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Families USA explains that Massachusetts' 2006 health care reform law was "built on Massachusetts' expanded public programs and its highly regulated insurance market."  In addition to providing a base for comprehensive reform, the following examples underscore why states need to up the ante on insurance companies by increasing state oversight of insurance rates and industry tactics that hurt consumers:

  • California regulators have been investigating and imposing fines on many of the state's for-profit and non-profit insurance companies.  News reports have documented rampant abuse and anti-consumer tactics, including insurer HealthNet giving bonuses to employees who cancel health plans after members incur costly claims and Blue Cross of California recruiting physicians in canceling coverage. 
  • In Washington State, 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 fueled the legislature's passage of stronger oversight and rate regulation in early 2008.
  • The Pittsburgh Post-Gazette reported that health insurer Highmark enjoyed total revenue of $12.4 billion in 2007, growing its surplus to $3.5 billion.  The article went on to report that several insurers are planning premium hikes over the summer of 2008 because "per-share earnings" have not met projections, down from a forecasted $6.41 per share to between $5.76 and $6.01 in the case of the huge multi-state insurer Wellpoint.  However, the Post-Gazette reports that Highmark's $3.5 billion surplus represents 734% of its risk-based capital -- a measure of the money an insurer might need on hand in case of unforeseen claims.  The National Association of Insurance Commissioners note that surpluses exceeding 250% of risk-based capital are troubling.  

In June 2008, Families USA released an extensive 50-state survey and scorecard of the laws governing the individual insurance market in each state - "Failing Grades: State Consumer Protections in the Individual Health Insurance Market."  They found great variation across states and, overall, little that states are doing to protect consumers from the anti-consumer behavior of insurance companies.  In fact, only five states prohibit all insurance companies from cherry-picking the healthiest consumers and excluding everyone else.  In most, there are no limits on premiums based on health status, and insurers can exclude coverage for pre-existing conditions, spend less than 75 cents of every premium dollar on medical services, and revoke an individual's health insurance policy without advance review by the state.

States have many options to ensure consumers in the individual and small group markets are treated fairly and that more of our premium dollars actually go to health care rather than profits and share-holder earnings.

  • Rate Review and Oversight - requiring insurers to gain "prior approval" for premium increases. On the heels of 40% and 70% rate increases and in light of $2.2 billion in reserves for the three largest health insurers, Washington State enacted SB 5261 in 2008. The law requires insurers to receive "prior approval" from the commissioner before rates go into effect and allows the commissioner to reject unfair and unjustifiable increases. When the office had the power of prior approval in the 1990's, rates increased between 1% and 4% less than what insurance companies requested. Similarly, Colorado lawmakers beat back fierce industry resistance and passed the Fair Accountable Insurance Rates Act (FAIR Act), which brings "prior approval" to the individual and small group insurance markets.
  • Medical Loss Ratio - minimum medical loss ratios ensure that more of our premiums are spent on medical care and less on profits, bonuses, and inefficient administration. As Families USA reports, 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. Pennsylvania would establish an 85% loss ratio for the small group market if the Senate joins the House and passes HB 2005.
  • Guaranteed Issue - preventing insurers from refusing coverage to individuals because of their health status, age, gender, or other factors. This helps ensure the availability of coverage and is especially important in the individual market, where many states allow insurers to cherry-pick their customers and refuse coverage to certain residents.
  • Community Rating - creating more consistency in health insurance rates across insured populations. These laws limit how much an insurer can adjust premiums based on a person's age, gender, health status, 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. In 2007, Colorado strengthened small group community rating by removing health status as a factor in setting premiums (HB 1355).
  • Regulating Coverage Rescissions (or Cancellations) - regulating the rescission, or cancellation, practices of insurance companies.  California legislators are targeting insurer rescission policies after abusive practices by many of the state's largest for-profit and non-profit insurers came to light over the past year, as detailed earlier.  Legislation proposed in 2008 would clamp down on these practices by: 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).

Resources:

Colorado HB 1389 - The Fair Accountable Insurance Rates Act
WA State Sen. Karen Keiser - Letter to the Colorado State Finance Committee
WA Insurance Commissioner - Letter to the Colorado Legislature
WA Insurance Commissioner - Myths and Facts: Insurance Rate Regulation
WA Insurance Commissioner's - Fact Sheet: Restoring authority in the individual health market
Families USA - Failing Grades: State Consumer Protections in Individual Health Insurance Markets

Georgetown University Health Policy Institute - Key Consumer Protections in Individual Health Insurance Markets

Kaiser Family Foundation - How Private Health Coverage Works: A Primer 2008 Update
Kaiser Family Foundation - Percent of Firms Offering Coverage 
Georgetown University - State Consumer Guides for Getting and Keeping Health Insurance

Progressive States Network - Insurance Reforms to Ensure Fairness and Access to Coverage