Los Angeles Times - 13.08.2019

L ATIMES.COM/BUSINESS TUESDAY, AUGUST 13, 2019C

President
Trump and
other foes of
the Afford-
able Care
Act have
made the
expansion of
short-term
health plans
a centerpiece of their cam-
paign to gut the ACA.
Their argument is that
the plans, which the ACA
limits to three-month non-
renewable terms, can bring
cheaper coverage to millions
of Americans supposedly
burdened by the law’s man-
date that every health plan
offer certain minimum
benefits.
Two new statistical
releases, however, reveal
exactly why these plans are
less expensive and less
useful to the Americans
Trump claims to be helping.
They come from the govern-
ment’s own Center for Medi-
care and Medicaid Services
(CMS), and from the Na-
tional Assn. of Insurance
Commissioners. Both re-
leases tell the same story:
Short-term plans are
cheaper because the insur-
ers that issue them spend
only pennies on actual
healthcare for policyhold-
ers.
So little, in fact, that
Trump’s 2017 executive
order promoting the plans
and a regulation proposed
in 2018 to put his order into
action can be seen not as a
boon to insurance custom-
ers, but as a Bill of Rights for
the insurance industry. The
short-term issuers tend to
reject customers with pre-
existing conditions, don’t
cover pregnancy, and limit
other services in dozens of
ways not permitted for
plans subject to the Afford-
able Care Act.
At least one short-term
insurance issuer spent less
than 10 cents of every pre-
mium dollar collected on
healthcare, according to the
NAIC figures, which were
assiduously crunched by
Shelby Livingston of Mod-
ern Healthcare. The top
three short-term issuers —
the giant UnitedHealth
Group, National General
and the private-equity-
owned Geneve Holdings —
spent a combined 43.8% of
their premiums on deliv-
ering health services to
customers. They account
for 80% of the short-term
market.
For perspective, the
Affordable Care Act re-

quires that qualified plans

spend at least 80% of pre-

mium dollars on healthcare

services. (For large group

policies, the standard is

85%.) This figure is known

as the medical loss ratio, or

MLR. The best way for an

insurance company to tur-

bocharge its profits, obvi-

ously, is to push its MLR

down. That’s why a key

provision of the ACA forbids

insurers to spend less than

80%.

Short-term plans, how-

ever, are not subject to MLR

rules, because the law

doesn’t regard them as

legitimate insurance. The

Obama administration

limited the short-term plans

to 90 days; Trump wants to

allow them to remain in

place for a year and to be

renewed after that.

Insurance experts are

concerned, rightly, that

combined with the Republi-

cans’ cancellation of the

financial penalty imposed

by the ACA for not carrying

health insurance, the ex-

pansion of short-term plans

will siphon healthier and

younger customers out of

the ACA insurance pool,

making good insurance

more costly for everyone

else.

Let’s take a look at how

short-term plans get away

with lowballing their insur-

ance customers. Our exam-

ple is Golden Rule Insur-

ance, which is owned by

UnitedHealth. Its short-

term plans are available in

about a dozen states —

others, including California,

have outlawed these plans.

According to Golden

Rule’s standard brochure,

an earlier version of which

we reviewed last year, the

plan doesn’t cover pre-

existing conditions, which it

defines as any condition for

which medical advice or

care was sought in the 24

months prior to the plan’s

effective date, or would have

caused “an ordinarily pru-

dent person” to seek such

advice or care in the 12

months prior to the effective

date.

As we observed previ-

ously, this definition would

allow the insurer to delve

deeply into a customer’s

health retroactively for two

years should he or she pre-

sent UnitedHealth with a

claim. This was a habit

health insurers engaged in

freely before the ACA

banned the practice.

The plan’s prescription

benefit is a skimpy $3,000,

and it’s provided only

through a discount card

worth 20% to 25% of the cost

of a prescription, leaving the

customer exposed to what

could be thousands of dol-

lars in prescription ex-

penses. It caps lifetime

benefits for all services as

low as $250,000.

The plan doesn’t cover

pregnancy, most abortions,

most organ transplants or

chemotherapy associated

with bone marrow trans-

plants. It won’t cover in-

juries incurred on a motor-

cycle or while horseback

riding or skiing.

It won’t cover hospital

nursing services or room

and board if the customer is

admitted on a Friday or

Saturday, unless it’s an

emergency or to prep for

surgery scheduled for the

next day. In central Florida,

to pick a market at random,

Golden Rule charges $55 to

$70 per month for these

plans and imposes a $12,

deductible.

According to the NAIC

and CMS data, Golden Rule

paid out less than 40 cents

of every short-term pre-

mium dollar on medical

claims in 2018. (The CMS

figure includes short-term,

Medigap, dental, vision,

accident and a few other

lines in an “other health

business” disclosure; Gold-

en Rule declined to break

out short-term plans alone.

The NAIC data are for

“short-term medical”

plans.)

“Short-term, limited

duration insurance helps

increase choice and cov-

erage by providing a broad

portfolio of low-cost options

that meet the unique needs

of individuals,” a Golden

Rule spokesman told me.

“In some cases, these poli-

cies better meet the needs of

some consumers compared

to Exchange [ACA] prod-

ucts.”

That’s true, up to a point.

Some people need a short-

term plan as a bridge be-

tween employer health

insurance plans when

changing jobs, transitioning

to Medicare, or experience

some other gap in coverage

expected to last only a few

weeks or months. But these

plans are dangerously un-

suited to be used as substi-

tutes for ACA-regulated

insurance for any substan-

tial period. Over the course

of a few months anything

can befall anyone — a traffic

accident, a cancer diagnos-

is, a skiing mishap. At that

point, those who tried to

save money by purchasing a

health plan that left such

eventualities uncovered

would discover they had

made a very costly miscal-

culation.

Golden Rule says the

MLRs of its limited-dura-

tion plans “can vary signifi-

cantly from year to year due

to the shorter duration of

the plans and changes in the

populations who purchase

the plans.” That may be so,

but for Golden Rule the

MLRs have been coming

down — the figures com-

piled by NAIC for United-

Health’s short-term plans

fell from nearly 90% in 2011 to

less than 40% in 2018.

“These policies are not

right for everyone,” United-

Health says.

That’s true. But does

every buyer know that? The

lesson should be plain:

These limited plans are

useful only in very limited

circumstances. Turning

them into long-term substi-

tutes for good health cov-

erage only exposes their

buyers to loss — and is a

health hazard for everyone.

Short-term plans shortchange patients

MICHAEL HILTZIK

PRESIDENT TRUMPdisplays the executive order he signed to loosen restrictions on the Affordable Care

Act in 2017. Short-term health plans are cheaper because their issuers spend only pennies on healthcare.

Alex WongGetty Images

In the final moments of

his rebuttal to L’Oreal’s clos-

ing argument in a trade-se-

crets trial, a lawyer for Cali-

fornia start-up Olaplex told

jurors they would choose the

victor in a courtroom battle

of biblical proportions.

“David versus Goliath,”

Joe Paunovich said, locked

in a fight over “corporate

greed.”

L’Oreal was the giant.

Olaplex, born in a Santa

Barbara garage to a pair of

polymer chemists, was

David. And even if it wasn’t

the first time that particular

trope had graced an Ameri-

can courtroom, it appears to

have been effective.

On Monday afternoon, in

federal court in Wilmington,

Del., the jury told L’Oreal to

pay the start-up $91.3 million

for stealing its trade secrets,

breaching a contract and in-

fringing two patents related

to a popular, three-step

system that protects hair

during bleaching treat-

ments.

Since a party can’t re-

cover money for the same

wrong more than once,

Paunovich said in an inter-

view after the verdict,

Olaplex expects to net about

$37.4 million once U.S. Dis-

trict Judge Joseph Bataillon

has combed through the

damages.

The jury also found that

L’Oreal’s acts were inten-

tional, leaving the door open

for Bataillon to substantially

increase the damages if he

chooses.

“We are incredibly proud

that Olaplex’s rights have

been vindicated after a very

long and hard-fought litiga-

tion,” Paunovich said after-

ward.

A spokeswoman for L’O-

real said the company

strongly disagrees with the

verdict, which it plans to ap-

peal, and noted that the de-

cision applies only to the

U.S. market.

“We continue to believe

that Olaplex’s accusations

against us are unfounded,”

Lauren Riezman said. Ola-

plex “had no basis for a pat-

ent infringement claim

against us, nor did we mis-

use sensitive business infor-

mation,” Riezman said.

Olaplex had accused L’O-

real of stealing the secrets in

ameeting in California in

2015, when the companies

were in talks for L’Oreal to

buy the start-up. L’Oreal,

during a weeklong trial, said

it independently conceived

the use of a crucial acid in

August 2014 and developed

its products on its own.

In April, Bataillon agreed

to block sales of the prod-

ucts at issue until the dis-

pute was resolved, calling

them “an insignificant por-

tion of L’Oreal’s overarching

business.”

Olaplex, he wrote, “pre-

sented evidence showing ac-

tual monetary harm.” He

didn’t issue a corresponding

order, saying in court docu-

ments he would “likely enter

the entire judgment in the

case,” including any injunc-

tion, after the trial.

The judge ruled in late

June that L’Oreal’s products

had infringed the two pat-

ents at issue. One question

the jury had to decide was

whether the patents, owned

by co-plaintiff Liqwd Inc.

and licensed exclusively to

Olaplex, were valid to begin

with. Another was whether

L’Oreal had stolen the trade

secrets. A third was whether

it had broken nondisclosure

agreements relating to

them.

In the end, the answer to

all three was yes.

Olaplex has no physical

store, employs fewer than 30

people and does little tradi-

tional advertising. Yet its

core products, launched on

the company’s website in

June 2014 after a trial by top

hair colorists such as Tracey

Cunningham, quickly built a

following. Olaplex says they

strengthen and reconnect

protein bonds during

bleaching.

L’Oreal, whose hair-dye-

ing innovations go back

more than a century, re-

ported more than $30 billion

in sales last year.

The product lines in

question, which all involve

the three-step hair protec-

tion system, are just one

part of a division with about

12% of L’Oreal’s 2018 revenue,

according to data compiled

by Bloomberg. But they are

sold under the prestigious

Matrix, Redken and L’Oreal

Professionnel labels, impor-

tant to the overall brand’s

identity.

Yasiejko writes for

Bloomberg.

L’Oreal ordered

to pay $91 million

in theft of secrets

By Christopher

Yasiejko

Viacom Inc. stock
dropped nearly 5% on Mon-
day amid concerns among
investors that they might be
short-changed in the much-
anticipated merger with
CBS Corp.
The New York companies
are in the final stages of
reaching a merger agree-
ment. Board members rep-
resenting the two firms,
both controlled by the Sum-
ner Redstone family, worked
through the weekend and on
Monday to try to nail down
final details — but they still
had not reached agreement
on a price, according to a
person familiar with the sit-
uation who was not author-
ized to comment.
CBS is the larger of the
two companies and will ac-
quire Viacom Inc., whose as-
sets include MTV, Comedy
Central, Nickelodeon, BET
and the Paramount Pictures
movie studio in Hollywood.
Nonetheless, the new com-
pany is expected to be
named Viacom, in a nod to
the legacy of ailing mogul
Sumner Redstone, who ac-
quired Viacom in 1987 and
built it into an entertain-
ment leader.
Because the deal will be
an all-stock transaction, in-
vestors have been watching
closely for any details on the
exchange ratio that values
the two stocks. (The ex-
change ratio is the relative
number of new shares that
will be given to existing
shareholders of a company
that has been acquired or

that has merged with anoth-

er.)

The Wall Street Journal

reported Monday that CBS

would get a “small premium

for its shares” and that the

exchange ratio being dis-

cussed was from 0.59 to 0.60.

That prompted Viacom’s

stock to fall $1.48 to $28.53 on

Monday.

Viacom’s market value is

currently $11.7 billion. That is

close to what CBS is ex-

pected to pay for the com-

pany.

CBS shares, which had

declined about 4% on Fri-

day, slipped an additional

2% on Monday to $47.91 a

share. CBS’ market value is

$18 billion.

Viacom Chief Executive

Bob Bakish is expected to

become chief executive of

the merged company and

gain a seat on the board.

Shari Redstone, the mogul’s

daughter, will become the

first chairwoman in the his-

tory of Viacom.

The proposed merger is

the latest in a wave of enter-

tainment industry consoli-

dations and was widely ex-

pected. It was the third time

in three years that CBS and

Viacom attempted to hook

up.

CBS was part of Viacom

until Sumner Redstone, now

96, tore his empire into two

pieces in 2006.

Meanwhile, Viacom last

week extended the tenure of

Paramount’s chairman and

chief executive, Jim Gianop-

ulos, who was brought in to

run the moribund studio in

2017.

In the last year, Pa-

ramount has displayed flick-

ers of a turnaround after

years of box-office duds and

hundreds of millions of dol-

lars in financial losses.

Gianopulos signed a new

multiyear employment

agreement, according to a

person close to the company

who was not authorized

to discuss personnel mat-

ters.

But last week, Bakish

gave the studio a shoutout

during a call with analysts.

“We are thrilled with

what’s going on at Pa-

ramount, which just deliv-

ered its 10th straight quarter

of year-over-year adjusted

operating income improve-

ment and is on track for full-

year profitability in 2019,”

Bakish said.

Investors anxious about Viacom

They fear they’ll get

a small premium as

merger talks with CBS

near end. Shares of

both companies fall.

By Meg James

CBS IS expected to absorb Viacom, but the new firm would be called Viacom, in a

nod to Sumner Redstone, shown in 2013, who built Viacom into an industry leader.

Lawrence K. HoLos Angeles Times