UPDATE: Here's how naive I am: I assumed provider contracts were locked in for the year.

Every year, at least since the ACA exchanges went into effect, insurers have been required to submit their plans and premium rates for the upcoming year to state or federal regulators months ahead of time, in order to allow time to review, modify and approve rates. Once Open Enrollment begins, it was my understanding that the specifics of the plans offered are supposed to be locked in for the full calendar year. In other words, no bait & switching allowed: If a certain plan was set to cost someone $300/month with a $2,000 deductible, 70% actuarial value, such-and-such co-pays and so forth, they aren't allowed to change those plan specs once the Open Enrollment Period begins, and they're required to stick to those prices and coverage specifics for the full upcoming year.

I further assumed that the carriers would also be legally bound to keep the other contractual details related to the policies, such as the provider networks, drug formularies and so forth, locked in for the full calendar year except in circumstances outside of their control (ie, a particular hospital going bankrupt, a particular doctor retiring or dying and so on). On a related note, I was also operating on the assumption that the contracts that insurance carriers have with the doctors/practices/hospitals in their networks, in terms of payment rates and so forth, were set in stone for the full year.

Well, it seems that I've been hopelessly naive on both of these counts.

It appears that at least two of the surviving (for now) ACA-created Co-Ops, Land of Lincoln (Illinois) and InHealth Mutual (Ohio), recently announced that they're dropping certain hospitals and doctors from their coverage networks (Chicago Tribune, 1/19/16):

Land of Lincoln drops U. of C. medical center; customers claim 'bait and switch'

Land of Lincoln Health, a struggling Chicago health insurer, will drop the University of Chicago's medical center and affiliated doctors from its insurance network March 1, an unexpected change that has upset some customers.

The move comes after some customers bought coverage at the end of last year from Land of Lincoln because their University of Chicago doctors were in the network at the time. Members who want to keep their U. of C. physicians anyway will face higher out-of-pocket costs with Land of Lincoln.

...The insurer notified University of Chicago Medicine of the decision late last month, said Ashley Heher, a spokeswoman at the health system. The decision affects Land of Lincoln's individual policies and some small-group plans. Open enrollment for individuals and families under the Affordable Care Act began Nov. 1. The deadline to buy coverage that started on the first of the year was Dec. 18.

This sucks, especially since they waited until after the 12/18 enrollment deadline for January coverage to make the announcement, meaning everyone who enrolled was locked in for at least the first month of the year. On the other hand, they're not actually dropping the hospital until March 1st, which means that those enrollees still had time to switch to a different carrier for coverage from February or March onwards.

HOWEVER, this pales in comparison to the stunt their fellow Co-Op in Ohio pulled a few weeks later (Columbus Dispatch, 2/10/16):

InHealth customers mad about late notice dropping OhioHealth

Some central Ohio consumers say a Westerville-based health insurer intended to keep quiet about its plan to drop OhioHealth hospitals and doctors from its provider network until it was too late for many of its enrollees to change their health plan.

...In those complaints, the consumers, who mostly live in Franklin or Delaware counties, expressed frustration over InHealth Mutual’s last-minute notice to consumers about its plan to drop most OhioHealth providers as of March 1. As many as 9,000 people could be affected statewide.

Many consumers said they were not notified of InHealth’s plan to narrow its provider network until last week, though some received robocalls on Jan. 30, the day before the deadline to sign up for health insurance through the federally run health-insurance marketplace.

Richard “Rich” Schooley, himself an insurance agent, said he carefully vetted InHealth’s coverage before he purchased coverage through the marketplace, only to receive a letter last Wednesday telling him that OhioHealth would be dropped from the network on March 1.

This, if true, is utter bullshit. Yes, like Land of Lincoln, current enrollees are still covered until the end of February, so they had a little time to scramble and find different coverage if necessary...but not informing them until after the end of Open Enrollment is a crock (and even giving less than 48 hours notice is pretty rude on InHealth's part).

In an interview last week, an InHealth official acknowledged that efforts to get OhioHealth to agree to lower reimbursement rates had broken down by late December.

During the first half of January, InHealth’s leaders decided to drop OhioHealth from the provider network. An official with the Ohio Department of Insurance said that InHealth contacted the department late on Jan. 15, triggering a required 15-day review period during which department officials review documents to ensure that insurance companies clearly explain provider-network changes to consumers.

However, an official with the Ohio Department of Insurance said nothing stops insurers from starting the notification process during the 15-day review period. The Department of Insurance did not encourage InHealth to begin the notification process earlier.

The very next line sums up the fundamental problem here:

We consider this decision to be a business decision of the company,” the official said.

I find this stunning on so many levels:

• First: Why isn't this illegal in the first place on the basis of false advertising? The person enrolling is doing so with the understanding that specific doctors, hospitals, medications and so forth are included in the network/formulary as described by the carrier. The premium rates and deductibles are guaranteed for the full calendar year; why aren't the networks as well (again, barring circumstances outside of the carrier's control)?

• Second: For all the recent fuss over whether there are too many Special Enrollment Periods being allowed outside of Open Enrollment, why isn't Bait & Switch by the carrier at least considered a Qualifying Life Event to let people screwed by it have another opportunity to move elsewhere?

• Third, and most importantly: This isn't like a store running out of the iPhone 6s and having to settle for a refurbished iPhone 6 instead; they're playing with people's lives here.

For all the fuss by myself and others about whether Bernie Sanders's Single Payer plan is likely to happen (and no, I just don't think it is, at least not anytime soon), the very fact that an insurance carrier (even a non-profit one) jerking people around is considered simply "a business decision" is, in and of itself, a big part of the appeal of Single Payer in the first place.

If this was a restaurant making a business decision to remove a few favorite dishes from their menu to save money, the "invisible hand of the free market" rules would dictate that if enough of their regular customers were unhappy about it, they'd take their business elsewhere, thus resulting in a "self-correcting" system. The difference here is that a) the "customers" aren't allowed to take their business elsewhere until next year, and b) even if they could, some of those dishes may not be available anywhere else...and in a few cases, those dishes may be the only ones which the customer can even eat. To push the metaphor further, it's also not so easy to go through the process of deciding where else to eat when you're already delirious from hunger.

In any event, the first sentence from the second article above is also worth noting...

In an interview last week, an InHealth official acknowledged that efforts to get OhioHealth to agree to lower reimbursement rates had broken down by late December.

...because of this related development, just announced 2 days ago: (thanks to David States for the heads' up):

Highmark to cut doctors' payments for Obamacare plans

Citing an estimated $500 million loss last year on health insurance plans sold on the Affordable Care Act marketplace, Highmark Inc. said Friday it plans to reduce what it pays doctors who treat patients with the plans.

Highmark plans to reduce payments to the physicians by 4.5 percent starting April 1 as part of a broad effort to stem losses related to the federal marketplace, said Alexis Miller, Highmark's special vice president of individual and small group markets.

Miller estimated the insurer paid about $500 million more for patients' care in 2015 than it collected in premiums for the plans sold on the federal marketplace, resulting in the loss. Highmark officials have said the people who signed up through the health law's marketplace were sicker than the insurer expected.

John Krah, executive director of the Allegheny County Medical Society, said doctors should not be held responsible for Highmark setting plan costs too low to cover patients' care.

“It's inappropriate for Highmark to seek to compensate for their failure to price these products appropriately by paying physicians less,” Krah said.

Again, I admit to being surprised to discover that not only do the contracts between the carriers and providers appear to be on a "month to month" basis instead of locked in yearly, even the payment rates for those providers seem to be subject to change on short notice mid-year.

Ironically, while this story also appears, at first, to be an argument for scrapping the private health insurance system completely, the very next sentence provides one of the largest achilles heals with the "Medicare/Medicaid for All!" push:

Faced with lower reimbursement rates for ACA patients, doctors could end up setting quotas for how many of the patients they would accept at their practices, the way they do for Medicare and Medicaid patients, he said.

“All policy has pushed practices to run on a business basis today,” he said. “So they make the same kinds of decisions a business makes. They can only have certain percentages of patients with those types of insurances.”

About a month ago, Matthew Yglesias wrote an article over at Vox which touched on this very problem:

The real issue is something else entirely. Single-payer systems save money by squeezing health care providers — doctors, hospitals, and ultimately everyone who works for them — which would be very difficult to accomplish ex post facto. If the political consensus did exist for enacting large, across-the-board cuts in doctors' fees and hospital charges, then there would be no need to shift to a single-payer system in order to accomplish the cuts. In the absence of such a consensus, the switch to single-payer actually wouldn't save money, and the costs would become exorbitant.

...Single-payer skeptics tend to be simply incredulous that government-run systems, both in the United States and abroad, are more cost-effective. Isn't the government a legendary cesspool of waste and inefficiency? Why would a government-run system be more efficient?

Well, here's the answer: Foreign single-payer systems pay doctors less. They also pay pharmaceutical companies less. They pay less for medical devices, too.

It turns out that Medicare uses this trick, too, offering doctors only about 80 percent of what private insurance plans pay them.

Highmark says they're gonna cut doctor payment by 4.5%, and those doctors are pissed off about it. Imagine if they were told that they'd be seeing a 20% cut instead?

But what about Medicaid? There it's even worse, as Peter Ubel noted back in 2013:

In an earlier post, I presented some data on which kind of physicians in the United States are most and least likely to see new patients who receive Medicaid, the state/federal program to pay healthcare costs for low income people. Now a recent study lays out some reasons why many physicians are so reluctant to see such patients.

Not surprisingly, it starts with low reimbursement rates. Medicaid pays about 61% of what Medicare pays, nationally, for outpatient physician services. The payment rate varies from state to state, of course. But if 61% is average, you can imagine how terrible the situation is in some locations. Physicians interviewed in the study explained that they felt it was their duty to see some amount of Medicaid patients in their practice. They recognized the moral need to provide care for this population. But they did not want to commit career suicide – they did not want good deeds to bankrupt their clinical practices.

Let's take a closer look at that. He isn't saying that Medicaid pays 61% of what private insurance pays; he's saying that it's 61% of what Medicare pays. And since Medicare only pays 80% or so of what the private market does, that's 61% of 80%...or just 49%.

As both Yglesias and Ubel both note, these are just averages; they presumably vary widely from state to state and procedure to procedure...but if they're accurate, what this means is that if we did switch over to a completely single payer system which paid the same rates to doctors/hospitals as Medicare/Medicaid do now, those healthcare providers would have to accept somewhere between a 20 - 50% pay cut.

On the other hand, Don McCanne MD of Physicians for a National Health Program (which advocates for Single Payer) does put this situation in context:

A well-designed single payer system includes multiple features that contain health care spending. The most important is the administrative efficiency. Under the Affordable Care Act, the private insurance industry is allowed to keep 15 to 20 percent of the premiums for administrative services and profits. The administrative costs for Medicare are about two percent, and that includes costs of other government programs that support Medicare. Adopting an improved Medicare for all would eliminate much of the excess administrative waste of the private insurers.

On the provider side, our highly inefficient multi-payer system also places a tremendous administrative burden on physicians, hospitals and other providers. In fact, administrative work consumes about one-sixth of U.S.. physicians’ time (while eroding their morale, precipitating burnout). U.S.. physician practices spend nearly four times as much money interacting with health plans and payers as do their Canadian counterparts.

Administrative costs consume about 31 percent of total U.S.. health care spending. That is about twice that of Canada – 16.7 percent. Much of that difference is due to the financing systems – single payer in Canada and a dysfunctional multi-payer system in the U.S.. – and thus most of that portion would be recoverable if we switched to single payer.

Yglesias says that we would have to reduce physician payments by 20 percent to achieve the spending goals of a single payer system. But when Canada changed to single payer, not only were physicians’ incomes not harmed, they remain among the top earners in the country.

I actually noted this before I had read McCanne's piece in an update to my own analysis of Sen. Sanders's plan:

If you tell doctors that you're gonna kill off 20% of their income all at once, they're gonna be understandably furious (and whether or not you think doctors are paid too much today is irrelevant; they aren't gonna feel that way, after all). However, if you make the move gradually, other factors will adjust accordingly. For instance, I'm assuming that it's easier for a medical office to deal with those 80% payments from a single payer (Medicare) than 100% payments from 12 different private carriers; presumably there'd be some amount of cost savings in terms of running their medical office (paperwork, billing, phone calls, etc) as enrollees gradually shift over to Medicare, which might make up for the income loss at the front end. Then again, it's possible that Medicare is as much of a pain in the ass to deal with as a dozen private carriers; this probably varies depending on which company and doctor you're talking about.

What McCanne seems to be arguing here is that yes, doctors/hospitals might be paid 20% less, but they'd almost certainly save 20% on overhead as well, cancelling out any losses.

In any event, there's one more twist to the Highmark article. As pointed out by one of my Twitter followers...

@charles_gaba The state reduced company's rate request by forcing the company to lose money, see -5.2% profit. https://t.co/WaBx4SjcuO

— sthfrk2008 (@sthfrk2008) February 21, 2016

Sure enough, as I even noted myself in my big 2016 Weighted Average Rate Hike Project, Highmark had originally requested a 25.5% average rate hike this year, but was only approved for a 20.1% increase.

What that effectively amounts to is that instead of raising premiums from $300/month to $376.50 for a given enrollee, they could only raise it to $360.30, or about 4.3% less. Highmark is essentially telling healthcare providers "The state is making us cut what we charge by 4.5%, so we're paying you 4.5% less."

This is a novel way to cut costs, I admit, but I don't think this is quite what anyone had in mind...least of all the doctors.

UPDATE: Thanks as always to Louise Norris, who notes that the HHS Dept. already considered adding an SEP for this very type of situation, but apparently...

There have also been calls for a SEP based on inaccurate provider network lists, or provider networks being changed mid-year. HHS clarified that they are not implementing such a SEP because the logistics would be too complicated. But they noted that in some circumstances, a SEP might apply if the carrier “substantially violates their contract with the enrollee.”

Hmmm. I guess part of the problem is that you'd have to have some pretty solid rules about how much of a "network change" is required (is it enough for a single in-network physician to retire, or would it have to be an entire medical center? etc, etc).

However, Richard Mayhew counters this excuse pretty bluntly:

@LouiseNorris @charles_gaba hhs can tell what % of directory is no longer available. BS here. Games in PA and OH need pushback

— Richard Mayhew (@bjdickmayhew) February 22, 2016

Huh. Again, I don't know enough about this stuff to opine definitively, but it's certainly an issue which needs to be addressed.

Also, various knowledgeable sources with many years in the industry have contacted me to add some context/insight into some of the other points I raised in this post. According to them...

• Contractual terms between carriers and providers are all over the place; some are month to month, but others are multi-year, and yes, having the network participation cut off mid-year (from either end) has been a problem for a long time prior to the ACA being passed.

• Stories like this sometimes are being played out in the media on purpose purely as a negotiating tactic, with one side or the other blabbing to the press in order to win over the court of public opinion, especially in high-profile cases.

• The "Medicare only pays 80%" rule may not be the case anymore, as some contracts now call for "Medicare +10%" etc...in which case Medicare is paying around 90% of private carrier rates by definition, due to the carrier being willing to pay less. If this is widespread and becoming typical, "Medicare for all" may not have as much of a gap as I thought.

• Apparently the "doctors setting quotas" thing had, again, already been happening for many years before the ACA was passed (for instance, a doctor might accept patients with PPOs but not HMOs from a particular carrier (which makes sense if you think about it, given that this is the primary distinction between PPOs and HMOs, after all).

• There's no distinction between on-exchange, off-exchange or group policies in terms of what rates a carrier pays providers for a specific "product" (ie, type of policy...which, once again, suggests that this sort of confusing nonsense has been going on for a long, long time before Obamacare came around and became a convenient scapegoat for the industry's woes.