In 2013 only a handful of regional health insurance companies, most notably Universal Health Care Group, Inc. in Florida, filed for bankruptcy protection. The National Association of Insurance Commissioners reports the largest 125 health insurers collected approximately $713 billion in premiums in 2012. For decades healthcare insurers denied coverage to individuals with preexisting conditions under the guise that doing so would have sent them into a financial death spiral. Now insurers are threatening to raise premiums unless they are protected from the increased costs of insuring sicker people under ObamaCare. And again the Obama administration has yielded to their latest demand, even though the law already provides afinancial safety net for insurers.

The ObamaCare Risk Adjustment Programs are designed to protect insurers from the very loss they claim they are now vulnerable to. The law’s risk adjustment models were developed using the Medicare Part C (Medicare Advantage) and Part D (Medicare Prescription Drug)models -- two federal programs that provide healthcare coverage for people over 65, including those with preexisting conditions. The Medicare Advantage program calculates reimbursement based on estimated claim costs rather than on a “fee for service” basis; insurers will be similarly reimbursed under ObamaCare. Insurers’ latest forecast of impending financial doom is another smoke and mirrors tactic to deflect attention from the fact they already are adept at maximizing reimbursement and minimizing claim loss under the Medicare programs. 

Risk adjustment models determine reimbursement based on a system that codes every person’s medical condition(s). The coding process involves applying complex actuarial formulas to each diagnosed medical condition, which results in a patient’s risk score. For example, someone diagnosed with multiple health conditions such as cancer, high blood pressure, and heart disease will be coded for each condition separately and treatment protocols associated with each condition are also coded. Individual risk scores are then aggregated to determine a plan pool’s overall risk score, which is compared to a benchmark plan risk score. The higher a plan’s risk score is to the benchmark plan average, the higher reimbursement will be to insurers.

Insurers are already familiar with medical coding practices. “Upcoding” refers to the sometimes fraudulent and always deceptive practice of manipulating medical coding to increase reimbursement. Coding practices range from outright fraud, where individuals are coded for nonexistent medical conditions to the questionable coding of medical conditions that are not thoroughly documented. Software programs designed to scour patient medical records in order to capture all possible diagnoses and maximize reimbursement are commercially available for the Medicare programs and widely used throughout the healthcare industry. 

Upcoding makes patients appear statistically sicker than they actually are because it increases a patient’s risk score. The most profitable Medicare enrollees are those who have been diagnosed with a serious health condition but remain symptom-free and require minimal medical care. Even though a patient does not receive medical treatment, insurers are nonetheless reimbursed based on the estimated cost of treatment rather than on actual costs incurred.

Not surprisingly, upcoding practices have resulted in widespread fraud and overpayments in the Medicare programs. Overpayments in the Medicare Advantage program are conservatively estimated at $34 billion dollars for 2012 alone. The problem has become so pervasive that a “coding intensity adjustment” is automatically deducted from reimbursements to adjust for variations in coding patterns.  Repeated attempts by government agencies and Congress to contain the problem have been unsuccessful and the adjustment rate continues to climb, jumping from 3.41% in 2010 to 4.91% in 2014 for the Medicare Advantage program.

Contrary to their claims of impending financial disaster, insurer profits will increase, not decrease, under ObamaCare. At the same time the Obama administration is writing insurers a blank check, insurers are forging new partnerships and affiliations with hospitals and offering bonuses to doctors who agree to treat patients using standardized guidelines instead of more expensive drug protocols and experimental treatments. These unholy alliances and financial incentives will do nothing to improve the quality of patient care but they will reduce insurer healthcare costs and increase their profits. 

Using fear as their most effective weapon, insurers have extracted yet another concession from the Obama administration even though no loss has yet occurred. If this latest bailout is not stopped, the healthcare insurance industry will have triumphed in transferring all future loss onto the backs of American taxpayers. 

Despite being handed a captive consumer market, insurers still are not satisfied. Healthcare insurance companies will not go bankrupt under ObamaCare -- to the contrary, they will continue to reap record profits.  The sky was never falling.  Healthcare insurers simply raised the ceiling. 

Constance Jacobs is a freelance writer living in Oakland, California and can be contacted at scriptorerudio@gmail.com.