This article was first posted March 1, 2014.
While the Patient Protection and Affordable Care Act (aka Obamacare) is a big improvement for Americans forced to buy their health insurance in the individual market, there are still a whole host of ways an insurance company can cheat you in one way or another. Here are the Top 5.
1) Excessive overhead charges
Obamacare requires health insurers to spend a minimum of 80% of the premiums collected from customers on actual medical care, and no more than 20% on executive bonuses, private jets, and other trappings of a large for-profit bureaucracy. Medicare and Medicaid spend 98% to 99% of their budget on medical care and less than 2% on administrative costs. (The Adminstrator of the Centers for Medicare and Medicaid Services makes about $165,000/year and flies commercial.) That 18% difference amounts to almost $2,900 of the $16,000 annual health premium for the average family. (Don't expect a thank you card from your health insurance company CEO for keeping the company plane in jet fuel.)
To be fair, that 20% limit on insurance company overhead is a sharp departure from the kinds of abuses seen prior to the law's enactment. For example, in 2011 Aetna had to roll back premiums for some 15,000 Connecticut residents to comply with the 20% cap. On some Aetna health plans, as little as 64% of the premiums paid were spent on health care and 36% was lost to overhead expense.
It's hoped that market forces and competitive pressures will move insurance companies to reduce their overhead expenses -- even below the 20% cap. We'll see in mid-2015 when they report their 2014 financial results.
2) Forcing you to accept inflated prices for generic drugs
Most health plans require you to purchase your prescription medications from their approved pharmacy (often a Pharmacy Benefit Manager (PBM) like Medco, ExpressScripts or CVS/Caremark.) Pharmacy Benefit Managers tend to be among the nation's least trustworthy businesses. The rap sheets (see links below) of the largest PBMs reveal long, documented histories of fraud.
The theory behind Pharmacy Benefit Managers is that by pooling the interests of a large number of drug purchasers (after its recent merger with Medco, ExpressScripts fills 1.4 billion prescriptions annually), they would be able to get volume discounts and lower prices for their members. In practice, many customers find price gouging and poor customer service.
For example, I take 3 generic medications and got prices for several pharamacies in my neighborhood for a 90-day supply of each at Goodrx.com. Here are the results.
There is no requirement that you use your health insurance when you need medical care. You can always just pay cash and not involve the insurance company. But if you do so, that money you spend on medical care will not count towards your in-network annual deductible.
My insurance plan has a $5,000 annual deductible and my spending for health care averages about $1,500 per year. So rather than get cheated by Express Scripts, I'll just pay cash and avoid the $1,740/year overcharge. If I have an accident or incur other medical bills that put me over my deductible, I won't get credit for the $760 I paid for my prescriptions outside of the approved, price gouging ExpressScripts pharmacy.
3) Price gouging on lab work and x-rays
I typically get some simple lab work done 3 or 4 times a year and was surprised when the doctor's office was charging double or triple what it cost to order the same tests online. (I've used MDLabTests.com and DirectLabs.com) To add insult to injury, both on-line vendors sent the samples to the same LabCorp facility as my doctor. As with prescription drugs, if you go out-of-network to perform lab work, it won't count towards your annual deductible.
I've also seen the same thing with x-rays, MRIs and other imaging services. If your insurance company isn't doing a good job negotiating prices, there may be big savings by avoiding their "approved" vendors. It pays to shop around if you don't think you'll spend enough during the year to meet your deductible.
4) Bait & Switch Colonoscopy
One of the hallmarks of Obamacare is the requirement that insurers provide preventive exams and screening tests (appropriate to age) without cost-sharing (in other words "free".)
The most expensive test on the list of required screening exams is the colonoscopy for people age 50 and over. A colonoscopy costs thousands of dollars in most markets.
In order to shave costs and increase profits, many insurers instituted a rule that if a polyp was found during the exam (happens 30% to 50% of the time), the colonoscopy would no longer be considered a screening procedure and full deductibles and co-pays would apply. To add insult to injury, polyps are typically found while the patient is sedated, so there is no way to warn him or her of the 'financial colonoscopy' that will arrive by mail in a few weeks time when they get the bill.
Google "bait & switch colonoscopy" and you'll see stories from many angry victims.
The Obama Administration issued rules saying that a free screening colonoscopy includes polyps, but since insurance is regulated by the states, it's up to your state insurance commissioner to enforce it. If you live in a Republican-controlled state that is hostile to Obamacare, the insurance commissioner may not be as aggressive in making sure that insurance companies are providing the coverage you've paid for and are entiltled to.
5) Restrictive Provider Networks
With so much money being siphoned off in overhead expense, and high prices being paid for generic drugs, your insurer has to cut somewhere. A common practice is to severely restrict the number of doctors and hospitals included in your health plan's provider network and make patients travel further to get specialty care.
For example, in the Seattle area 5-star hospitals like the Univ. of Washington Medical Center and the Seattle Children's Hospital are excluded from most ACA Exchange plans. But both of these institutions accept Medicare and Medicaid. It's crazy for people to be paying thousands of dollars a year in excess overhead to a private insurer for the privilege of getting a health plan that's inferior to Medicaid.
What to conclude from these observations?
Obamacare is a huge improvement over the kinds of abuses seen in the health insurance market before the law was enacted. Ending discrimination due to pre-existing conditions and prohibiting lifetime or annual caps on medical benefits will prevent a major illness from bankrupting many people. The focus on preventative care -- making it a co-pay-free part of every health plan -- should catch many health problems early when they can be more easily treated.
However, Obamacare requires you to keep a for-profit health insurer between you and your doctor -- an insurer with a financial incentive to limit the amount of care he pays for. Health insurance remains a very opaque consumer product and the exchanges really don't allow you to see all the gotcha clauses and exceptions in the fine print. (Try getting a copy of the actual insurance policy contract before you purchase a plan. And if you request a copy of the reimbursement policy for a given medical procedure, you'll likely be told "it's proprietary".)
It's essential that you keep your insurance company and health care providers on a short leash -- otherwise it can mean a big out-of-pocket cost when you file a claim. Also, if you live in a state with a strong, consumer-focused insurance commissioner, they may be able to help if you're getting screwed.
Despite the scams, if you are a retiree currently buying your own health insurance on the individual market, you should check out the prices on Healthcare.gov. You'll likely be pleasantly surprised. The open enrollment period ends March 31, 2014.
Related Web Sites for additional information.
Journal of Health Politics -- How to Think Clearly about Medicare Administrative Costs: Data Sources and Measurement
Time Magazine -- Bitter Pill: Why Medical Bills Are Killing Us
Goodrx.com -- check drug prices at local pharmacies in your neighborhood
Sprighealth -- innovative website serving Oreqon & Washington that allows you to shop prices for medical services.
Medco Settles Fraud, Kickback Charges for $155 Million, Oct. 24, 2006
Medco settles with U.S., 20 states The pharmacy-benefits manager will pay states, including Pa., $29.3 million for switching patients' drugs.
CVS Caremark settles deceptive-practices complaint for $38.5 million
Pennsylvania Attorney General Corbett Announces Multi-State Settlement With Express Scripts Inc.
Ripoff Report - Express-Scripts
‘Narrow Networks’ Trigger Push-Back From State Officials
Insurers face pressure for limiting doctor choice for ObamaCare enrollees
Kaiser Family Foundation - Health Reform Subsidy Calculator
Federal Register - Health Insurance Premium Tax Credit
IRS - Affordable Care Act Tax Provisions