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HEALTH INSURERS
HEALTH INSURERS CRY UNCLE
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An unpopular industry turns to Washington for help.
by ZACH WILLIAMS
THE BUSINESS MODEL for insurance companies depends on one central dynamic: customers pay more for their coverage than they receive, overall, in benefits. As long as that remains in place, insurance companies make money.
Major disasters, such as losses from forest fires, have the potential to rattle the industry. A global economic shock following a deadly pandemic is the type of event with no comparison, for society at large and insurers alike. Companies that offer everything from business interruption insurance to travel insurance are on the hook. “I think it’s going to be horrendous, and I worry about that in terms of New York state in my parochial area of insurance,” said state Sen. Neil Breslin, the Insurance Committee chairman.
One projection estimates that the pandemic will cost health insurance companies between $34 billion and $251 billion this year. Health insurers could also lose a portion of their customer base as employers struggle to stay in business and the ranks of the unemployed grow. In the end, it could be up to federal lawmakers to decide how much the pandemic is going to hurt health insurers. In New York, billions of dollars in future profits depend on keeping millions of people covered. Otherwise, insurance premiums will increase, industry leaders warn.
With direct help from the state and federal governments unlikely, health insurance companies are pushing for the federal government to spend billions of dollars to subsidize private health insurance for small businesses and the unemployed. It is a strategy that positions an unpopular industry in a more favorable light as it confronts an array of political and social uncertainties – a nightmare for any insurer.
No one knows how long the pandemic will last. Data shows that more people have been infected with the coronavirus in New York than the next four highest states combined, as of the end of April. The state has tested more than 875,000 people, at least 200,000 more tests than the next closest state, California. Plus, there are the tens of thousands of people who have required hospitalization throughout the crisis. The cost of treating all these people runs into the billions of dollars. Do insurance companies have money to cover all these costs? “Certainly they do,” Linzer said. Insurers have saved money because expensive elective surgeries have been canceled, and customers are pursuing less medical attention during the pandemic for non-COVID-19 treatments. But those temporary reprieves from some costs might not help the industry keep its market share in the coming months. More than 60% of New Yorkers have private health insurance, and 95% of people in the state are insured overall. More than 1.4 million New Yorkers have completed their unemployment benefit applications since early March, and the closure of many small
ASKING INSURERS TO PAY WHAT’S DUE LINDA LACEWELL SUPERINTENDENT, STATE DEPARTMENT OF FINANCIAL SERVICES
Where do things stand with the insurance industry? Now is the time for government to be not reactive but proactive. We have to act quickly and with agility to adjust to this new world that we’re in. And insurers are a big part of that. That’s why early on we said that mortgage servicers needed to suspend payments for a period of time until people get back on their feet. We followed that with suspending a whole range of insurance premiums: life insurance, auto insurance, property insurance and health insurance, which we did together with Connecticut.
What has that meant for health insurers? We need every health care worker in a hospital working on the clinical needs of patients. They cannot be spending time on paperwork for insurers. There’s no reason that you need preapproval for emergency services. We need the hospitals on the front lines to be strong and have all the energy and resources at their disposal to deal with this life-and-death situation. So we talked to them before we acted. We tried to forge agreement and do it in partnership. And many of them have really stepped up and wanted to do exactly that.
But some companies in the industry say that they have to dip into their reserves, which means premiums could go up. The regulator with respect to approving premium increases for commercial health insurance for consumers is DFS – and the superintendent of DFS. So of course, as we go along the way, and we take whatever action or forge whatever agreement that we forge, we always have in mind, essentially, the consumer and what the impact is going to be for the consumer. A lot of the things that we asked the health insurers to do was not handing over money. It’s paying what’s due. You got a bunch of bills. You know that they’re right. Don’t hold on to them for 30 days so you can get the interest. Pay the hospitals so the health care heroes can operate for the benefit of all of us.
businesses means that insurance companies stand to lose a lot of customers. Even without a second big wave of infections, and any additional economic damage that might bring, health insurers face a tough situation. There are rumblings that some people might even give up on buying insurance given the economic pinch.
To make matters worse for insurers, Gov. Andrew Cuomo has issued emergency orders that have placed additional requirements on insurers. They now have to waive cost-sharing for COVID-19 testing and waive copays for telehealth visits. There is a moratorium on canceling plans held by small businesses and individuals who cannot pay their premiums. The state also helped hospitals gain an upper hand on insurers by ordering in late April for them to immediately pay outstanding claims by hospitals, which are struggling to maintain their own fiscal health during the pandemic. “If the insurers withhold payments to the hospitals, and they’re in financial trouble, (the hospitals are) more likely to accept a lesser amount in negotiations,” Breslin said.
Health insurers have their own way of saying the state has not been on their side, including on the hospital order. “There is a need to balance the interests of those New York hospitals in need of assistance during the COVID-19 crisis with the interest of individuals, businesses and union members who are struggling to afford premiums and making ends meet,” reads an April 22 statement from the New York Health Plan Association. “Regrettably, this guidance upsets that delicate balance. At the end of the day, it will be New Yorkers with private health coverage who have to pay the price with unnecessarily higher premiums.”
Raising insurance premiums, however, is not a cut and dried process. Health insurers are barred from incorporating their 2020 losses by raising rates next year unless the pandemic continues into the new year. “Nowhere in those calculations can they say, ‘We’re going to lose this much money in 2020,’” Cynthia Cox, of the Kaiser Family Foundation, told Vox. But there is a loophole that allows for charging higher premiums if insurers have to dip into their reserves to cover claims, according to Vox’s reporting. “With the downturn in the economy and in the stock market, it has obviously had an effect on health claim reserves that are intended to be there to pay for claims at moments like this,” Linzer told City & State.
Even if insurers can raise premiums, that will take time, especially to overcome any resistance from the state. “The regulator with respect to approving premium increases for commercial health insurance for consumers is (the state Department of Financial Services),” said department Superintendent Linda Lacewell, who added there is a “need for health insurers to step up” considering how the pandemic is slamming hospitals and everyday New Yorkers alike.
The insurance industry needs to move fast if it wants to keep its customers. While the industry hasn’t been included in any of the recent federal stimulus bills, that could change in the upcoming weeks.
This complements calls at the state level by business groups. “A federally funded premium assistance program earmarked and targeted to small and midsize businesses and individuals is the best opportunity to keep people insured,” the New York Health Plan Association and business groups said in an April 10 letter to U.S. Senate Minority Leader Charles Schumer, who has been credited with helping the industry as recently December. A spokesperson for the senator could not be reached for comment.
But the state’s most powerful member of Congress has limited sway on both the federal and state levels. More than 100 state lawmakers would just as soon abolish the whole industry and replace it with a state-level single-payer health care system rather than help them in their current predicament. “It just seems like every single time there’s any instance of a large disaster, this is what they say, and I don’t totally buy it,” Assemblyman Robert Carroll said. But like other state and federal lawmakers – including those like him who back single-payer – Carroll wants to help small businesses. “They provided health care,” Carroll added. “What happens if they come back as a shell of their former selves?”
The state’s declining finances mean the answer to that question will most likely depend on the federal government.
The U.S. Supreme Court ruled on April 27 that health insurers can recover $12 billion because of losses incurred during the early days of Obamacare. There is still hope within the industry that the government could also help the industry by subsidizing private insurance for businesses and the unemployed. Despite the efforts of the business community to make federal lawmakers see things that way, it remains uncertain whether they will buy what these insurers are selling. ■
HOW COVID-19 WILL TRANSFORM INSURANCE KEVIN CAHILL CHAIRMAN, ASSEMBLY INSURANCE COMMITTEE
How is the state Legislature going to approach insurance in the upcoming weeks? We are in discussions with our colleagues to conduct joint hearings and roundtables on a variety of issues that have surfaced because of the COVID crisis. We may be doing them with other committees, but we are certainly going to follow up in this instance as we did after Hurricane Sandy and as was done after the 9/11 attacks. We’re in discussions with leadership right now about how they want to roll out the hearings in a world where we will probably have to do it virtually, and how we do that by making sure we comply with Open Meetings Laws.
What is one topic of discussion that could have a big impact on New Yorkers? We have some of the highest automobile insurance rates in the country, but unlike other states, companies cannot voluntarily reduce premiums because of antiquated anti-rebating laws. If you’re not using your car, you are not imposing any liability that needs to be insured. The risk has gone down and the very ideas upon which you paid for an annual insurance policy for your car have changed. We did hear back from the (state Department of Financial Services), but this is new territory for the superintendent.
How might people change their approach to life insurance? As a result of COVID, we will see a spate of early retirements. Those early retirements may in fact mean that people will be tapping into their annuities sooner rather than later. And we want to know whether that changes the economics of it.
Besides health, property and life insurance, what else has to be done? We have to arrive at a permanent fix for medical malpractice and its una ordability. We want to resolve the limousine safety issue. We want to rationalize the payment system for outpatient substance abuse treatments. We want to bring ambulances and other medical transportation services into the area of independent dispute resolution – and take the consumer out of that. We have title insurance issues that are lingering from last year.
Is there any hope to get back to regular legislative work in the upcoming months? Any individual member who sponsors the bill can insist on committee consideration and we are required to consider it. That invariably means that the bill gets held in committee, but it has to be brought up for a vote. I believe there are about 20 (bills) in the Insurance Committee and probably a similar number in other committees. We have to find out how we deal with them if we are not meeting in regular session or a regular committee session.
