Monday, September 27, 2010

Of Gift Horses and Fine Print

"Never look a gift horse in the mouth" goes the old saw, meaning "when given a present, be grateful for your good fortune and don't look for more by examining it to assess its value." And that's often good advice. But not in the case of the little "present" given by Blue Cross of North Carolina to some of its insureds:

"Insurance Commissioner Wayne Goodwin and Blue Cross and Blue Shield of North Carolina President and CEO Brad Wilson ... a unique, one-time refund that will return $155.8 million to more than 215,000 individual BCBSNC customers as a result of the Affordable Care Act."

Now, on the surface this seems like a great deal: overpay for insurance, receive an unanticipated refund of that overpayment, and pocket the "found money."

But it's not that simple. You see, there's an interesting little caveat in that announcement, one whose long term implications seem to have flown under the radar:

"The funds come from active life reserves, which are portions of the premium set aside in the early years of a policy to pay future claims and keep rates stable as customers' medical expenses rise during the life of the policy."

Let's step back a moment, and consider the nature of insurance company "reserves." This is money that carriers are required to put away as a sort of "rainy day fund" in case their morbidity and claims estimates fall short of reality. These are generally considered very long term, since plans can theoretically stay on the books for many, many years. And as these plans age, they become less and less stable, with more and more claims arising from the shrinking pool of folks who don't "jump ship."

But ObamaCare© essentially "gifts" these plans with an exit date:

"(P)olicies purchased or substantially modified after March 23 of this year [i.e. "un-grandfathered"] will end in 2014 under the new health care reform law"


If your plan is one that has not been grandfathered, or has become "un"-grandfathered, it's going away in 2014. Think about the implications of that: for one thing, what happens, exactly, if you're on claim? As we saw with the nHealth kerfluffle, such circumstances don't fall under states' Guaranty plans. Theoretically, plans offered in the as-yet undefined Exchanges will be guaranteed issue, which means that one will be able to simply transition to one of those.

Theoretically. The more immediate issue, though, is noted by the Cato Institute's Mike Cannon:

"(E)very BCBS customer who is sick or becomes sick in the future will have less protection against their insurer skimping on care. Competition used to discourage insurers from providing lousy access to care, but under ObamaCare competition will reward skimping."

Still want to send Blue Cross a Thank You note?

[Hat Tip: FoIB Jeff M]
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