Consumer Federation of California

Hundreds of thousands of Californians who purchase their own health insurance are bracing to pay more for their plans, as the cost of the federal health care overhaul lands harder on middle-class customers.

Notices began arriving in recent weeks informing consumers that their plans are being phased out and replaced with policies that comply with requirements of the health care law. Many are being told to expect double-digit percentage increases in monthly costs, in part to help balance the cost of covering the underprivileged and those with pre-existing medical conditions who may not have had coverage.

The notices throw into sharp relief a stirring reality of the law: While many will benefit, a smaller segment may not.

“There is certainly going to be heat around this, and lots of understandably unhappy people,” said Janet Coffman, a professor at the Philip R. Lee Institute for Health Policy Studies and the department of family and community medicine at the University of California, San Francisco. “This is one important slice that is experiencing some very substantial increases in premiums,” she said. “But it’s important to understand this is one of many areas in which the impact of the health care law on individuals and families varies widely.”

Some customers with higher premiums will be shifted into more robust plans because of new requirements in the law. Others are moving into what they consider less attractive options with higher payments for care.

Jennifer Thieme lives outside San Diego and has an individual health policy for her 18-year-old son through Anthem Blue Cross. Thieme pays $72 a month with a $5,000 deductible and an annual out-of-pocket limit of $8,500. The first two visits to the doctor have a co-pay of $40, and the co-pay for generic prescription drugs is $15.

Last month, Thieme received a notice from her insurance company stating that because of the health care law, her policy will no longer be offered, effective Jan. 1. It didn’t offer specifics. Instead, the company suggested a plan for her son with a $5,550 deductible and $6,350 annual limit. It also called for a $50 co-pay for the first two office visits, and prescription drug co-pays ranging from $19 to $50.

This new plan will cost her $127 per month, an increase of about 76 percent.

“The annual out-of-pocket limit was the only thing that went down. It’s also the part of the plan I worry about the least,” said Thieme, 47 of Vista, a financial director for a nonprofit who does not believe she’s eligible for a subsidy. “The co-pays and the monthly fees have all gone up, and those are the things that affect me the most on a day-to-day basis.”

“We were told if you like it, you can keep it,” she added, referring to a pledge repeated by President Barack Obama. “I was happy with my old plan, but I didn’t get to keep it.”

The president acknowledged last week that not everyone would be able to keep their plans. “For the vast majority of people who have health insurance that works, you can keep it,” Obama said in a speech in Boston’s Faneuil Hall. “For the fewer than 5 percent of Americans who buy insurance on your own, you will be getting a better deal.” He urged people receiving notices to shop around in the new marketplace.

Only those health plans active at the time of the law’s passage March 23, 2010, and unchanged since were granted grandfathered status. A more recent plan, even one that meets the law’s stricter requirements, could be phased out.

In California, a majority of the state’s 38 million residents receive health coverage from their employers or the government. Most will be unaffected by the changes in federal law.

Those who buy their own insurance are more likely to experience a change, and California has made some decisions that would speed that process. The number of people on the individual market is roughly 1.65 million, according to Covered California, the state’s health insurance marketplace.

Of that population, about 570,000 will qualify for subsidies and another 700,000 will see their premiums remain basically the same, the exchange said.

But somewhere in the neighborhood of 590,000 will see their premiums increase by 5 percent to 10 percent, to more than 50 percent, based on several factors. Asked for a general description of those customers’ situations, Covered California Executive Director Peter V. Lee said, simply, “sad.”

“I think that’s too bad. I really do,” Lee said in a recent interview with The Bee. But he contrasted that group with the scores of families who have slipped into debt or been forced to spend their life savings on a catastrophic health crisis or accident.

“I put that against (them),” he said, “and, boy, do I feel that we are on the right side of the scales.”

Feeling the squeeze

The federal health care overhaul guarantees comprehensive coverage for everyone. Low-income residents could access free or subsidized coverage. Those earning less than 400 percent of the poverty level – $46,000 per individual or $94,000 for a family of four – may qualify for a form of government assistance.

Customers like Erik J. Taylor, a 55-year-old health economist from Sacramento, are among those feeling the squeeze. In September, after initially receiving word that his plan could continue, Taylor got a letter from Kaiser Permanente notifying him his policy would soon expire and that he would automatically be enrolled in a plan that meets all of the law’s standards.

His current plan has a deductible of $5,000, an annual out-of-pocket maximum of $5,000 and no charges for routine physical examinations. Visits to the doctor, emergency room and inpatient hospital care come with no charge after hitting the deductible.

The recommended plan has a deductible of $4,500, maximum of $6,350 and no charges for routine physical examinations. However, Taylor would have to pay 40 percent after exceeding the deductible for doctor, emergency and inpatient care.

Taylor, who considers himself healthy, pays $253 a month. His suggested new rate is $449. He doesn’t qualify for a subsidy. “The biggest issue for me is they know what my risk is and they have been covering me at a premium that worked well for both entities,” he said. Still, Taylor said he believes the health law is important and understands insurance companies such as his are merely following the new rules.

Many expiring plans don’t meet certain new requirements, including covering at least 60 percent of a patient’s medical bills and offering 10 “essential (health) benefits” such as prescription drugs, emergency and lab services and preventative, vision and maternity care. For those and other reasons, individuals and families turning to the individual market will average rate increases of 30 percent, according to a recent study.

The analysis by Milliman, a consulting group in San Diego, attributed about a third of the increases to hikes that would have occurred regardless of the law.

A fundamental policy shift

Much will depend on the pool of customers entering the new state exchange.

Blue Shield of California notified 119,000 subscribers that their plans will be withdrawn from the market and replaced with new policies. The company estimates two-thirds of the customers would pay more and a third would pay less than they do today, spokesman Stephen Shivinsky said. “The range is hard to pin down because the number of plans available to them varies so much and we don’t know if they are subsidy-eligible or not,” he said.

Kaiser has mailed notices to 160,000 people, about half of its individual plans, letting them know they would be enrolled in new plans if they don’t act. Health Net Inc., has informed 75,000 customers that their plans are being phased out and replaced.

Shivinsky, of Blue Shield, stressed the law amounted to a fundamental remaking of health insurance policy. “The natural tendency is to say, ‘I am paying this much today, and I’ll end up paying that much in January, so what’s going on?’” Shivinsky said. But he echoed a recent analysis noting that many people with pre-existing conditions could not even secure a plan under the current system, let alone begin to compare policy costs. “It’s not even comparing one piece of fruit to another. It’s comparing a piece of fruit that didn’t even exist before.”

Indeed, California has built a reputation as something of a “Wild, Wild West” for the individual health insurance market, said Coffman, the UCSF professor. “We were a market in which healthy, single guys who were willing to pay high deductibles could get very cheap policies, whereas people in their late 50s with diabetes, hypertension and other issues often couldn’t get coverage,” Coffman said.

Even people in their 20s with allergies were being denied coverage or offered prices that were very high, she added.

New plans require insurers to offer policies at the same price within a given territory. They also cannot charge older customers more than three times what younger people pay for coverage. Older people may currently be charged upward of $600 for a plan that costs a younger person $100 per month.

While some premiums may increase, “out-of-pocket costs may go down because of uniform co-pays and lower deductibles,” said Patrick Johnston, president of the California Association of Health Plans.

As a check on insurers, they must spend 80 percent of their premium dollars on patient care. Money over and above that must be returned to customers in rebates.

Nearly all Californians must purchase health insurance or pay a penalty of $95 or 1 percent of their income, depending on which is higher. The relatively low cost of noncompliance has caused concern that some would opt for the penalty.

That’s a consideration for Tina Polito, 28 of Westlake Village, who owns a tutoring company for children with special needs. She’s more than satisfied with her $130-a-month premium and wants to keep it.

Kaiser’s comparable plan, with a higher deductible, co-pay and maximum annual cost, would set her back $213 a month. Polito wonders if she might save money by going without insurance and paying out of her own pocket for the occasional visit to the doctor.

“I have followed the law. I have been insured,” she said. “You can’t say, ‘Just because they are younger and healthier, they are able to afford to pay more.’”