Here’s what’s behind health care debate
From the Anchorage Daily News
What has been labeled as a “decisive two-week period for the nuts and bolts of health-care reform legislation” by politicos is coming to a close, and new versions of leading congressional proposals are being released in rapid succession. The House Tri-Committee leadership released this latest bill draft on Tuesday. Wednesday the Senate Health, Education, Labor and Pensions Committee passed its version of the legislation.
One complex area of the legislation relates to regulation of health insurance. In this commentary, we’ll evaluate how some of the proposals would change insurance laws applicable to Alaska.
Individual vs. group market
The regulation of health insurance is quite complex. While there are many nuances, an important distinction is whether a health plan is issued within the group or individual market.
Generally, group plans are available to individuals because of their affiliation with an employer or association. In contrast, individual plans are issued directly to a person and aren’t tied to employment or other group affiliations.
Federal regulation is strongest over group health benefits, since employers often cross state lines. In many cases states cannot enact regulations that operate on group health plans. Within the individual market, however, states have much more leeway when crafting insurance law.
Adverse selection
The historic rationale for differences between group and individual market regulations can be partly attributed to “adverse selection,” where an individual seeks coverage when they expect their health claims to be greater than the cost of their premiums. In other words, “adverse selection” occurs when people wait until they are sick to buy health insurance. In the individual market, a person must make the decision to seek and apply for coverage, whereas in the group market, enrollment is sometimes automatic.
There also can be differences in the cost of group and individual coverage. In the group market, premiums are often subsidized by an employer or association. Federal tax benefits also reduce the cost of employer-based health coverage. Purchasers of individual plans often face paying entire premiums on their own. When faced with the full price of a health insurance plan, healthier people are more likely to forego coverage than their medically needy peers. These factors make adverse selection more likely in Alaska’s individual market than in the small group market.
Reform will likely bring individual and group regulations more in line with one another, despite the variation seen today. Under the health reform proposals being considered by Congress, a requirement that individuals acquire health coverage will reduce problems associated with adverse selection within the individual market. If lawmakers decide to tax employer-provided health benefits to pay for the reform, another difference between group and individual market insurance will erode.
A comparison
One caveat: The comparisons below are based on how proposals are shaped today, and they may change in future months. “Congressional proposals” refer to the Senate HELP Committee and the House Tri-Committee bills.
Guaranteed insurance
Current law: Guarantee-issue laws require that a health insurer offer coverage to any applicant, regardless of the health status of an individual or individuals. Today guarantee issue laws apply to plans sold in Alaska’s small group market but not in the individual market. As a result, if someone seeks traditional individual health coverage not connected to a group, they may be rejected due to preexisting medical conditions. However, if an individual is rejected from traditional individual plans, the Alaska Comprehensive Health Insurance Association (ACHIA) is required to offer them coverage, though premiums can be as high as 150 percent of “standard risk premiums.”
In congressional proposals: All plans offered in individual and group markets must be offered to any qualified applicant, regardless of health status.
Pre-existing conditions
Current law: A pre-existing condition limitation places restrictions on the health benefits covered by a plan due to the insured’s underlying medical conditions or a likelihood of developing a condition.
Under current Alaska law, pre-existing condition limitations of any length are permissible within the individual market, though they are capped at six months for plans issued by ACHIA. In Alaska’s small group market, pre-existing condition limitations can extend up to 12 months.
In congressional proposals: Pre-existing condition limitations aren’t allowed in both individual and group market plans, meaning that insurers can’t place restrictions on future health benefits because of underlying medical conditions of applicants.
Rating Restrictions
Current law: No explicit restrictions are placed on how insurance companies can calculate premium rates in Alaska’s individual market, other than that they cannot be “excessive, inadequate or unfairly discriminatory.” In the small group market, premium variation due to the health status of the group cannot exceed +/-35 percent of a base rate.
In congressional proposals: When calculating premiums, insurers can only vary what they charge applicants by geographic location, family composition and age (or ages) of the applicant. Tobacco use can be considered as well in the new Senate HELP Committee version. The variations in premiums due to age cannot exceed a 2-to-1 ratio.
Benefit caps
Current law: Alaska law currently allows individual and group plans to establish lifetime or annual benefit caps. ACHIA offerings feature a $2 million lifetime claim maximum.
In congressional proposals: Annual and lifetime benefit caps are not allowed.
In sum these details will determine whether the health care bill passed by Congress is a real step forward or just another missed opportunity.
Hollis French is a state senator from Anchorage and has worked for years on health insurance legislation.
