What About “Don’t Discriminate Against Sick People” Do You Not Understand?

There’s no question that the Affordable Care Act (ACA) is a complicated law. But there is at least one part of it that’s not complicated. And that’s the requirement that insurance companies stop discriminating against people with pre-existing conditions. It’s very simple. You. Can’t. Discriminate. Against. Sick. People.

Yet some insurance companies appear confused by this rule. Or they’re just unable to stop the old tactics of avoiding risk that made them so much money in the past. To wit, the admission of at least one insurer – CIGNA – that they have stopped paying commissions to brokers for enrolling people in gold level health plans.

What does this have to do with discriminating against sick people? There are two primary reasons why this new marketing tactic is problematic; one of which likely makes it impermissible under federal law (and the laws of many states). The first of course is that it discourages brokers from enrolling some people in the plan that’s best for them. If they steer customers towards higher deductible bronze or silver level plans, they get paid. If their client decides to enroll in a gold plan, they won’t get compensated for their time.

The second reason – and the one that makes it likely to be impermissible – is the one articulated by the CEO of CIGNA himself: “adverse selection.” Most health actuaries will tell you that gold plans, because they come with lower deductibles and out-of-pocket costs at the point of service, tend to attract older, sicker customers than bronze and silver plans. Before the ACA, these were the type of enrollees insurers could avoid by simply denying them a policy or charging them an exorbitant price. Now that those practices are prohibited, some insurers may be using marketing tactics – by way of broker commissions – to achieve the same result.

How is this impermissible? The Federal law is pretty clear: insurers “cannot employ marketing practices…that will have the effect of discouraging the enrollment of individuals with significant health needs in health insurance coverage…” It’s hard to see here how discouraging enrollment in gold level plans wouldn’t have the effect of discouraging the enrollment of people with health care needs.

At least one state, Colorado, has called this type of marketing practice – or any commission structure designed to discourage enrollment in certain types of plans – to be an unfair trade practice, and last week issued a bulletin (B-4.87) banning it. Let’s hope CCIIO – the federal agency responsible for insurance oversight – soon does the same.

3 thoughts on “What About “Don’t Discriminate Against Sick People” Do You Not Understand?

  1. There are a lot of misconceptions about health insurance – and unfortunately this article perpetuates some of them. The author seems to have a pre-concieved bias against health insurance companies (which is fine, we all have our opinions) but the argument made that not paying commissions on Gold policies is somehow discriminating against individuals in poor health is just nonsense.

    First of all I will say that I am an actuary, working in the healthcare field for the past 25+ years, but I am not now and have never been employed by a health insurance company. I have spent a lot of time arguing with them on behalf of my clients, so I think I have some practical experience that is relevant here.

    For a person with a serious pre-existing health condition, it’s pretty much a given that they will have relatively annual high healthcare costs (much higher than the cost of the average insured person, which is the basis for setting the premium). Depending on the individual’s specific conditions and medical treatment options it’s not unlikely that their total expenses could be well in excess of $45,000 annually. Any person who knows that they have a pre-existing health condition which will result in high costs, will understand almost immediately that taking the Gold (or whatever the highest level of insurance coverage is) is the better choice. This will probably be the simplest health related decision they will ever have, for an obvious reason – the sick person knows in advance that it’s worth paying for the Gold plan, since the value of the lower deductibles and out of pocket expense limit would be worth more than the extra premium they would pay. You don’t need to be a rocket scientist to figure this out. People who have serious health conditions will be very aware of the cost of medical care (it’s something they deal with every day) and the value of insurance coverage (which they also deal with).
    The person who needs advice from a broker is the person who is relatively healthy (no serious pre-existing conditions), does not know if they will have high medical expenses in the next year, and wants to know if the extra premium they would pay for a Gold plan is worth the additional coverage (lower deductibles and out of pocket expenses) they would gain. For this person, it’s a real question as to what level of coverage they should buy, and a broker’s assistance could be valuable. If anything, the elimination of commissions on Gold policies is likely to cause brokers to move the healthier individuals to the lower cost, lower coverage plans. There are a lot of reasons why the elimination of broker commissions on Gold level policies may of may not be a good move for the health plan, but this article doesn’t seem to be aware of any of them.

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