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Targeting Insurance Abuses as a Path to Federal Health Reform
Enzo Pastore on February 16, 2010 - 2:13pm
As comprehensive health care reform has been stalled for several weeks now, progressive legislators, advocates and health care consumers across the country have been feeling a deep sense of frustration and outrage. The insurance industry and their conservative allies in Congress have used every tactic available to shift public debate away from the core reason insurance reform was needed in the first place: the denial of coverage to those with preexisting coverage, and the out-sized profits and administrative waste by insurance companies that has priced health care out of the reach of millions of Americans. Last year, there were 900,000 families that faced bankruptcy due to medical costs, and remarkably, of those 900,000, 75% (675,000) had insurance coverage.
State legislative leaders across the country are using state campaigns against these insurance abuses to refocus public debate on the need for comprehensive reform. While fixing a few of those problems at the state level will help, almost all state leaders pushing these bills also recognize that long-term action on health care needs the support of federal reform for success.
These state campaigns — coordinated across multiple states with the support of the Progressive States Network, Health Care for America Now (HCAN) and other allies—can remind voters of those long standing abuses by health insurance companies and why the public supported reform in the first place. And this campaign will make it clear to health insurance companies that if they try to defeat federal reform, they will just face a new burst of regulations at statehouses across the country.
This Dispatch will: highlight a few of the state insurance reform campaigns underway and the health insurance problems they highlight; detail how to message these campaigns to support federal reform; provide a roundup of policy options and model bills for other states interested in moving similar insurance reforms; and end with a set of resources on the campaign, including national policy organizations, key reports, and bills moving across the country.
Table of Contents:
Campaigns Taking Action Against Insurance Company Profiteering
Putting their time and resources behind legislation to curb insurance abuses is not something new, but state legislators sense a window of opportunity and momentum both because of how close federal reforms are to being realized, but also as a tool to help get federal reform efforts back on track. Expectations were raised and state legislators are turning their outrage into action.
One of the messages lost in all of the debate has been the fundamental abuses by the insurance companies that outrage all Americans. Abuses in the insurance industry continue unimpeded, as the most recent rate hike from Anthem Blue Cross clearly amplifies. They announced an immediate rise in premiums charged to hundreds of thousands of individual customers in California by as much as 39%—even though their parent company's profits spiked to a record $4.7 billion last year. But it’s just not California. Insurance companies in at least four states are raising their premiums for individual policies by 15% or more.
The Costs of Continuing the Status Quo: Health insurers will continue to deny coverage to people because of pre-existing conditions, health status or age, continue to discriminate against women and continue to cancel coverage when people become sick. One real life example of the abominable behavior of health insurance companies is illustrated by the story of Ian Pearl. The 37 year old Mr. Pearl, born with muscular dystrophy, has been in and out of southern Florida hospitals his entire life. However, in December 2008, New York based Guardian Life Insurance notified Ian and his family that it was dropping his coverage.
Upon filing a lawsuit, Ian’s attorneys uncovered insurance company documents confirming that Ian was clearly a target of discrimination. The documents revealed Guardian had compiled a "hit list" of its costliest members, including patients with muscular dystrophy, multiple sclerosis, brain injury, and paralysis. Guardian executives referred to them as "dogs" and "train wrecks," and debated how and when to dump individuals with serious chronic health problems from the rolls. Guardian eventually reversed its decision, but this only came about because of the widespread media frenzy the case received.
However, Ian is just one among millions of Americans. Over 46 million people in our country have no insurance, a number that continues to climb upward. The 900,000 families that faced bankruptcy due to medical costs last year is just the tip of the iceberg of families denied coverage or finding that loopholes in legal language leave them financially liable for care they thought was covered by insurance.
Fattened Insurance Company Profits at the Expense of Health Care Consumers: The insurance industry continues to accumulate staggering amounts of wealth, to the tune of $800 billion per year in premium revenue that results in skyrocketing company profits and reserves. In 2008, the total revenue of the seven largest companies totaled more than $250 billion.
At the same time insurance companies savor their profits, family insurance premiums continue to skyrocket as well, with a 78% increase from 2002 to 2007, far surpassing the 17% increase in the rate of inflation and a 19% increase in wages. In the US, administrative costs - as a share of total health care spending - are 30% to 70% higher than in countries with public/private universal systems. Employers, especially small businesses vital to job creation in this economy, face escalating insurance costs that undermine their ability to expand and thrive.
Taking Action: In Wisconsin, insurance reforms targeted at reducing wait periods for preexisting conditions and establishing independent reviews of rescissions (A100 and A108) were introduced last year, resulting in the Governor inserting changes to the individual insurance regulations into the state budget, including:
- Require insurers to report how many individual policies they write and the number they rescind each year.
- Limit the "look-back period" for preexisting medical conditions to 12 months.
- Require the insurance department to develop a standard application for individual insurance.
- Establish an independent review board responsible for examining claims denials and policy rescissions.
Connecticut responded to consumer demands for comprehensive reforms, such as moving towards a public option, industry transparency, coverage denials and an end to discrimination in risk adjusted premiums by enacting SustiNet in 2009.
Health care consumers and voters are especially angry at health insurance companies and cite rising premiums, higher out-of-pocket costs, less coverage, and hassles dealing with claims departments. In response to this anger, legislators in Pennsylvania (SB 400 and HB 1660, the "Family and Business Healthcare Security Act) and California (California Universal Health Care Act (S.810) are taking bold progressive steps by promoting single payer systems as a means of bringing long needed accessibility and affordability to residents in their states.
Iowa is also moving in the right direction by recently introducing a bill to create a public option. SB 2092 would establish the Iowa Choice Exchange to serve as an information clearinghouse where businesses and consumers could compare health insurance policies.
In Vermont, HB 510 was introduced in January 2010 as a means of politically channeling voter frustration toward changes that resolve systemic flaws in the health system. The bill creates a public health coverage option and prohibits the denial of coverage for pre-existing conditions. A Maine bill (LD 1620, An Act to Protect Health Care Consumers from Catastrophic Medical Debt), that enjoys bipartisan support would eliminate annual and lifetime benefit caps from private insurance policies, a practice that prevents people with severe disabilities and chronic illnesses from receiving the necessary care they cannot live without.
Still other states like New Mexico (HB 31 and HB 96), Illinois (Senate 2493, House 3754, House 5508) and Florida (companion bills, SB 1002 and HB 703) tap into consumer discontent by highlighting adverse actions that have become routine for private insurers. These bills all work to curb the unfair insurance industry practices of no coverage for pre-existing conditions, denying coverage because of health status, administrative waste, more reporting requirements and stricter oversight of cancellation practices.
More details on these bills and other states introducing insurance reforms are found in the Resource Section at the end of this article.
How State Insurance Reform Campaigns Can Help Pass Federal Reform
The White House and Congressional leaders continue to debate how to put health care reform back on track—with a bipartisan summit planned for February 25th and many progressives urging House members to pass the Senate bill combined with use of reconciliation to improve the final product.
Whatever process is used in D.C., the fundamental need is to reengage the public in why reform is needed. This must also highlight the core insurance reform provisions in the federal bills that polling shows the public supports. Responses to a January 2010 CBS News poll reveal that federal reform doesn’t go far enough in regulating insurance companies by a margin of nearly 2 to 1. By introducing bills mostly mirroring individual components of regulations contained in the federal bills being debated in Congress, such a campaign will help reinforce the argument for federal reform in a number of key ways:
- Refocus public debate back on abuses of insurance companies: A combination of lies by opponents and focus on the Senate’s “process” has largely distracted the public and media from one of the core reasons we need reform—abuses by the private insurance industry. Encouraging debates on individual components of reform in the states will work to engage the media on those specific abuses. Community rating and gender discrimination bills will push debates on age and gender discrimination in insurance prices. Bills that address medical loss ratio will stir debate on wasteful management spending. Policies that ban rescissions will focus on insurance company abuses against their own customers.
- Highlight positive features of the federal bill: In addition, these state campaigns will focus on some of the more popular aspects of the federal bills, calling attention to their presence in federal reform, and help to “sell” a comprehensive bill. While the right-wing has tried to keep the focus on unpopular (or imaginary) problems with the federal reform bill, these state campaigns will allow progressives to refocus attention on these popular reforms. This will not only help build support for passage of the federal bill, but also will help sell the importance of federal bill to voters for the 2010 elections and beyond in order to protect federal reform from attack and/or repeal.
- Pressure the insurance industry to agree to a federal bill or face dealing with fifty different state regulatory systems: By moving reforms in the states, progressives will send a clear warning message to the insurance industry that killing federal reform will not let them escape regulation. If a federal bill is not enacted, insurance companies can expect to face a complex, 50-state patchwork of different laws and regulations, ultimately more burdensome to them than a more uniform set of federal regulations.
- Show that opposition to reform is not just to the federal bill, but to any serious reforms: These state campaigns will also highlight that opposition to reform is not just to the federal bill but to any reforms period. If conservative groups and legislators try to block these popular individual reforms in the states, it will emphasize that conservatives don’t oppose just the overall federal bill; they oppose all the individual parts of reform as well, including ones extremely popular with the public. That opposition to individual state bills will demonstrate that conservative obstruction of reform is not based on objections to individual mandates or the federal bill’s cost, but is part and parcel of protecting insurance industry profits at the expense of the American public.
Introduction of a series of these bills in states, and passage in some, would promote public debates that highlight why these insurance reforms are needed. Since conservative opposition and obstruction of these reforms at the state level will serve progressive messaging goals, even campaigns in conservative states with little chance of passage will be useful in undercutting right-wing attacks on the federal bill. In such conservative states, allied legislators could promote reforms as amendments to ALEC-sponsored “anti-mandate” bills, thereby directly contrasting progressive insurance reforms versus right-wing non-solutions.
Key Policies and Models for Reform
To outline some of the specific reforms that these state campaigns will focus on, progressive state legislators will be targeting the following elements of health insurance policies and practices.
Medical Loss Ratios (MLRs): Because the U.S. lacks a coordinated health care system that achieves coverage for all Americans, U.S. administrative costs — as a share of total health care spending - are 30 to 70 percent higher than in countries with public/private universal systems. Medical Loss Ratios (MLRs) are state regulations that require insurance companies to spend a certain percentage of premiums on health care providers for treatment. Bringing attention to these ratios will help ensure transparency and accountability in the insurance industry. Increasing these ratios will work to guarantee that more premium dollars go to actual health care rather than insurance company profits, bloated executive pay and wasteful administrative expenses.
With administrative expenses for private insurance 2.5 times as high as for public programs, MLRs are a tool to rein in wasted administrative costs and profiteering. In fact, a survey of state insurance regulators conducted in 2008 by Families USA found some insurance plans spent as little as 60 percent of premiums on medical care in the individual market.
- Model Policy: Massachusetts Senate Bill 593 — An Act Relative to Promoting the Efficient Use of Health Care Revenues, would set a 90 percent minimum medical loss ratio. The Senate health reform bill (HR3590) provides rebates to consumers for ratios less than 85% in the large group market and 80% in the individual and small group markets.
Prior Approval or Rate Setting Regulations: Rather than let insurance companies raise rates at will, many states are toughening "prior approval" rules where insurance companies must submit proposed rates to insurance regulators and justify increases before putting them into effect. States can require health insurance companies to obtain “prior approval” of health insurance rates from insurance commissioners who can ensure that premiums are spent on medical care rather than profits and administration.
Regulators are authorized to reject unfair and unjustifiable rates and are most effective when combined with more transparency of insurer finances, including claims paid, profits, and administrative expenditures. There are 33 states with some form of “prior approval” law, to the great benefit of consumers. One example of how states can rein in health care costs is in New Hampshire, where prior approval enabled regulators to reduce a proposed 100 percent rate increase down to 12.5 percent.
- Model Policies: The 2008 Colorado Fair Accountable Insurance Rates Act (FAIR Act, HB 1389) and Washington state’s 2008 law (SB 5261), which requires insurers to receive "prior approval" from the commissioner before rates go into effect and allows the commissioner to reject unfair and unjustifiable increases.
Community Rating: Most Americans find it outrageous that discrimination in health care coverage based on a person's age, gender, health status, and other factors is routine for many insurance companies. Establishing community rating rules creates more consistency in health insurance rates across insured populations. 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 which limits variations within which insurers can vary rates based on certain factors. Removing health status, sex, and age as allowable categories from rating decisions is a key step in eliminating discrimination by health insurance companies and bringing fairness to health insurance.
- Model Policies: In 2007, Colorado strengthened small group community rating by removing health status as a factor in setting premiums (HB 1355) and New York’s community rating law, Article 32 § 3231.
Guaranteed Issue: A complement to community rating, guaranteed issue prevents insurers from excluding individuals from receiving coverage because of health status, age, gender or other factors. Guaranteed issue prevents discrimination against people with a history of medical illness. This is especially important in the individual market, where many states allow insurers to cherry-pick customers and reject others. While federal law requires guaranteed renewal of health insurance, meaning that insurance companies must continue a health insurance policy except for a few circumstances, insurers in most states can refuse to sell a policy for any number of reasons, including an applicant’s medical history or for being pregnant.
- Model Policies: Five states have laws that require insurers to sell coverage to all applicants. (Maine, Massachusetts, New Jersey, New York and Vermont)
Coverage for Pre-Existing Conditions: If you buy individual insurance and have any kind of pre-existing condition, even a pregnancy, you will likely not have coverage for your immediate health care needs. In all states, health insurance companies in the individual market can refuse coverage for pre-existing conditions for a set amount of time after a policy begins. More than half of all states limit coverage exclusions to nine or 12 months. Only Massachusetts and New Mexico go further and limit exclusions to less than 6 months. To create fairness, states can outlaw pre-existing condition exclusions or limit exclusion periods to three months. Additionally, states can limit how far back insurers can look to mine a member's medical history when determining exclusions and rescissions. States can also employ “objective standards" when determining what qualifies as a pre-existing condition.
- Model Policy: US House health reform bill (HR 3962) prohibits individual and group health plans from placing pre-existing condition exclusions in the individual market, in the Exchange, and in the small group market.
Regulating Coverage Rescissions (Cancellations): Another policy option is to regulate the rescission, or cancellation, practices of insurance companies. Reports that California insurers were canceling health insurance policies after members received costly medical care or severe medical diagnoses prompted lawmakers to clamp down on the way insurers rescind, or cancel, a policy. Several insurers were re-examining applications for minor inconsistencies and delving further into medical histories to justify canceling a policy after a member incurred an expensive claim.
HealthNet, for one, was exposed for awarding employee bonuses based on how many policies they had rescinded. As reported in the Los Angeles Times, critics claim that insurers purposefully use confusing applications so that when a member begins filing claims, the insurer can go back and find mistakes in the application to justify a rescission. Many insurers have been fined by the state for their abusive rescission practices, including Blue Shield of California and Anthem Blue Cross, which were fined $13 million and required to offer new health plans to 2,220 residents whose coverage had been unjustly rescinded.
- Model Policies — 2008 California bills, restricting rescissions, or cancellations, of a health insurance policy to the first six months (AB 2549); outlawing employee compensation based on rescissions (AB 1150); and requiring state approval for rescissions (AB 1945).
More Competition through a Public Option: States should make a public health insurance plan option available to people in the small-group and individual health insurance markets. Currently, three or fewer insurers hold at least 65 percent of market share in 36 states. A public plan would provide competition and could use its size and efficiencies to gain quality improvements from providers and bargain for efficient rates. A public health insurance plan would also have lower administrative expenses, as with Medicare, Medicaid and other public programs, and would not be out to make a profit, thereby achieving important cost savings for enrollees and further pushing the private market to be more efficient and competitive.
- Model Policy: The state of Connecticut developed a plan to cover every state resident, called SustiNet, which included a new public health insurance plan option. SustiNet would build a new plan from health coverage already funded by Connecticut taxpayers, such as such as its HUSKY Medicaid program, into a self-insured pool. The self-insured, uninsured and smaller businesses (along with larger businesses eventually) would be eligible to enter the new plan.
State health insurance reform campaigns will highlight the difficulties and frustration voters have with private insurance. These state campaigns will bolster public support for comprehensive reform and advance important protections for families and small businesses in states that have historically provided the only routine oversight of the private health insurance industry.
Resources Supporting State Insurance Reform Campaigns
As states build campaigns to rein in these abuses by the insurance industry, the following resources can assist state leaders:
Supporting Organizations: Several allies and affiliated organizations have done extensive work on these issues. Of particular note, the following groups have provided the intellectual framework for this initiative and produced extremely insightful and comprehensive resources on the subject.
- Citizen Action Affiliates
- Community Catalyst
- Herndon Alliance
- Families USA
- US Action
Reports and Polling: The following polls and other resources will help in constructing these campaigns and mobilize voter anger toward the insurance industry.
- Herndon Alliance - Health Insurers: The Need for Leadership, A fact sheet that identifies reasons why voters are angry with health insurance companies.
- Lake Research Partners - Memo: Voter Support for a Public Health Insurance Plan
- Health Care for America Now - Health Insurance Company Abuses, How the Relentless Drive for Profits Endangers Americans, a compilation of published accounts and personal stories submitted to HCAN by patients and families (June 2009).
- The Commonwealth Fund - American Health Care: Why So Costly? Testimony for the Senate Appropriations Subcommittee, testimony at a hearing before the US Senate Appropriations Committee on health care access and affordability, including cost containment strategies (June 11, 2003).
Ending Waste and Profiteering: "Care Share" or Medical Loss Ratios
- Families USA - Medical Loss Ratios: Evidence from the States (including sample legislation)
- HCAN - Health Insurers Break Profit Records as 2.7 Million Americans Lose Coverage (February 2010)
- Health Reform Program at the Boston University School of Public Health - Health Care for All Will Require Cost Containment
Accountability: Rate Review, Prior Approval and Oversight
- Families USA - The Facts about Prior Approval of Health Insurance Premium Rates
- WA Insurance Commissioner - Fact Sheet: Restoring authority in the individual health market
- WA Insurance Commissioner - Myths and Facts: Insurance Rate Regulation
- WA State Sen. Karen Keiser - Letter to the Colorado State Finance Committee
- Colorado HB 1389 - The Fair Accountable Insurance Rates Act
Fairness: Regulating Coverage Rescissions (or Cancellations)
Access: Ending Health Insurance Discrimination — Guaranteed Issue, Community Rating and Coverage for Pre-Existing Conditions
- Families USA- Empty Promise: Searching for Health Insurance in an Unfair Market
- Georgetown University - State Consumer Guides for Getting and Keeping Health Insurance
- Community Catalyst - A Consumer Guide to State Health Reform
Public Option, State Exchanges and Implementing Reforms
- Herndon Alliance - The Choice of a Public Health Insurance Plan: It’s about Choice + Competition
- The Urban Institute - Can a Public Insurance Plan Increase Competition and Lower the Costs of Health Reform?
- State Coverage Initiatives - Preparing for Health Reform: State-Based Health Insurance Exchanges
- State Coverage Initiatives - Health Care Reform Implementation
- State Coverage Initiatives - Considering a Health Insurance Exchange: Lessons from the Rhode Island Experience
Current State Legislative Proposals
Connecticut: Legislators in Connecticut are ahead of the comprehensive health care reform curve. In July 2009, the state legislature overrode their Governor’s veto to enact SustiNet. As a comprehensive health reform plan to be phased in over 5 years, included in the legislation are provisions where every patient will have a medical home, rating will not be based on age, gender or health status, and coverage will be guaranteed for chronic or pre-existing conditions. Through an independent information clearinghouse, the SustiNet program will also increase transparency to the health care system.
California: At the end of January, the California Senate passed a bill that would establish a single payer, government run health care system. The California Universal Health Care Act (S.810) now waits for action by the State Assembly. Of course instituting a single payer system essentially removes the involvement of private insurers and puts an abrupt end to all their abuses in one fell swoop.
Florida: Two companion bills, SB 1002 and HB 703 state that if any medical loss ratio is less than 85%, the managed care organization and its subcontractors shall immediately pay to the state an amount equal to the difference between 85 percent of total revenue from their monthly premium payments and their corresponding expenditures for direct health care benefits.
Illinois has a number of proposals for reining in the industry:
- Senate 2493 amends the Illinois Health Insurance Portability and Accountability Act to provide that a group health plan or a health insurance issuer offering group or individual health insurance coverage may not impose any preexisting condition exclusions.
- House 3754, the Individual Health Insurance Fairness Law, provides that no insurer issuing small group coverage may deny coverage to applicants based on health status. The bill also creates the Health Insurance Financial Transparency Law and provides that all insurers shall maintain a minimum medical loss ratio of 85% or higher.
- House 5508 provides that an insurance policy may not be rescinded or cancelled under the provisions concerning approval of health insurance rescissions more than 2 years after the effective date of the policy. It also stipulates that an insurer must receive approval from the Director of Insurance for policy rescissions or cancellations.
Iowa: Recently introduced SB 2092 would create a state public option by establishing the Iowa Choice Exchange to serve as an information clearinghouse where businesses and consumers could compare health insurance policies. The other major provision, IowaCare Plus, would subsidize health care for working poor people. Those making up to 300 percent of the Federal Poverty Level (FPL) would get subsidies for their premiums, while workers making up to 400 percent of FPL could get help buying more restricted health insurance. This proposal could cost $200 million to $300 million a year, with most of the money coming from the federal government.
Maine: A bill with bipartisan support has been introduced to eliminate annual and lifetime benefit caps from private insurance policies (LD 1620, An Act to Protect Health Care Consumers from Catastrophic Medical Debt).
Missouri: A bill to establish the Missouri Universal Health Assurance Program providing a publicly financed, statewide insurance program was introduced on January 13. The goals of HB 1641 are to provide timely access to health services for all residents, to provide adequate funding for health care, and to lower health care spending through streamlined administration and uniform payments.
Ohio: A concurrent resolution, HCR 32, is pending that requests that all of the members of the General Assembly support the public option as part of national health care reform.
Pennsylvania: Single payer bills are also making significant progress in Pennsylvania. Last week, the Pennsylvania Democratic State Committee unanimously endorsed a resolution calling for passage of single payer healthcare. SB 400 and HB 1660, the "Family and Business Healthcare Security Act,“ also have the promised signature of the Governor and, most notably, the active support of Republican leaders in both chambers.
Texas: The Texas House has established a House Select Committee on Federal Legislation, with a specific emphasis on implementing health care reform efforts. The chair will be Rep. John Zerwas and the Vice Chair will be Rep. Garnet Coleman, who also serves as co-chair of the Progressive States Network Board.
Vermont: On January 13, 2010, House Bill 510 was introduced to establish “Green Mountain Care”, a public health coverage option. The intent of this bill is to provide comprehensive, affordable, quality health care coverage for all Vermont residents regardless of income, assets, health status, or availability of other health insurance. Among its consumer protections, the bill establishes a minimum medical loss ratio of 90% for small group and individual policies and prohibits the denial of coverage for pre-existing conditions.
Washington: A bicameral concurrent resolution would create a joint select commission to study the implications of health reform implementation to coordinate policy discussions between the state's legislative and executive branches to identify dedicated resources, establish clear authority and accountability, a detailed timeline, a critical path analysis, resources and analysis of needs, and a communication strategy.
The state legislators and advocates who work with PSN and HCAN understand the important challenge of standing up to powerful interests like the insurance industry.
By promoting the insurance reform parts of the federal health care reform bill that are popular, state legislators are actively debating policies that address health insurance abuses. The goal is not only to pass good reforms but to elevate policymaker and media attention to the insurance practices that exploit and manipulate both consumers and the health system.
One of the most important elements in measuring how successful progressive legislators will be in attacking insurance abuses comes down to numbers. The more states that become engaged in addressing insurance reforms, the greater the likelihood that meaningful reforms will be implemented at the federal level. For this reason, legislators are strongly encouraged to pick up the insurance reform torch and run with it. If you have questions, or would like more information, please contact PSN's Health Policy Specialist Enzo Pastore at firstname.lastname@example.org or by phone at (212) 680-3116 x205.
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