Though Senate bill cuts 'pre-existing conditions,' it still allows insurance companies to create 'pre-existing' categories to raise rates

The Democrats' healthcare overhaul, billed as a monumental game-changer for Americans' health insurance coverage, provides numerous loopholes for health insurance companies which will allow them to raise rates to protect profit margins, a health insurance whistleblower says.

Wendell Potter, a twenty-year veteran of the insurance industry and former vice president of communications for Cigna, warns that current healthcare legislation does nothing to prevent the insurance industry from continuing its ongoing practice of increasingly shifting healthcare costs to consumers.

A form of bait-and-switch, such practices often set up individuals, families and small businesses for inadequate or unaffordable access and a continued looming threat of financial ruin. The overlooked element, Potter says, is that insurance companies will be able to claim they are reducing premiums by forcing more Americans to pay higher deductibles and offering less coverage.

“We talk a lot about affordability, and we talk about affordability of insurance premiums,” Potter told Raw Story in a nearly hour-long interview. “But when you talk about affordability, you need to talk about affordability of premiums plus out-of-pocket expenses.”

He said that there’s been a lot of discussion on how the Congressional Budget Office scored this legislation and what it says this legislation will cost the country in the long run, but little to no focus on how the legislation will directly impact individual Americans.

Potter pointed out, for example, that many plans -- even after consumers received proposed government subsidies to help pay for them -- would come with high deductibles that prohibit people from using their insurance or cause them the kind of financial hardships that healthcare reform was purported to prevent.

“What worries me,” he said, “is people who are forced to buy coverage and all they can afford to buy is a high deductible. And if they get really sick then they have to pay so much out of their own pockets that they’re going to be filing for bankruptcy and losing their homes.”

In the Senate bill, in particular, Potter noted, some people will be buying insurance that will only cover roughly 60 percent of their medical costs if they get sick.

“There are a lot of people who don’t have insurance now because they can’t afford premiums,” he said. “They certainly couldn’t afford premiums plus the out-of-pocket expenses in today’s market.”

Potter asserted that the current legislation will, in large part, simply move millions of people from being uninsured to underinsured, or from insured to underinsured. Citing a 2007 study by the Commonwealth Fund, he said there are already over 25 million Americans who fall into the category of the underinsured.

Potter also noted the deleterious effect of cost shifting on small businesses. Many small business owners will earn just enough to be denied subsidies.

“After a certain income level, there are no subsidies,” Potter explained. “But you still have to buy coverage. And I’m concerned that after you get above the median level of income, you’ll find that a lot of people who don’t get subsidies will probably be forced to buy coverage. But the only coverage they’ll be able to buy will make them underinsured.”

There’s also no prohibition in the legislation against insurance companies moving more and more people into high-deductible plans. Such plans, Potter argued, will help insurers' bottom lines because fewer policyholders will actually avail themselves of their insurance.

“When you have a benefit plan that requires people to pay a lot out of their own pocket, a lot of these people will never get to the point of using their insurance because they won’t go to the doctor or pick up their medicines to satisfy the deductible,” Potter told Raw Story.

“I see nothing in this legislation that essentially would protect people from losing their homes or filing for bankruptcy,” he added.

How insurance companies can still game the system

While prohibitions on such practices as denying healthcare to people with pre-existing conditions remain in the legislation, Potter noted that the Senate bill, in particular, provides the insurance companies with “all the flexibility they need” to more than make up for any profits lost due to new reform measures and to prevent people from accessing coverage.

He pointed out, for example, that “health factors” such as chronic diseases and age would continue to play into how much individuals can be charged in premiums and how many of them may be forced into high deductible plans.

“What they will be doing, what they can in the Senate bill, is charge people significantly more if they have certain health factors,” Potter said. “And it would be pretty much up to the industry to decide what those health factors are. You could have high blood pressure, high cholesterol, diabetes. You could be overweight, have a history of tobacco use. There definitely would be a wide range of things that the insurance industry would be able to look at and determine whether or not to charge you more.”

He also noted that the Senate bill would allow insurance companies to charge people who are older up to three times as much as those who are younger and, in the House bill, two times more than a younger person.

“And of course when people get older they develop more health factors,” Potter said. “So that is another way to get around the loss of revenue. Plus, of course, they would be able to get new revenue coming in from people who are younger and don’t have health factors that they charge more for.”

Moreover, he said, “They still would be getting a new revenue stream from people who are younger. So they’ll be getting significantly more in revenue. And those people are quite profitable too because they don’t file many claims.”

To justify this practice, Potter explained, insurers would claim that they’re providing lowered or discounted premiums to healthier people. But, in reality, premiums across the board are set so high that healthier people wouldn’t actually be receiving anything that could be considered a discount.

“Healthier people would be paying pretty much a standard rate at the end of the day,” said Potter, while the chronically ill and the aged would be paying exceptionally more on top of the already pricey standard rate.

Medical-loss ratio

The former insurance executive also says another element of the healthcare overhaul is receiving too little attention: the medical-loss ratio, which determines what percentage of health insurance premiums are spent on actual medical costs. The difference of just a few percentage points can mean billions of dollars to the insurance industry.

“We’re talking about big-time money here,” said Potter. “The insurance industry doesn’t want to have any restrictions on the medical-loss ratio. So they’ll be doing all they can to keep it from being enacted if possible.”

Some members of Congress, led by Sen. Al Franken (D-MN), proposed an amendment to require that 90 percent of consumer premiums go to medical costs, but Potter doesn’t think that’s likely to happen and said insurers will fight tooth-and-nail to set any minimum as low as possible. The Congressional Budget Office said that the 90 percent figure was too high and would basically drive insurers out of business, recommending 80-85 percent instead. Democrats are expected to embrace the lower figures in their final bill.

Potter cautioned that legislators need to keep an eye on how insurance companies define medical and administrative expenses. And he said that legislation should require companies to explain what they’re spending money on and what percentage in dollar amounts they’re spending.

“You can set the medical-loss ratio, but you need to make sure that it’s clearly understood what the components of the administrative expenses are,” Potter explained. “Because they can shift stuff around from one bucket to another and claim that what they’re actually spending is beneficial to the patient when it may not be.”

For example, he said they can easily meet an 85% standard if the definition enables them to categorize such items as disease management programs as paying for medical care. Currently, money spent on disease management programs is counted toward administrative costs.

Potter also noted that insurance companies have kept the issue of the medical-loss ratio -- something little understood by the American public -- “pretty much just a conversation between them, their shareholders and the analysts who cover them. They don’t talk about it anywhere else.”

Potter raised this complex but critical issue during his Senate testimony in June.

“Every decimal point makes a big difference,” he added. “We’re talking in the billions.”