As provisions in the Obama administration’s new health care law start to take effect on Thursday, including the requirement that health insurance plans must not be denied to children with pre-existing medical conditions, some big US insurance companies have said they are going to drop child-only policies.

Aetna, Cigna, Wellpoint, Humana and others told the press they will no longer sell child-only policies; however, children with pre-existing conditions will still be able to apply for coverage under their parent’s plans, reports the Wall Street Journal.

A spokesman for Aetna told the paper that they made the decision to protect their existing child-only policyholders from increased premiums.

According to a report in the Washington Post, three companies, Cigna, Wellpoint and CoventryOne, blamed uncertainty in the health insurance market for their decision to pull out of child-only policies. The uncertainty and the fact other insurers were pulling out, has resulted in an “unlevel competitive environment”, said a spokeswoman for WellPoint.

The move has infuriated officials of the Obama administration, who point to assurances received from one of the insurance industry’s leading trade groups, America’s Health Insurance Plans, whose president Karen Ignagni expressed in a letter that the industry would support the new health law’s provisions for children with pre-existing medical conditions, reports the Post.

A spokeswoman for the Department of Health and Human Services said they expected the insurance industry to honour that promise, and if they break it they will be letting down some of the country’s most vulnerable individuals.

But Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, told the Wall Street Journal that their promise, which they made in March, concerned children getting access to their family’s policy, not to child-only policies, which is considered a “small niche”.

Advocacy groups have also expressed anger at the news that many insurers will be pulling out of child-only policies; Ethan Rome, executive director of Health Care for America Now, called it “immoral” and that it was appalling and dishonest to blame the new law.

Part of the problem for the insurers appears to be the concern that extending coverage for pre-existing medical conditions to child-only policies could be a powerful incentive for parents to wait until their child is very ill before seeking insurance cover.

And coupled with the fact it will not be until 2014, that all health insurers will be obliged to extend cover to all individuals with pre-existing medical conditions, regardless of age, this leaves a three to four-year gap when what might happen is that insurers with child-only policies will find themselves primarily covering children with large medical bills, driving up costs to the point that plans could go bust or premiums for other policies could rocket.

Another concern though, is that by pulling out now, the industry could be creating a self-fulfilling prophesy, because it will leave insufficient child-only plans in the market to spread the risk.

There has also been a suggestion that this move illustrates an emerging problem with the new health care legislation: it is so big that people aren’t able confidently to assess its impact, and in some cases, aren’t even sure what’s in it.

For example, a recent poll commissioned by the Associated Press revealed that more than half Americans mistakenly believe the new bill will raise taxes for most US tax payers this year. But apparently that would only be true for devotees of indoor tanning, which is now liable to a sales tax.

The press agency said the poll showed many people don’t realize that some of the provisions they cared about actually made it into law. For instance, about 25 per cent of the 1,251 randomly selected adults they polled thought the new law will establish panels of officials to make decisions about people’s health care, the so-called “death panels” described by critics. But this did not make it into the new legislation.

Even something as straightforward as “whether the Congressional Budget Office had ruled that the legislation would probably increase the government’s debt, or whether the nonpartisan budget analysts found that the health law would reduce red ink”, was wrongly answered by 81 per cent of respondents, reported the Associated Press (the correct answer is that the “CBO found it would reduce the federal deficit over time”).

Other provisions coming into effect on Thursday include:

  • Allowing young adults to stay on their parents’ health plan until they reach the age of 26.
  • Eliminating lifetime as well as annual spending limits for medical benefits.
  • Preventing insurers from ceasing coverage of policyholders after they get sick (except in fraud cases).Requiring insurers to extend coverage to some preventive services: without charging deductible or co-payments.

However, many people won’t be able to take advantage of the new provisions until later, because the law allows for the insurer to implement the new provision at the next renewal, which for most employees on job-based coverage with be on 1 January.

Sources: Washington Post, LA Times, Associated Press, Wall Street Journal, San Francisco Chronicle.

Written by: Catharine Paddock, PhD