(Getty Images)
(Getty Images)

By Charles Ornstein, ProPublica

San Francisco architect Lee Hammack says he and his wife, JoEllen Brothers, are “cradle Democrats.” They have donated to the liberal group Organizing for America and worked the phone banks a year ago for President Obama’s re-election.

Since 1995, Hammack and Brothers have received their health coverage from Kaiser Permanente, where Brothers worked until 2009 as a dietician and diabetes educator. “We’ve both been in very good health all of our lives – exercise, don’t smoke, drink lightly, healthy weight, no health issues, and so on,” Hammack told me.

The couple — Lee, 60, and JoEllen, 59 — have been paying $550 a month for their health coverage — a plan that offers solid coverage, not one of the skimpy plans Obama has criticized. But recently, Kaiser informed them the plan would be canceled at the end of the year because it did not meet the requirements of the Affordable Care Act. The couple would need to find another one. The cost would be around double what they pay now, but the benefits would be worse.

“From all of the sob stories I’ve heard and read, ours is the most extreme,” Lee told me in an email last week.

I’ve been skeptical about media stories featuring those who claimed they would be worse off because their insurance policies were being canceled on account of the ACA. In many cases, it turns out, the consumers could have found cheaper coverage through the new health insurance marketplaces, or their plans weren’t very good to begin with. Some didn’t know they could qualify for subsidies that would lower their insurance premiums.

So I tried to find flaws in what Hammack told me. I couldn’t find any.

Hammack recalled his reaction when he and his wife received a letters from Kaiser in September informing him their coverage was being canceled. “I work downstairs and my wife had a clear look of shock on her face,” he said. “Our first reaction was clearly there’s got to be some mistake. This was before the exchanges opened up. We quickly calmed down. We were confident that this would all be straightened out. But it wasn’t.”

I asked Hammack to send me details of his current plan. It carried a $4,000 deductible per person, a $40 copay for doctor visits, a $150 emergency room visit fee and 30 percent coinsurance for hospital stays after the deductible. The out-of-pocket maximum was $5,600.

This plan was ending, Kaiser’s letters told them, because it did not meet the requirements of the Affordable Care Act. “Everything is taken care of,” the letters said. “There’s nothing you need to do.”

The letters said the couple would be enrolled in new Kaiser plans that would cost nearly $1,300 for the two of them (more than $15,000 a year).

And for that higher amount, what would they get? A higher deductible ($4,500), a higher out-of-pocket maximum ($6,350), higher hospital costs (40 percent of the cost) and possibly higher costs for doctor visits and drugs.

When they shopped around and looked for a different plan on California’s new health insurance marketplace, Covered California, the cheapest one was $975, with hefty deductibles and copays.

[Related: Why Some Are Seeing Premiums Go Up As ACA Goes Into Effect]

In a speech in Boston last week, President Obama said those receiving cancellation letters didn’t have good insurance. “There are a number of Americans — fewer than 5 percent of Americans — who’ve got cut-rate plans that don’t offer real financial protection in the event of a serious illness or an accident,” he said.

“Remember, before the Affordable Care Act, these bad-apple insurers had free rein every single year to limit the care that you received, or use minor preexisting conditions to jack up your premiums or bill you into bankruptcy. So a lot of people thought they were buying coverage, and it turned out not to be so good.”

Seems like lose-lose situation

What is going on here? Kaiser isn’t a “bad apple” insurer and this plan wasn’t “cut rate.” It seems like this is a lose-lose for the Hammacks (and a friend featured in a report last month on this blog.)

I called Kaiser Permanente and spoke to spokesman Chris Stenrud, who used to work for the U.S. Department of Health and Human Services. He told me that this was indeed a good plan. Patients in the plan, known as 40/4000, were remarkably healthy, had low medical costs and had not seen their premiums increase in years. “Our actuaries still aren’t entirely sure why that was,” he said.

While many other insurance companies offered skimpier benefits, Stenrud said, “our plans historically have been comprehensive.”

Kaiser has canceled about 160,000 policies in California, and about one third of people were in plans like Hammack’s, Stenrud said. About 30,000 to 35,000 were in his specific plan.

“In a few cases, we are able to find coverage for them that is less expensive, but in most cases, we’re not because, in sort of pure economic terms, they are people who benefited from the current system … Now that the market rules are changing, there will be different people who benefit and different people who don’t.”

“There’s an aspect of market disruption here that I think was not clear to people,” Stenrud acknowledged. “In many respects it has been theory rather than practice for the first three years of the law; folks are seeing the breadth of change that we’re talking about here.”

That’s little comfort to Hammack. He’s written to California’s senators and his representative, House Minority Leader Nancy Pelosi, (D-CA), asking for help.

“We believe that the Act is good for health care, the economy, & the future of our nation. However, ACA options for middle income individuals ages 59 & 60 are unaffordable. We’re learning that many others are similarly affected. In that spirit we ask that you fix this, for all of our sakes,” he and Brothers wrote.

Consumer advocate Anthony Wright said it’s important to remember the way the insurance market worked before the act was passed, when insurers could deny coverage based on pre-existing conditions. “It’s impossible to know what the world would have looked like for these folks in the absence of the law,” said Wright, executive director of the group Health Access.

“We certainly had an individual market, especially in California which was the Wild Wild West, where there was huge price increases, cancellations, a range of other practices.

“That doesn’t mean that there were certain people who lucked out in the old system, who wound up in a group with a relatively healthy risk mix and thus lower premiums,” he added. “The question is: Is health insurance something where people get a rate based on the luck of the draw or do we have something where we have some standards where people who live in the same community, of the same age, with the same benefit package are treated equally?”

Wright said discussions should focus on how to provide consumers like Hammack with assistance if they barely miss qualifying for subsidies.

So what is Hammack going to do? If his income were to fall below four times the federal poverty level, or about $62,000 for a family of two, he would qualify for subsidies that could lower his premium cost to as low as zero. If he makes even one dollar more, he gets nothing.

That’s what he’s leaning toward — lowering his salary or shifting more money toward a retirement account and applying for a subsidy.

“We’re not changing our views because of this situation, but it hurt to hear Obama saying, just the other day, that if our plan has been dropped it’s because it wasn’t any good, and our costs would go up only slightly,” he said. “We’re gratified that the press is on the case, but frustrated that the stewards of the ACA don’t seem to have heard.”

Editor’s note: Ornstein posted this follow up story Answered: Why Two Obama Loyalists Lost Their Policies, explaining much more about the couple’s situation.

San Francisco Obama Supporters, Cancelled by Obamacare 8 November,2013State of Health

  • Eric

    The insanity of a liberal… “We’re not changing our views (just because Obama said our Kaiser plan was crap, lied to us and the American people, and our rates are going to double.) Why, oh why liberals hate themselves so much I’ll never understand.

  • Health Researcher in Oakland

    What amazes me about this is the shear revenue that insurance companies are working with. there goal shouldn’t be mitigating the expense spent on insurance buyers but the costs of administration of health and well-being. based on the number above the plan mentioned, 40/4000, with 35,000 members listed in California paying on average 550 a month, KP has revenue of 19.5 million dollars a month.

    • Fellow Healthcare Researcher

      Hmm. I suspect you’re not factoring for MCR and annualized trend, since it is not “shear revenue.” Insurers are absolutely focused on health administration costs (a regulatory mandate) and wellness. The typical insurer makes very small margin (3-5%) relative to other industry sectors. They are hedging against expected cost increases to preserve profits.

    • pipslvr

      Actually the ACA requires insurance companies to spend 80% of this money in actual care, and they’ve been doing so for a couple of years. The reason of the exorbitant cost of the healthcare in the USA seems to be the care itself. Doctors, lab testing, hospitals and very specially drugs have just much bigger markups than other countries where the governments have sheer bargaining power.

      The insurance companies simply take the prices asked and create an insurance product around it passing along the costs with a 20% more so they can make money.

  • Jesse

    They’re going to try and earn less so they get health care? This is not good for the US if people start trying to contribute and earn less to get more.

    • Eric

      This is exactly what’s going to happen! I would do it myself if I was in that situation near the cutoff. It’s happening with businesses too as employers cut folks below 30 hours a week. At my own job in the SF bay area, some that recently volunteered to cut down to 56 hours every two weeks are now in a panic as the employer is wanting to cut their expenses due to them being under 30 hours a week by dropping their health coverage! Not that I’m any Nostradamus, but I jokingly told them this might happen a couple of months back.

    • chrisfs

      That would only apply to people who don’t get health insurance through their employer (or Medicare etc), which is a pretty small number.

  • Robert

    Look at their ages and look at what they are paying. I am shocked that it was that little. They are at a high risk age for large expenditures for an insurer. Their income puts them at the sweet spot for being hurt the most by premium increases. Sadly there will be some that this will not be a better deal for. My business partner and her husband, who are 52 and 62 have had to pay $1,700/month for good, not great insurance. I think that these two should consider themselves lucky that they got the kind of deal that they did for as long as they did.

    • Eric

      Isn’t this besides the point? They heard, I heard, you heard, ALL of America heard Obama clearly state that if you had private insurance and you liked it, you could keep it! For finality, Obama added “PERIOD!”

    • ninabryant95

      like Raymond said
      I am inspired that anybody able to get paid $4278 in 1 month on the internet.
      did you look at this website

  • Gopiballava

    What aspect of the previous plan meant it didn’t meet the ACA requirements?

    • pipslvr

      Their policy was underwritten. They were paying less because Kaiser found them healthy after careful inspection and they had signed with blood that if they had made the slightest mistake in their application their policy would be retroactively cancelled.

      ACA requires insurance companies to take anyone in regardless of your health status, and this raises costs of people who are healthy like them.

  • pipslvr

    Missing from the story is the fact that Kaiser could have retroactively cancelled this couple policy (by finding insignificant problems on their application and using them as an excuse) had the couple started racking up significant medical bills that Kaiser had to pay, something insurance companies were routinely doing trying to get out of paying. Because of the ACA, there is no underwriting and no chance to have your policy canceled retroactively and therefore it’s more expensive.

    That said, those who make right over the 400% the poverty line are the ones who are going to feel the most impact of this. No subsidies and then having to bear the impact of the rate hikes due to all the ACA requirements. This is an aspect of the ACA that needs to be address if congress get their stuff together.

  • Tom

    Love love love it. Serves em right

  • Saul Rivers

    I’m a Kaiser member. I must say, their old policy was near the bottom of the barrel compared to most Kaiser policies. At first I thought EACH of them was paying $550 a month. To have a 59 and 60 year old couple only paying $550 a month should have indicated they had the very cheapest policy. Not a grandfathered policy at that.
    The cheapest deductible grandfathered plan 40/2000 would be costing them $1162 for 2014 if they were on it and could continue it.
    What they had chosen was nearly the cheapest of the non-grandfathered plans.
    When she worked for Kaiser in 2009, she could have stayed on a grandfathered plan, but at some point they chose to go with a new cheaper plan. Thus, as was clearly spelled out by Kaiser, there was no guarantee you would be able to keep it after 2014.
    I know those cheaper plans were enticing, because I switched from a grandfathered plan to a new one. My monthly cost dropped from $610 to $337 at age 63.
    My eyes were wide open about the risk, but due to recent income, I knew I’d qualify for a subsidy under the ACA and then by the end of 2014 I’m on Medicare.
    Just saying that Kaiser made it clear when I chose the cheap plan, that it wouldn’t last.
    One last point. Everyone marveled at the cheapness of those non-grandfathered deductible plans. Kaiser made them cheap and KEPT the rates down for 3 years.
    Though not stated, they wanted healthy current members to purchase them, knowing they would likely stay with Kaiser in 2014.
    Healthy members with fewer pre-existing conditions were desirable when the ACA takes over.
    I believe Kaiser made a financial decision in leaving those rates below their actual costs for those three years.
    Those rates were artificially low.
    Too low to be sustained even if the ACA had been canceled.
    Kaiser is not dumb. They also have not made their policies the cheapest.
    They don’t want too many new members. Let the other companies take the newly insured with many pre-existing conditions.
    To be fair, we’d need more information from this couple regarding their decision process when they decided to take this $550 a month plan.
    Wondering what their policy type was in 2009 and why they didn’t stay on the grandfathered plan.
    If they had, they’d be paying $1,162 this coming year, but with better coverage.
    BTW, if they were on a Kaiser grandfathered plan with no deductible, and $25 to $40 co-pays, their monthly cost in 2014 would be over $1500.
    That is the true cost for folks their age who ‘get to keep’ their old policies.
    So the example we see here is really somewhat artificial in the comparison of the old and the new. You need to compare the old grandfathered plans we all knew with the new plans under the ACA.

  • TheIntellectual

    I think it is the insurance companies’ greed. They’re cancelling the policies with low margin and re-offer them with a higher margin for themselves to the customers. The cancellation is not due to not meeting the ACA standard. Else, how Hammack’s cancelled policy is not meeting the ACA std? And low income group whose policy got cancelled, may find a better deal in Obamacare. But what about people like Hammack? Especially, I know too well about Kaiser, CA.

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