Everything Wrong With the Health Insurance Industry, In One Letter

Today’s blog post comes to you courtesy of my new health insurance provider, thanks to a letter I received in the mail yesterday. Ever since I took my first ‘real’ job at the state Bureau for Public Health several years ago, my wife and I have had our health insurance through PEIA.  Coming on as a new employee at the Center on Budget and Policy, however, meant I would have to switch to a private insurance provider.  I didn’t expect to have any problems – other than recently having a baby, neither my wife nor I have even had to go to the doctor for a sick visit in the last four years.

So it came as quite a surprise when I opened the letter yesterday from our new insurance carrier (who I won’t name but I will say it is a large insurer) saying that it had been determined that my wife and I fell into the special “pre-existing conditions exclusion period” which would not end until May of 2014, a full year from my start date.  In short, we are expected to pay our premium for an entire year, at over $1,100 per month (of which the Center generously pays a large portion), before the insurer will agree to pay for any medical care.

“The Letter”

It especially didn’t make sense considering neither of us has any health issues.  Reading further, I discovered that it’s not because we actually have any pre-existing conditions I wasn’t aware of (whew!) but because after reviewing our file, the insurer determined that we had not “demonstrated prior creditable coverage that exceeds the period of time that the exclusion period would apply.” 

Oddly, our infant daughter who was born this February was not part of this exclusion period.  Apparently she was able to demonstrate 12 months of prior creditable coverage, even though she’s not even four months old yet.

When I completed the four page, uncomfortably invasive application for health insurance, it asked for detailed information regarding any previous health insurance we’ve had.  I dutifully completed each question box in that section, providing the name of the insurer, the exact dates of our coverage, and even the specific policy number. 

While I will be on the phone shortly with my new insurer making sure this gets fixed, this sort of common mistake underscores the whole problem with health insurance in the United States.

The more often a health insurer can successfully deny coverage to patients, deny paying claims to providers, and exclude pre-existing conditions, the greater the profit the insurer will take home at the end of the day.  Insurance companies don’t make money by paying out claims.  With exorbitant executive salaries, ballooning administrative costs, and in some situations shareholders to appease, insurance companies that pay out too much money in medical claims are unsuccessful businesses. 

While claiming that my wife and I failed to meet the standards of prior creditable coverage, our new insurer is nevertheless intending to accept our premiums for a year before taking on any of the risk associated with actually providing us health insurance. 

I’m not suggesting that this was an intentional, shady maneuver concocted to generate more profits.  Nevertheless, it’s a serious, costly error.  In fact, it highlights other major issues of health insurers – inefficiency and bureaucracy.  While I provided all of the information that was requested to prove prior coverage, someone along the way deemed it insufficient.  After the cost of printing and mailing a letter to tell me that we don’t have coverage for the next year, I’m going to need to call customer service to speak to a representative who was hired along with dozens of others to handle these sorts of complaints.  They’ll probably request that I submit additional information which will require that I mail or fax in documentation which will need to be taken by someone there when it arrives who will hopefully get it associated with the correct client file allowing someone else to finally fix the error.  All of that extra work, time and staff salaries on the insurer’s end, not to mention my own time, for a mistake that should not have been made in the first place.  For how often one hears about the efficiency of private industry, this certainly is an example of surprising inefficiency.

Fortunately, the Affordable Care Act is addressing a number of these issues.  First, the ACA is prohibiting insurers from denying coverage to patients because of pre-existing conditions or excluding those specific conditions from coverage.  Secondly, the ACA will prohibit exclusion periods, meaning that you have health insurance from the day you purchase coverage, not a year later.  Thirdly, the ACA is setting limits on the amount of money that an insurer can spend on non-medical claims, including salaries, administration, and other expenses like marketing.  This is called the medical loss ratio, or MLR, and requires large insurers to spend at least 85 percent of all of their revenue on patient claims.  If an insurer fails to meet this standard, it is required to reimburse its customers the difference, which has already resulted in some pretty hefty reimbursement checks for people around the country. 

Businesses have a right to charge fair rates and to earn a profit, and insurance companies should be able to pay competitive salaries for competent staff.  However, trying to put a for-profit business model and health insurance company together is mixing competing, contradictory goals. 

None of this is intended to paint a picture of health insurers being the big bad wolf of spiraling healthcare costs.  Nevertheless, they are one of the many cogs in a piecemeal, expensive system that tends to view patients not as people in need of care but as potential money makers. 

Here’s to hoping my wife and I have insurance by the end of the day.  

West Virginia Leading Nation In Budget Cuts

The Spring 2013 Fiscal Survey of the States has been released by the National Association of State Budget Officers. The report is chock full of budget information for all 50 states, including spending and revenue levels, forecasts, and a Medicaid outlook. The overall takeaway from the report is that most states are starting to be relieved of the fiscal pressures brought on by the recession, but high unemployment and a weak recovery continue to be a challenge.

Unlike most other states, West Virginia’s budget fared well during the recession. In fact, the state cut business taxes every year since the recession began. And now, while most states are getting back to normal, a lack of revenue has forced West Virginia to cut its budget, both during the current fiscal year and for  the upcoming year. In fact, according to the NASBO report, West Virginia is making the second largest budget cut from FY 13 to FY 14, and is one of only eight states that is seeing negative budget growth.

Figure 1: West Virginia One of Just Eight States to Cut Budget

Source: NASBO Spring 2013 Fiscal Survey of the States

But while West Virginia is one of the few states making budget cuts, it is also one of the few states with a rainy day fund capable of offsetting any budget cuts. West Virginia has the third best funded rainy day fund in the country, with a balance equal to 22 percent of the state’s expenditures.

Figure 2: West Virginia’s Rainy Day Fund One of Nation’s Largest

Source: NASBO Spring 2013 Fiscal Survey of the States

In comparison, overall, rainy day balances only account for 5.9% of state expenditures, with many states having no balance at all. But instead of tapping the rainy day fund, West Virginia has enacted a series of budget cuts, which are already starting to have negative effects, like tuition hikes at the state’s colleges and universities.

With budget cuts at the federal level hurting, rather than helping, the economy, the cuts that West Virginia is taking will likely hurt as well, particularly as revenues are projected to continue their slide.

Healthcare Reform Will Promote Small Business

Small business is often considered the foundation of local economies, which means a recent report about the Affordable Care Act may be real good news for West Virginia.  The report by the Robert Wood Johnson Foundation found that the number of self-employed people in West Virginia will rise by 13 percent, or 6,000 people, after the ACA is fully implemented in 2014 (Figure 1).

                                     Figure 1

Source: Blumberg L, Corlette S, Lucia K, “The Affordable Care Act: Improving Incentives for Entrepreneurship and Self-Employment” May 2013 www.rwjf.org/content/dam/farm/reports/issue_briefs/2013/rwjf406367
“Why does health reform have anything to do with the number of entrepreneurs in our state?” you may be wondering.  In short, better access to affordable health insurance.

One of the major barriers people face in setting out on their own is the difficulty in obtaining health insurance.  Leaving a job often means leaving the guarantee of subsidized health coverage for the uncertainty of the individual health insurance marketplace.  When people stay in jobs that they might otherwise leave because of a fear of losing health insurance or other benefits, this is known as “job lock” in policy speak.  Some studies have suggested that this reduces job mobility by as much as 25 percent.

Through the creation of the Insurance Marketplace as part of the ACA, individuals who don’t have access to employer-based health insurance will be able to shop for comprehensive insurance plans at affordable, and often subsidized, rates.  Additionally, new rules prevent insurers from denying coverage to people with pre-existing conditions, or charging them more for it.  Essentially this means that anyone who chooses to become self-employed or start their own business will be guaranteed access to affordable health insurance.  In many cases, they’ll even receive tax credits in advance to lower the monthly premium cost. 

Organizations like Vision Shared were created specifically to promote entrepreneurship around the state.  They help provide training, resources, and other important assistance that start-ups may need to take off.  However, this single component of health reform, the Insurance Marketplace, may be just what the doctor ordered (pun intended) to push the thousands of potential entrepreneurs in West Virginia into action. 

If small business is the foundation of our economy, the ACA may soon be considered the bedrock upon which it sits. 

Equal Pay Act Turns 50, But There Is Still Work To Be Done

This week marks the 50th Anniversary of the Equal Pay Act, which was signed into law by President Kennedy on June 10, 1963. The legislation required that employers give women and men equal pay for equal work. The Equal Pay Act was one of the first steps in the effort to eliminate the gender gap in wages.

Since the passage of the Equal Pay Act, the gap between men’s and women’s wages has shrunk considerably, but still remains. In 1979 the median wage for women was equal to 63% of the median wage for men. By 2012 that ratio had risen to 83%. In West Virginia, the ratio rose from 52% to 75% from 1979 to 2012.

While differences in education, occupation, and part-time status account for some of the difference, the gender gap persists even when these factors are controlled for, particularly for low-education workers. According to the Government Accountability Office,  women earned 86 cents for every dollar men earned, after adjusting for available factors that may affect pay, like education, age, industry and occupation.

And, while the gender gap has shrunk, not all of the reasons for the decrease have been positive. Some of the progress has been the result of declining wages for men, rather than increasing wages for women. Another issue is the distribution of the progress. Most of the recent wage progress for women has occurred in the top 20 percent of earners, with the majority of women enjoying little of the benefits.

Another issue for gender pay equality is motherhood. Again, much of the progress made in closing the gender pay gap has gone to childless women. Today, motherhood is a greater indicator of wage inequality than gender. Not only do mothers earn less than comparable workers who are childless, they also less likely to be hired if they leave or try to change their jobs.

While legislation like the Equal Pay Act addressed the blatant discrimination that working women faced 50 years ago, the issue of gender pay equality still exists, and is far more complex than men simply earning more than women. 

So Many Issues

Budget Beat for June 7, 2013

Evidence Counts – the WVCBP blog

Income inequality and the decline of the middle class were the subject of Ted’s blog post this week. To see the direction West Virginia has gone, look no further than the state’s top employer, once Weirton Steel, now Wal-Mart. With the shift in employment comes lower wages which, in turn, mean more West Virginians must rely on federal support to make ends meet.

The nation’s budget deficit is the smallest since 2008, largely due to spending cuts like those that are part of the sequester, and to the slowly recovering economy. Despite this economic growth, there is still a troubling jobs deficit, however, as Sean points out in his blog post.

Tens of Thousands Could Benefit from Medicaid Expansion


WVCBP in the News

The Patriot Coal ruling was a blow dealt to hard-working families and retirees. While the company’s bankruptcy filing might get it off the hook to paying benefits, someone will pick up the tab – mostly likely taxpayers. This was discussed in a West Virginia Public News story that quoted Fiscal Policy Analyst Sean O’Leary.

June is Homeownership Month!

Celebrate Homeownership Month at Shawnee Park this Saturday, June 8. The Kanawha Institute for Social Research and Action (KISRA) will host the event which includes free credit reports and free food. For more information, visit www.kisra.org or call 304-768-1300.

Are Fiscal Notes Working?

There is growing concern that fiscal notes – the “price tags” attached to proposed legislation – are often inaccurate, incomplete, and subject to political bias. The WVCBP will present its preliminary research on the topic, along with the results of our survey of legislators, on Monday, July 8 from 1:30 to 3:00 PM at the WV State University Economic Development Center (1506 Kanawha Blvd West). Space is limited so please RSVP to info@wvpolicy.org.

House to Consider Reduction in SNAP (food stamp) Benefits

The House Agriculture Committee’s 2013 version of the Farm Bill would reduce Supplemental Nutrition Assistance Program (SNAP) benefits by $21 billion over the next decade. The full House is expected to begin debate on the bill the week of June 17. Almost half of those who benefit from food stamps are children. Read more in this article from the Center on Budget and Policy Priorities. The Farm Bill also includes subsidies to big agricultural operations and expensive crop insurance benefits. Read this interesting post that explains who would be impacted under the latest version of the Farm Bill if it passes through Congress this summer.

Budget Deficit Falls, But Jobs Deficit Stays The Same

Earlier this month, the Congressional Budget Office released its latest budget update. According to the CBO, the federal budget deficit is falling, and falling fast. The federal deficit is estimated to be $642 billion this year, its smallest amount since 2008. That will be about 4.0% of GDP, compared to 10.1% in 2009. Projected deficits have also shrunk dramatically , with the 10-year deficit  $600 billion smaller than the CBO’s February projection. While debt and deficits are falling in the short term, they began rising again in the long term, due to an aging population and health care costs.

What is the cause for the falling deficits? Revenues are rising as the economy slowly recovers. Also having an impact is the $2.3 trillion in deficit savings that have been legislated recently, including the sequester, most of which has been achieved through spending cuts.

So we have clearly done more than enough to stabilize and reduce the deficits and debt for the next decade. But are we doing too much? According to many economists we are, and all of this deficit reduction is slowing down the recovery. Both private sector and government economists estimate that the unemployment rate would probably be nearly a point lower, about 6.5 percent, and economic growth almost two points higher this year if we had not raised taxes and cut spending since 2011 in the name of deficit reduction.

While cutting spending and raising taxes has succeeded in shrinking the budget deficit, it has failed in reducing the jobs deficit. While the economy has been growing, it has been growing much slower than it needs to be to fully recover from the recession. The jobs deficit, or the number of jobs needed to get back to pre-recession employment levels, adjusting for population growth, stands at 9.8 million jobs. Even as the economy continues to add jobs, the pace is just enough to keep up with population growth, and the jobs deficit remains high.

With nearly 10 million jobs missing from the economy, and spending cuts and tax increases contributing to the problem, maybe it is time policymakers switch their deficit reduction targets from budgets to jobs.

Growing Working Class Economic Insecurity at the Heart of West Virginia Woes

Over the last four decades, West Virginia’s economy has shifted from producing less goods (e.g. steel, chemicals, etc.) to providing more services. While the rest of the country also underwent this economic shift – often referred to as deindustrialization – it was especially problematic in the Mountain State. While the state has made strides to diversify its economy, it has been unable to catch up to the rest of the country and transition to the  “new economy” where income is largely determined by your educational attainment. This has meant that income support programs, like food stamps (SNAP) and the Earned Income Tax Credit (EITC), have been waging an uphill battle in the state to fight the growing economic insecurity of the working and middle class.

In the late 1970s and early 1980s, jobs in the state paid at – and sometimes above – the national average (see chart below) and blue-collar workers in the state also enjoyed relatively good pay with benefits. This was possible because  the state had a lot of jobs in the manufacturing and mining industries that paid well and didn’t require a post-secondary degree. However, since the 1980s to today,  jobs in these industries have declined dramatically and we’ve been unable to transition to a more knowledge-based economy.

For example, in 1979, more than one out of three jobs in the state were in the goods-producing sector that generally paid an above average wage with benefits. Today, only one out six jobs is in the goods-producing sector, with the rest now in the low-paying service sector. A good way to think about this is that in the late 1970s Weirton Steel Corporation was the the state’s largest employer. Today the honor goes to Wal-Mart, whose low wages with little benefits have to be augmented with federal and state income supports.

As the above chart demonstrates, there has been a growing gap in average earnings per job between West Virginia and other states. Today, the average job in West Virginia pays about 83 percent of the national average. But back in the late 1970s and early 1980s, this wasn’t true. The average wage job in West Virginia was actually above the national average. As we demonstrated in our annual State of Working West Virginia, the same was also true of median wages.

Largely because of the decline in good-paying jobs, more West Virginia workers and families have become eligible for federal income maintenance benefits (IMB) like SNAP and federal tax credits like the EITC. As the chart below shows, per person federal income support is higher in West Virginia than nationally, however in the late 1970s and early 1980s this wasn’t true. As the previous chart showed, this was roughly the same time the state had above-average earnings. As the coal and manufacturing employment bust surfaced in the early 1980s and the state faltered to transition economically (mostly because of its less formally educated workforce), more families in the state needed federal income supports to make up this difference.

While “average” wages grew more slowly in West Virginia than the national average over the last 30 years, middle class (median) wages have stagnated or declined over the last three decades for  workers all across the country and in West Virginia. The hollowing out of the middle class has now become a permanent feature of our national economic landscape and is why so many families  rely more heavily on federal income supports to make ends meet. 

While low- and middle-income workers saw large wage increases during the “golden era” of the post-war years (1945-1973) when wages and productivity grew together, the last 30 years have been marked by growing working-class insecurity with economic growth decoupled from middle-income growth. For example, if median income grew at the same rate as it did in the post-war years the four-person median family income in West Virginia would be around $91,000 instead of $59,000. This decoupling explains, in large part, the massive uphill battle that anti-poverty programs and income supports have had to play just to keep working families afloat. This is especially true since the beginning of the Great Recession.  Without crucial programs like SNAP and the EITC, there would have been millions more families in poverty over the last couple of years.

Growing income inequality and the decline of the middle class is one of the biggest problems in our country and is even a bigger problem in West Virginia. To lift more working families out of poverty in West Virginia we need strong leadership and action at both the federal and state level. This could include raising the minimum wage, making it easier to join a union, fair taxation, a robust transitional jobs program, more investments in education and infrastructure, and better safety-net programs. Without these efforts, there is a good chance that West Virginia will never get back to where it was before the 1980s, when our state’s working families were prospering.