Health insurance agents are some of the few people in the United States who have any idea how complicated reforming U.S. health insurance markets really is.
Jessica Waltman, director of state government affairs at the National Association of Health Underwriters, Arlington, Va., explained here at NAHUs annual convention that reforming the individual and small group markets is even more complicated than most of the agents realize.
“If you dont take a comprehensive approach to reform, youre still going to have a problem,” Waltman warned at a convention seminar.
Major benefits consulting firms say U.S. major medical rates have increased 13% this year, but Waltman noted that NAHU member agents believe the real average increase was much higher.
“Its a scary environment out there,” Waltman said.
The environment is particularly scary in states that have enacted well-intentioned but misguided reforms in an effort to reform the individual and small group markets, Waltman said.
Health insurance trade groups often complain about state laws and regulations requiring carriers in the small-group market to provide benefits such as rich mental health benefits.
Because benefits mandates increase overall health coverage rates by about 15%, fighting benefits mandates is important, but, “if you drop off 15%, that only gets you so far,” Waltman said. “Thats not the only cost driver.”
Waltman suggested that the recent rapid increase in the underlying cost of health care is a second important cost driver.
Waltman, like many other health finance experts, blames the increase in health care costs on the backlash against managed care; a generation of consumers, weaned on health maintenance organizations, who think a visit to the doctor only costs $10; and skyrocketing prescription drug prices.
But Waltman also discussed two other, more obscure cost drivers: the dominance of some health carriers in their local markets, and the crisis in U.S. long-term care financing.
Lack of competition in the major medical market causes serious problems in some communities, because the dominant health carrier often uses its clout to force doctors and hospitals to accept enormous discounts, Waltman said.
Once the providers in a community agree to accept very low reimbursement rates from the biggest health insurer, they have to try to make up the difference by demanding higher reimbursement rates from the health insurers with smaller market shares, Waltman said.
Meanwhile, she said, the typical state Medicaid program, which is supposed to be the health insurance program for the poor, spends about 15% of its states budget, and 75% of the Medicaid program budget, on long-term care.
Because so little cash is left over to pay for acute and preventive medical care, the typical Medicaid program must persuade doctors and hospitals to accept unrealistically low rates, and the providers make up for those low rates by demanding higher rates from private insurers, Waltman said.
She contended that health insurance reform efforts themselves have also played an important role in destroying the individual and small-group markets.
The Health Insurance Portability and Accountability Act of 1996 requires states to define “small groups” as employer groups with two to 50 employees, or else to define the term more broadly. A few states define small groups as groups with one to 50 or one to 100 employees, and about 20 define small groups as groups with one to 50 employees.
Under HIPAA, insurers must issue small-group policies on a guaranteed-issue, guaranteed-renewable basis, and insurers cannot exclude coverage for new employees pre-existing conditions for longer than six months.
Many states have also imposed “community rating” rules for small groups. The rules require an affected carrier to impose the same rate on every small group in a given ZIP code or other geographic area.
Another common restriction is a “modified community rating” rule for small groups. A modified community rating right might allow a carrier to consider basic demographic and claims information for a small group when setting rates, but it does not let the carrier do detailed underwriting, Waltman said.
A few states enforce community rating or modified community rating pricing requirements for individual coverage as well as small group coverage.
Many states also have “rate banding” rules. The typical rule prohibits a carrier from charging the sickliest small groups more than 66% more than they charge the healthiest small groups.
Community rating requirements for individuals may sound fair, but they end up driving individual rates through the roof, because carriers assume that a high percentage of the applicants are either seriously ill or about to become seriously ill, Waltman said.
Although states may have no real choice but to start by trying to reform either the individual market or the small-group market, if either market in a state is bad, “the other soon will be,” she said.
If a state fixes one market, but not the other, residents will find a way to game the system and buy coverage in the cheaper market, Waltman said.
She recommended the following solutions:
Forming high-risk pools to provide subsidized health coverage for people with serious, long-lasting health problems, such as diabetes. Waltman reported that some states with high-risk pools have succeeded at paying for pool operations by charging each carrier in the market, including the “stop-loss” carriers that reinsure “self-insured” health plans, a monthly assessment for each member served. In a typical state, the assessment is less than $1 per plan member per month, and the carriers can pass the small added cost on to customers without the customers even noticing, Waltman said.
Eliminating “business groups of one.” In states with few limits on the cost of individual coverage, no high-risk pools and tight limits on the cost of small-group coverage, sickly individuals soon learn to cut their health insurance costs by forming one-person businesses, or pretending they have formed one-person businesses, Waltman said.
Building goodwill at state health insurance departments. Some states with reasonable health insurance laws and regulations have a hard time attracting health carriers because the regulators are hard for carriers to work with, Waltman said. In some cases, she added, regulators seem so hostile that theres a suspicion that they are trying to protect the local dominant carrier.
Ensuring that the laws governing preferred provider organizations are reasonable. Waltman observed that some states regulate PPOs as if they were health maintenance organizations, even though PPOs tend to be much more loosely knit and often make far less of an effort to manage use of care. Harsh laws may either force PPOs out of the state or favor PPOs that happen to operate as if they were HMOs, Waltman said.
Expanding the difference between the lowest permitted small-group rates and the highest permitted rates in states that have rate banding. Waltman pointed out that Idaho already allows carriers to charge the sickliest small groups three times as much as they charge the healthiest groups.
Reproduced from National Underwriter Life & Health/Financial Services Edition, July 8, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.