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Spotlight on Private Insurance
Legislators, regulators, and even state attorneys general are putting the spotlight on private insurance companies that are exploiting a public good - access to health care - for its profit-making potential. As we wrote in Monday's Stateside Dispatch, California regulators are investigating and imposing fines on many of the state's insurance companies for abusive and anti-consumer business practices. Healthnet has been exposed for providing bonuses to employees who cancel health plans after members experience costly medical events and Blue Cross of California has been recruiting physicians in canceling health insurance coverage.
New York State Attorney General Andrew Cuomo is broadening an investigation of whether insurance companies are defrauding customers by artificially jacking up out-of-network costs. In many insurance plans, particularly indemnity and PPO products (see Families USA's excellent Glossary of Medical Terms), insurance companies charge customers higher co-pays and co-insurance for seeing providers who are out-of-network, or who aren't listed as a "preferred provider" by the insurance company. Navigating these rules - knowing which providers, and in many cases which procedures, are conferred out-of-network status - and predicting what costs a patient will face throughout treatment for a medical event can be maddening. Mr. Cuomo is alleging that insurance companies have manipulated data and knowingly underestimated the costs of out-of-network care, which in turn increases the costs patients must pay.
Washington State to Hold Insurance Companies Accountable
Legislators in Washington State decided to exert some control over insurance companies after year's of premium increases and broken promises by insurers not to increase rates. And, lawmakers were emboldened by news that a state-based non-profit insurer transferred $49 million in premium revenue over the past three years to a faltering for-profit subsidiary in Arizona.
Last Friday, legislators passed SB 5261 which will restore state oversight of the individual health insurance market. The law authorizes the Insurance Commissioner to disapprove unreasonable rate increases and establishes a sliding-scale medical loss ratio for insurers. The debate was fueled, in part, by estimates that insurers have surpluses totaling $1.4 billion.
As Families USA discusses, medical loss ratios require insurers to spend a certain amount of premium revenue on direct medical care. These laws help ensure more of our premiums are used on medical care and less on administrative costs, including profits and bonuses. The Washington bill sets up a tiered loss ratio that is tied to the number of people an insurer denies for coverage. For example, a rate of denial under 6% equals a loss ratio of 74%, meaning 74-cents of every premium dollar must be spent on medical care. Insurance companies that deny coverage to more people, more than 8% for example, face a loss ratio of 77%.
The rate oversight bill was a key legislative goal of the Healthy Washington Coalition, a broad coalition of health care advocates and stakeholders working to "achieve secure, quality, affordable healthcare for all Washingtonians."
Options to Ensure Fairness, Accountability and Access to Coverage
States have a menu of options to rein in private insurance companies, part of the broader set of options states have to move towards comprehensive health care access that we described in the Stateside Dispatch. As Families USA discusses, many of these measures help lay the groundwork for comprehensive health care for all reform. They point out that Massachusetts' 2006 health care reform law was "built on Massachusetts' expanded public programs and its highly regulated insurance market."
Many of the options described below come from a new web-guide for state health care reform created by Families USA and Community Catalyst. Options include:
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Rate Review and Oversight - requiring insurers to gain prior approval for premium increases. As already noted, the Washington State Legislature passed SB 5261, which will restore the insurance commissioner's oversight of the individual health insurance market and require individual health plans to maintain a 77% medical loss ratio.
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Medical Loss Ratio - requiring insurers to spend a certain amount of premium revenue on direct medical care. As Families USA discusses, these laws ensure that more of our premiums are used on medical care and less on profits, bonuses, and inefficient administration. New Jersey has a medical loss ratio of 75% for the individual and small group markets. If less than 75-cents of every premium dollar is spent on direct medical care, an insurer must issue the difference in refunds to their members. Minnesota has a tiered loss ratio, setting different levels for the large group, small group, and individual markets.
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Guaranteed Issue - preventing insurers from refusing coverage to individuals because of their health status, age, gender, or other fractors. This helps ensure the availability of coverage and is a reform especially important in the individual market, where many states allow insurers to cherry-pick their customers and refuse coverage to certain residents.
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Community Rating - creating more consistency in health insurance rates across insured populations. These laws limit how much an insurer can adjust a health insurance policy based on a person's age, gender, health status, history, and other factors. Pure community rating sets the same rate for an entire insured population, regardless of demographic factors. Modified community rating, the more common form, sets a rating band within which insurers can vary rates based on certain factors. Last year, Colorado strengthened the community rating standards in the small group market through HB 1355, which removes health status as a factor in setting premium rates.
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Coverage for Young Adults - requiring insurance companies to allow children to stay on their parent's health insurance well into their 20's. Eleven states have authorized coverage up to age 25 but New Jersey has extended dependent coverage to age 30. This is a simple and relatively low-cost way to expand access to coverage. Of the 45 million uninsured in the US, 31% are between 19 and 29 years of age.
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Pre-Tax Employee Premium Payments - requiring employers to set up "section 125 plans" which allow employees to pay their share of employer-provided insurance premiums pre-tax. This federal tax subsidy can help employees afford coverage, even if employers do not pay towards employee premiums.
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Standardized Benefit Plans - requiring insurers in a particular market, often the individual market, to always include a certain level of benefits in their insurance options. This prevents insurers from selling inadequate insurance and allows consumers to better compare the value of different health plans. And, as Families USA and Community Catalyst point out, states can also establish maximum premiums and out-of-pocket costs to protect consumers from medical debt and bankruptcy.
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Health Insurance Connector - pooling consumers and negotiating on their behalf with insurance companies for more affordable insurance rates. Following Massachusetts' lead, several states are considering establishing insurance connectors which typically negotiate or contract with insurers to offer insurance plans that meet set standards for coverage and costs. As Families USA and Community Catalyst describe, connectors create a common marketplace for consumers to compare options. Connectors work best with other insurance reforms like guaranteed issue, community rating and standardized benefit plans.
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Merging Insurance Markets - creating one large pool by combining the individual and small group markets can make more affordable options available to small businesses and to individuals, in particular. As discussed by Families USA and Community Catalyst, Massachusetts has merged these markets and early projections estimate the move will reduce individual insurance premiums by 15% and cause only a slight up-tick in small group premiums. This works best if the two markets have similar consumer protections.
New Research
A new Commonwealth Fund report - Health Policy Reform: Beyond the 2008 Election - uses the 2008 election as the context for a discussion of the health care programs plaguing America and the policy options under consideration for addressing them.
According to the National Clearinghouse on the Direct Care Workforce, "one in every four nursing home workers and more than two out of five home care workers lack health insurance coverage." To address this and other problems facing the direct care workforce, Health Care for Health Care Workers has issued two reports with policy options for state legislators:
There is great inequity in US health care, particularly across racial and ethnic factors. As the Kaiser Family Foundation reports, a new CDC study finds that while only one in four US residents are aware of the five signs of a heart attack, whites are almost twice as likely to be aware of the signs than people of color and to know what actions to take in response.
More Resources
Healthy Washington Coalition - 2008 Legislative Agenda
Families USA - Establishing a Medical Loss Ratio
Families USA - Good Ideas: Positive Approaches to Improve the Private Market
Families USA and Community Catalyst - How will this proposal expand access and increase affordability in the private insurance market?
Georgetown University Health Policy Institute - Key Consumer Protections in Individual Health Insurance Markets
Georgetown University - State Consumer Guides for Getting and Keeping Health Insurance
Statehealthfacts.org - Percent of Private Sector Firms Offering Coverage
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