Dangerous Bill To Be Aimed at the Individual Market
Do you remember when Colorado House Bill 1355 was passed last year? Beginning in January, HB1355 will essentially put an end to the current rating system in place for small businesses. As it stands now, small businesses (groups of 2 - 50) are eligible for a discount of up to 25% if their employees are generally healthy. On the other end of the spectrum, businesses with employees who have significant medical histories are still guaranteed issue, but with up to a 10% rate increase. Currently, nearly two thirds of the small businesses in Colorado are receiving a discount of some level on their health insurance. As of January, they will be hit with not only their normal annual rate increase, but their discounts will be going away. For small businesses already struggling to pay their health insurance premiums, January will be a rough month. It’s likely that many businesses with only a few employees, who had been getting a premium discount, will stop offering health insurance as an employee benefit, as it will simply no longer be affordable. For the employees in perfect health, the individual health insurance market will be a workable solution. But the introduction of community rating and the inevitable decline in the number of employers offering health insurance will present a tough situation for people with pre-existing conditions.
Sidenote: As a benefit to existing groups, Anthem Blue Cross Blue Shield is allowing employers who currently have discounted premiums and renewal dates early in 2009, to do an early renewal in November or December of 2008. This will lock in their discounted premiums for another year (although normal annual rate increases will still apply). But any group that processes a renewal starting January 1 will be subject to the provisions of HB1355.
Things may also get ugly for those with individual/family health insurance as-well. There is a possibility of a bill being introduced by Colorado legislators in January 2009 to require individual/family health insurance to be guarantee-issue. This issue is one that gets a lot of emotional response, and people often talk about the “fairness” of guaranteed issue health insurance. It’s a nice thought: no underwriting, no pre-existing condition worries. But there’s a darker side to guaranteed issue coverage - most of us won’t be able to afford the policies, and that’s not fair either. Group plans are guarantee-issue, which is why they cost so much more than individual health insurance. But most employers pay a good chunk of the premiums, so the employees usually don’t realize the actual cost of the health insurance. If you’re buying individual health insurance, you’re on your own; there’s no employer kicking in a chunk of the premiums.
Jay and I pay $430/month right now for a $3,000 deductible HSA policy for our family of three. If we were to switch to a group plan through our company (and assuming we didn’t get a rate discount, since that will be going away in January), we would be paying about $700/month for a similar policy. That’s what happens when a policy is guaranteed issue, and it’s a rate increase that would be hard for the average family to absorb - especially in a troubled economy.
And there is an even darker side to guarantee issue health insurance in the individual market - only people with health conditions will purchase health insurance. If you knew you could get your current health insurance policy without pre-existing health conditions being a concern, why not cancel it and wait until you get a health condition to purchase the “insurance.” This concept would not meet the definition of insurance and the system would collapse. This is because only people needing benefits would be paying into the pool, leaving those with health conditions out to dry.
With Cover Colorado, we already have a guaranteed issue health insurance policy for people who can’t qualify for individual health insurance. The $1 million lifetime cap means that some people will run out of coverage and have nowhere else to turn. Instead of doing away with medically underwritten health insurance (the only affordable option for most people who don’t have access to employer-sponsored health insurance) we should work at improving the coverage in our existing high risk pool. A state or federal re-insurance program using tax dollars to pick up the cost of high dollar claims would be a good start. It’s not often that people exceed the lifetime maximums on health insurance policies, but we need to have a safety net in place so that bankruptcy isn’t the only solution.
There are absolutely problems with our current health care system and the health insurance industry. But changes to the health care system like these need to be carefully thought out. Our health care system is very complex and when legislators rush to quick solutions like they are “get rich quick schemes,” everybody gets burned in the end.
So if you currently have pre-existing health conditions and would like to double or triple your health insurance premiums, contact your legislators and tell them to remove underwriting from individual/family health insurance in Colorado so healthy people no longer have a reason to purchase coverage for the possibility of future health problems.
If I am to contact my local representative, what do I say? There is no name of bill to refer to?
I had breast cancer 2 years ago and haven’t been able to get on an individual family plan with my family because of it due to the insurance companies performing underwriting. I would think it is a good thing to not allow these insurance companies to deny me because of that.
Debbie:
I agree with you that it would be a good thing for the insurance company to do.
But don’t you believe that your health history places you at extra risk, at least for the next few years?
Shouldn’t they be allowed to charge you more than their best rate?
Or, wouldn’t they be entitled to not pay for breast cancer for the next several years, should it reoccur?
This has to be a win-win for you and the insurer, don’t you think?
Don Levit
Debbie and Don,
You make very good points. However, ask yourself: “What is insurance?”
Answer: It spreads RISK among a large group of insureds against the possibility of some of them having bad things happen to them.
Just think if homeowners insurance or auto insurance were guarantee issue. Nobody would waste money paying premiums to the insurance company until their house burned down or they got into a car accident. If the only people paying premiums into this pool of money that is used to pay the claims were the people with burned down houses and wrecked cars needing fixed, would you want to be the insurance company?
Debbie,
I am very sympathetic to your situation. People with pre-existing conditions absolutely get the short end of the stick if they don’t have access to an employer-sponsored health plan. If you’re in Colorado, you have access to Cover Colorado, although not all states have high risk pool health insurance available.
The problem with guaranteed issue individual health insurance is that it would drive the already-high premiums much higher, making coverage unaffordable for a lot of people. This is what has happened in the five states where individual health insurance is guaranteed issue.
So while we do need to provide more options for people with pre-existing conditions, the answer is not to place huge premiums increases on everyone else. We already have far too many people without health insurance because they can’t afford it. The drastic rate increase that would come with guaranteed issue individual health insurance would only make that problem worse.
Jay, Louise, and Debbie:
Health is an area that cannot be objectively determined over an extended period.
The value of underwriting wears off after a few years.
That is why I think an insurer could design a plan to benefit Debbie and millions of people like her.
We are all one disease away from not being able to meet the short-term effective underwriting standards.
I am a casualty of this inequitable, short-term thinking system as well.
What I think is needed, imo, is an insurer which provides guaranteed issue for all, healthy and so-called unhealthy alike.
Premiums are based on affordability; coverage builds for 2 years, and is effective starting year 3.
Debbie, might you agree to such a plan?
Don Levit
Don,
What would happen if someone were to be diagnosed with a serious and costly illness during the first two years? I like your idea of making premiums based on what people can afford, but I’m wondering what we would do to keep people from falling through the cracks before their plan was fully functioning the the third year.
Louise:
I can appreciate your wanting to cover people fully from day 1.
We have 2 obstacles which seem to preclude that posibility.
First, people are not proving health, so we still want to attract those in good health.
The vast majority must have low claims in order for the system to work.
Secondly. people are paying what they can afford, so the benefits are based on contributions; they are not fixed benefits as in a typical individual policy; rather, the benefits build as in an IRA.
IMO, 2 of the primary goals are to attract all comers, without detering those in good health to participate.
And, secondly to skew the higher benefits over time, as we age, when typical higher medical expenses are expected.
Don Levit
@Don - you said “The value of underwriting wears off after a few years.”
Well, yeah. That is the point of “insurance” like Jay said. They get to assess the current RISK and make a decision. Underwriting “running out” in a couple years is the main part of the insurance business defined as RISK.
I’m 53 years old with no current health conditions. If I sign up for health insurance I want to know that I don’t have to wait 2 years. I’m in my 50’s and there is not a 0% chance that something might happen to me soon. If I don’t have a break in coverage, haven’t been trying to cheat the system, the insurance company can assess the risk now and if they want to cover me at the start of next month that risk will be worked into the premiums.
And for someone starting the coverage in their 50’s, I don’t want to have to start “building my benefits like an IRA.” I’ve been paying for insurance for a long time and not using it. I’m going to pay for the amount of coverage that I think I may need in the event of somethig happening on the first day of coverage.
Rick:
My point about the value of underwriting is that it is a good way to assess risk today, and its value extends for about 2 years.
What that means is that a good number of people who are declined for coverage or charged higher than standard premiums would either not be able to get coverage at all, or not be able to obtain coverage at affordable rates, in the current system.
My idea is to get all comers into the pool that want to, regardless of health or income status.
In order to maximize the benefits, however, the vast majority of participants need to be in good current health.
By not providing benefits until year 3, those in poorer health at the start will not use benefits immediately, but will have the same opportunity as those in good health to do so in year 3.
While coverage would not start until year 3, all the benefits that build in the first 2 years would be available in year 3, so all the payments “count.”
This system may not appeal to you, for you seem to be comfortable with the way things are.
Don Levit