering that limited-benefit plans typically have high profit margins. That’s because the insurance companies that sell them never have to pay out much in claims.

And that’s why so many Americans filing for bankruptcy because of medical debt actualy have insurance. According to a 2009 study by Harvard researchers, 78 percent of people who listed medical debt as the leading reason for their bankruptcy filings had insurance.

Those researchers found that medically related bankruptcies have been rising steadily-from 8 percent of bankruptcies in 1981 to 62 percent in 2007. Also growing steadily during that timeframe was the number of underinsured Americans.

The Commonwealth Fund recently estimated that approximately 30 million Americans are enrolled in policies that do not offer adequate protection.  The organization’s Biennial Health Insurance Survey of 2012, released last month, found that 46 percent of adults between the ages of 19 and 64-an estimated 84 million people-did not have insurance for the full year or were underinsured and consequently unprotected from high out-of-pocket costs. Two of five adults reported that they had problems paying their medical bills or were paying off medical debt.

In response to a question last month about the implementation of the reform law, President Obama said, ” … in a country as wealthy as ours, nobody should go bankrupt if they get sick.” Regrettably, because of loopholes in Obamacare that undoubtedly will be exploited by employers more concerned about the bottom line than the health of their employees, that will continue to be little more than an aspiration for years to come.

Wendell is a Senior Analyst at The Center for Public Integrity where this first appeared on 5/27/2013.

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