An Insurance Market in Crisis

Competition Is Not Working

In our previous posts in this series, we focused on critical cost and access issues confronting our state: rising premiums and out-of-pocket costs, as well as restricted networks that all too often result in surprise out-of-network bills. These problems are very much connected to our current system of multiple insurance plans providing coverage to small risk pools in a state with a small population.

They also speak to the larger issue of market competition, the alleged key to controlling costs (and providing consumer choice). The more competitive the market, it is presumed, the lower the price of coverage. The principle of market competition in the health care arena is often touted by those who want to maintain the current private insurance system. But what does our experience show?

A Dysfunctional Insurance Market

In our August 2 post, we pointed out the US Justice Department's July decision to file suit to prevent two mergers that would reduce the number of large, national insurance companies from five to three. The history of market competition has been one of encouraging mergers in order to beat out the competition.

Mergers are not only occurring among health insurance carriers. We are also seeing market competition pressures and subsequent mergers in physician practices and hospitals. And mega-companies clearly have more market share and greater clout to charge the prices they deem necessary to make a profit.

During the debate over the Affordable Care Act (ACA), supporters of the health insurance exchange approach emphasized the need to establish in every state a consumer marketplace where purchasers of insurance could compare apples to apples and move in and out of plans according to their needs. They argued that the ability of consumers to choose a policy and to change plans when their needs changed would force insurers to lower premiums. This sounded logical, since one of the tenets of a free market is the ability of consumers to select whomever they want to do business with.

But six years after passage of the ACA, how has this worked out? Specifically, what is going on in terms of a competitive exchange marketplace in New Mexico?

We know that Blue Cross and Blue Shield withdrew from the exchange for the 2016 calendar year after the company's request for a 51.6% increase in premiums was rejected by the state's Office of Superintendent of Insurance, which reviews all such requests. The company now plans to return for 2017, but it is currently proposing an 83.1% increase over its previous rates. In the meantime, Presbyterian announced its withdrawal from the exchange for 2017. Exchange participants' health care needs are very costly, these carriers claim. Plans offered through the exchange are attracting too many high-risk patients—patients who have postponed needed healthcare services for years.

And it's not just Blue Cross and Blue Shield and Presbyterian that are facing higher costs covering policyholders who purchased coverage through the individual exchange market. Other carriers, such as New Mexico Health Connections, are also requesting substantial premium increases.

Insurance Outside the Exchange Is Also Volatile

Premium increases are not just a problem in the insurance exchange. Winthrop Quigley, in his July 14 column in the Albuquerque Journal, reminds us that "companies repeatedly requested double-digit increases in premiums long before Obamacare." And this was at a time when insurers could refuse to insure those who were deemed to be high-risk patients.

Robert Pear of the New York Times also reports premium increase problems in the private employer market.

These changes in the insurance market, both within and outside the exchange, create serious problems for both consumers and employers.

New Mexico Superintendent of Insurance John Franchini stated the following to Santa Fe New Mexican business editor Bruce Krakow, as reported in Krakow's July 15 column

Franchini said the insurance market is much too volatile with carriers coming and going. That forces consumers to change doctors or providers, frustrating business owners and consumers who have to worry about in-network insurance coverage every time they change companies. 

And, from the insurance perspective, Kurt Wroel, the chief actuary for Pennsylvania-based Geisinger Health Plan, points out that turnover is making it more difficult for insurers to predict costs.

The whole point of what we do, the foundation of good health insurance, is to develop long-term relationships with our members and to make long-term investments in their health. It's not like buying a book on Amazon.

Health economists have long recognized that the market system does not work to control health care costs. Adaptations to new market conditions, critical to the theory of the benefits of competition, mean that insurers are not able to maintain a large, stable, and predictable base of consumers. Instead, consumers bounce around as they or their employers are forced to change plans. Mergers are attempts to expand pools and control market share, but, as the Department of Justice points out, there is little benefit of such moves to consumers and employers, or to health care providers.

Continuity of care with your family doctor who saw you and your family for years is fast becoming an aberration. 

What Do All These Problems Point To?

The problems that we are describing (and these are not the only ones) are due primarily to the fact that our state with its small population has a number of carriers that are dependent on small risk pools. While Presbyterian may insure over 400,000 people, these people are covered under different policies with varying coverage and out-of-pocket costs.

This fractured system clearly impacts physician and hospital overhead. (Private practice has diminished substantially, as more physicians become fed up with the bureaucracy and paperwork and prefer to be employed by hospitals.) And, as the Blue Cross and Blue Shield and Presbyterian experience illustrates, small pools create higher risks and, subsequently, higher costs.

So, it's the private insurance system that is the problem, not just the insurance exchange approach. Add this to drug companies jacking up the prices of needed pharmaceuticals, and we have an out-of-control health care system. Something new and dramatically different needs to be done. And the New Mexico Health Security Act is more needed than ever.