Insurance carriers in Colorado were strongly opposed to HB1355.  The majority of small businesses in Colorado were receiving a discount on premiums based on health status, which HB1355 forbids.  Insurers knew that businesses that were already struggling to pay premiums at a reduced rate might decide to forgo health insurance for their employees after the discount was eliminated.  This is especially true for the most healthy groups, whose members can find health insurance within the medically underwritten (and less expensive) individual market.  Of course the removal of healthy groups from the pool of insureds only serves to drive premiums even higher for the sicker groups who remain insured under the group plans.  It’s true that groups can no longer be rated higher than the base rate because of the specific health of the group, but the base rate can – and likely will – continue to rise.

Critics are questioning why insurers keep bringing up HB1355, as the trend in national health care reform these days is towards guaranteed issue health insurance without underwriting – which is what HB 1355 was all about.  But while HB1355 was beneficial to groups with unhealthy members, the majority of small groups in Colorado had a discount before HB1355 took effect.  And if those groups are unable to afford their new, higher rates, they can opt to cancel their coverage – which leads to higher prices for groups that remain covered.  On a national level, as far as individual health insurance is concerned, HB1355 should be considered a warning sign.  Getting rid of medical underwriting is the right, and fair, thing to do.  But not if people can come and go as they please in the insurance system.  We’ve seen what the impact will be on premiums if guaranteed issue coverage takes effect without a strong mandate requiring people to carry health insurance.  I think this is why insurers are still bringing up HB1355.  It’s impacting all small groups in Colorado now – there’s no more putting it off.  And significant rate hikes for healthy groups should serve as a warning for what we’ll likely see in the individual market if reform passes without a way to make sure that everyone is part of the insurance pool.

Wellpoint actuaries – the people who are responsible for setting premiums – have crunched the numbers and come up with their best estimates as to how premiums would be impacted in the 14 states where Wellpoint operates.  Colorado is one of those states, and for the first time we’re able to see a detailed analysis of what would likely happen to premiums for people here, both the old and the young, the sick and the healthy.  All health insurance providers operating in Colorado have to follow the same rules as far as state mandates and regulations, and they all have to compete with each other.  So it’s reasonable to assume that the data is also indicative of what would happen to premiums on policies offered by most of the health insurance carriers in Colorado.

With the current proposed legislation, it looks like we would see a huge premium increase for young, healthy people in the individual market in Colorado (about 140%).  For average age policyholders in average health, premiums would likely increase by 52%.  Older, sicker individuals would get a break though, and would see a premium decrease of about 22%.

The bulk of the increase in premiums stems from the fact that the requirement that everyone carry health insurance has been greatly eroded over the last several weeks.  If the penalty for not having health insurance is dramatically less than the cost of coverage, it makes sense that healthy people who are trying to save money might opt for the penalty instead of the premiums.  And if health insurance is guaranteed issue anyway, why wouldn’t they?  If they started to feel sick, they could sign up for health insurance at that point, knowing that their pre-existing conditions would be covered.  The obvious result would be ever-increasing loss ratios for health insurance companies, followed by even higher premiums to try to make up the difference.  Higher premiums would mean more healthy people – who otherwise would still like to have health insurance coverage – being forced to drop their policies.  There is no possible way that guaranteed issue health insurance is sustainable unless everyone is required to be in the health insurance system.

The penalty for opting to not carry health insurance is currently proposed to start at $200/year in 2014, and would gradually increase to $750/year in 2017.  This is not even close to what health insurance actually costs, which means that people who are healthy might very well choose to pay the penalty rather than buy health insurance.   Another problem with the proposed method for enforcing the mandate is that is would work via the tax system.  That leaves millions of Americans – those who don’t file taxes, or who have no tax liability – outside of the mandate-enforcement system.  If we truly want to make sure that all Americans are insured, we need to have a better way of enforcing the mandate.  We need penalties that are approximately equal to the cost of premiums, an enforcement system that is more broad than the IRS (perhaps a combination of schools, the DMV, hospitals and clinics, and any government office), and increased subsidies for lower income families.

Health insurance for everyone, regardless of pre-existing conditions, is possible.  But it’s not possible if the system is essentially set up to encourage only unhealthy people to buy health insurance.  Insurance works by spreading risk.  We need to make sure that young, healthy people are paying into the insurance pool in order to offset the claims made by older, sicker individuals.  Without a strong, widely enforced mandate, guaranteed issue health insurance isn’t a  sustainable proposal.

The individual market is different.  Medical underwriting is part of the application process, and applicants can be declined, offered coverage at a higher price, or offered coverage with pre-existing condition exclusions.  The trade off is that the policies are less expensive than they would be in the group market.

Jay and I have an HSA-qualified policy for our family.  It has a $5000 deductible (one deductible for all three of us together).  Other than a small amount of preventive care, nothing is covered before the deductible is met, so our coverage only comes into play if we have a relatively large claim.  But it only costs $288/month for our family.  It also allows us to put pre-tax money into an HSA and save up for the possibility of having to meet our deductible one day (or for retirement, if we don’t end up needing the money for medical expenses).

Jay and I are both full-time employees of our corporation, and could thus qualify as a group of two with any small group carrier in the state.  For comparison’s sake, I got a quote for us for an Anthem Blue Cross Blue Shield HSA-qualified policy.  Jay and I would each have our own policy as a group of two, with our son added to one of the policies.  I found an HSA qualified small group policy that would cost $578/month for our group.  But the deductibles would end up being a total of $15,000 for our family on that policy.  The policy would be twice as expensive as what we have now, and the out of pocket exposure would be three times as much as what we have now.  And that’s a quote from a very competitive carrier.

Incidentally, if all three of us had medical conditions that allowed us to qualify for Cover Colorado, we could pay a total of $550/month for three separate HSA qualified policies, each with a $2000 deductible.  This is another example of guaranteed issue coverage, and the increased price when compared with our current policy reflects the added cost that comes when health insurance picks up the tab for pre-existing conditions.

That’s what happens when policies have to be guaranteed issue (and include state mandated coverage like maternity on all policies).  Of course, the current small group market doesn’t include any sort of mandate requiring groups to purchase health insurance.  Proponents of a shift away from medical underwriting on individual health insurance policies also tend to back a measure that would require everyone to carry health insurance.  That would help spread the cost of care across a larger population, and would likely help to contain the price increase that we would see if medical underwriting were to cease.  But my guess is that we would still see a rather dramatic increase in premiums.  This highlights the importance of getting to the root of the issue of health care costs, and how to contain them at source.  Health insurance pays the costs, and unless we can lower those costs, it’s unlikely that we’ll be able to lower the cost of health insurance.

I found Hank’s post in the Cavalcade of Risk, hosted down under this week by Andrew at Oz Risk.

But does preventive medicine really help?  It definitely gives people peace of mind and is a feel-good benefit on health insurance policies.  And anything that enhances peace of mind is providing some degree of benefit.  But what about long term outcomes and effective use of health care dollars?  Stacey Butterfield, at ACP Internist has written an article addressing this question, and it’s well worth a read.  She focuses on a study that indicates that pap smears might be overused in younger women, and that the rush to colposcopies following an abnormal pap might be unwarranted.

I believe preventive health care is important, but I think that we might be coming at it from the wrong angle.  Legislation dealing with preventive care tends to focus on increased access to screening tests.  We like to believe that if we all get poked and prodded on a regular basis, with numerical values assigned to everything from our bone density to our blood glucose levels, that we can ward off illness.  Of course all of those tests are expensive, regardless of whether they’re paid for by the government or by private health insurance companies.  And containing health care costs is supposedly one of the main priorities of health care reform.

Remember when Obama said that we should all be more diligent about keeping our tires properly inflated?  People laughed, because as a society, we tend to want solutions that are complex and technical.  We want big and grandiose, when small and simple might actually do the trick.  Preventive medicine in the form of screening tests isn’t actually preventive if you think about it.  Catching an illness in an early stage isn’t really the same thing as preventing the illness in the first place.  Yes, early detection is preferable to not seeking care until one has stage IV cancer, but wouldn’t it make more sense to actively promote real prevention?  What if we encouraged (ie, paid) doctors to do more active prevention with their patients?  Yearly consultations about lifestyle issues like diet, exercise, alcohol and tobacco use, junk food consumption, seat belt use, safe sex, etc. could go a long way towards real prevention.  Some doctors are already working on this, but much more could be done.  And if the government really wanted to focus on preventive medicine, this might be a more effective way to go about it than costly screening that may or may not actually improve patient outcomes.

I found Stacy’s article in Grand Rounds, hosted this week by Dr. Rich at the Covert Rationing Blog.

This is a big step forward for health insurance, and one that I hope we’ll see in other areas and from other carriers. Boulder is a great place to start something like this, as Boulder residents do tend to utilize alternative health care more than the average Colorado resident.  But over the years, we’ve had inquiries from people all over the state who are looking for a health insurance policy that will allow them to utilize alternative care.

The Boulder Chamber plan is a good start.  It’s currently available to Boulder Chamber of Commerce members who have between 1 and 50 employees.  Eventually I’d like to see alternative care available as an option for people throughout Colorado, regardless of where they live or work.  On a personal note, I’d also like to eventually see plans that offer maternity coverage include midwifery and homebirths in their benefits package.

It’s great to see Anthem Blue Cross Blue Shield recognizing the importance of alternative medicine for some people.  Obviously this would not be a benefit for everyone, but no one health insurance benefit will be utilized by everyone who has a particular policy (and the Boulder Chamber is offering several other Anthem plans with various designs, so the alternative care isn’t being forced on anyone who doesn’t want it).  Choices and options are important, as everyone has different views on health and wellness.  And with the advent of this new plan, a small business owner who is committed to alternative medicine and turned off by traditional health insurance policies might get on board with health insurance for her employees – and that’s a good thing.

I’ve been thinking about this for the last couple days.  First of all, health insurance companies have some work to do in the public opinion department.  So it is a bit of a mystery to my as to why the executives who met with congress were so adamant that rescission not be limited to cases of intentional fraud.

But the flip side of the issue is that it’s tough to really differentiate between intentional fraud and accidental omission.  The only person who really knows what an applicant’s intentions are is the applicant.  Do we use the “reasonable and prudent person” idea here?  Would a reasonable and prudent person forget that she had been hospitalized or taken to the ER?  Probably not.  Might she forget that she had been treated for a sinus infection six years ago?  Perhaps.

When I was new to the health insurance business, I remember hearing a story about a lady who “forgot” to mention on an application that she had emphysema.  She was later diagnosed with cancer and her policy was rescinded.  There is no part of me that believes that a person with emphysema could answer “no” to the question about lung/respiratory conditions and chalk it up to an accidental omission.  Health insurance applications are designed to eliminate accidental omission as much as possible.  There are health questions relating to pretty much every body part and organ system.  And then there’s a catch-all question at the end, asking for details about any conditions not specifically mentioned.  Any illness that required more than a passing glance from a doctor would be tough to forget when answering such specific questions.

Some people do lie intentionally when completing health insurance applications.  These people might not realize that rescission is a possibility, and might not understand what a dicey situation they’re putting themselves in.  In Colorado we have a high risk pool health insurance policy that is available for people who don’t qualify for individual health insurance.  Cover Colorado is far superior to getting an individual policy based on a fraudulent application.

Another problem is bad agents.   Over the years we’ve spoken with numerous clients who tell us that they have condition XYZ, but mention that their last agent told them that they didn’t have to list it on their application.  I have no idea what these agents are thinking.  All of us know about the possibility of rescission – it’s a basic part of health insurance license training and continuing education.  I don’t know if these agents are just trying to secure their own commissions, or if they honestly think that the condition is minor enough that it doesn’t need to be listed, or if they think that not listing it will make the process easier for their clients.  But no agent should ever tell a client to leave anything off of an application.  If a condition is minor enough to not be an issue, the underwriters will dismiss it.  But that is a decision for underwriters, not agents or applicants.  Any other course of action is way too risky.

The waters get pretty murky when it comes to looking at an application and determining what an applicant’s intentions were.  Did the person set out to deceive the insurance company?  Were they completing the application at the end of a long day, with a crying baby and a kid who needed help with homework?  Did one person complete the application for an entire family, and forget to mention a treatment that a spouse had several years ago?  Did they ask their agent for advice and get told that they could just not mention the condition on the application?

Several years ago, I spoke with a representative from Anthem Blue Cross Blue Shield about the issue of policy rescission.  She told me that – at least here in Colorado – rescission is reserved for serious cases where significant conditions are left off of applications, and that had the conditions been revealed during the application process, coverage would have been declined.  To me, this seems fair.  If a pre-existing condition is revealed after the approval process is complete, it should be underwritten just as it would have been if it had been noted on the application.  Trying to determine whether an applicant intentionally lied or genuinely forgot would just be speculation anyway.

Electronic medical records that allow underwriters to see complete medical histories at the time of application would greatly reduce the number of policy rescissions.  Then again, there’s a lot of talk on the table right now about eliminating medical underwriting all together, which would solve the problem once and for all.

This is astounding to me.  If we look at all industries, only two show profits greater than 20% for 2007 (network/communication equipment, and mining/crude oil production).  Further down the list we see “Insurance: Life, Health (stock)”, with profits at 10.6% of revenues.  Stick with me here, and click on the life/health insurance industry link, where you’ll see a list of 15 individual companies.  Nearly all of them focus on life insurance, disability insurance, long term care, annuities and other retirement planning services.  AFLAC stands out as a recognizable player in the health insurance industry, but their product is supplemental, and not designed to be stand-alone health insurance coverage (and they also focus on disability and life insurance products).  From what I could determine, three other companies on the list provide some type of health insurance coverage (but seem to be mainly focused on other insurance products): Conseco, Torchmark, and American National.  Conseco and Torchmark both sell supplemental and “a la carte” policies.  American National is still a mystery after my few minutes of researching.  Their website says that they sell major medical plans as well as accident and sickness plans.  But they don’t provide any plan details that I could find, and instead direct consumers to an 800 number to talk to a sales rep.  I don’t know for sure, but I’m going to hazard a guess that health insurance isn’t their mainstay if that’s how they’re marketing it.

The industry as a whole chalked up a profit margin of more than 10% in 2007, but that was carried by the life insurance side of the industry.  Health insurance companies don’t fare nearly as well when it comes to making profits.  Far more of their revenues are eaten up by claims, which continue to grow year after year as health care costs increase.

As Congress debates health care reform, it is clear that access has emerged as a major issue. And rightly so.  Everyone agrees it is unacceptable that 46 million Americans live day-to-day without health insurance.

The first item on the President’s health reform agenda requires insurance companies “to cover pre-existing conditions” so all Americans regardless of their health status or history can get comprehensive benefits at fair and stable premiums.”

Anthem Blue Cross and Blue Shield agrees that we need to move to a system where all Americans – including those with pre-existing conditions – have access to health insurance. In fact, the health insurance industry announced its support for the elimination of pre-existing conditions as a barrier to eligibility for individual and small group coverage in November of 2008.

But in order for health insurers to offer what is known as “guaranteed access,” Congress must first adopt a comprehensive plan that would require all individuals to keep and maintain health care coverage.  The simple truth is that the health insurance system cannot provide guaranteed coverage for pre-existing conditions unless there is an effective, enforceable individual mandate in place.

Understanding why this would be necessary requires a basic understanding of how insurance markets function.

As readers of the Colorado Health Insurance Insider know, Insurance markets pool risk.  An insurance system will only work if the exposures of low risk individuals are pooled together with the exposures of higher risk individuals.  Life insurance, homeowner’s insurance, auto insurance; they all work the same way. If health insurers are required to offer guaranteed access without an effective mandate requiring all Americans to maintain coverage, there would be a clear disincentive for healthy people to secure or maintain coverage.

Why?  Because such a system would allow people to sign up for health insurance only when they get sick or need care.  This would be the same as allowing people to obtain auto insurance after they have had an accident or secure homeowner’s insurance after their house has burned down. Health insurance premiums would skyrocket for those who keep their coverage leading to a widespread cancellation of policies, ironically, leading to higher levels of uninsured individuals.

Obviously, this won’t work.  It’s not sustainable. Guaranteed issue will require some form of enforceable mandate.

While there has been a great deal of discussion - and a growing acceptance - that full guaranteed issue in the individual market cannot be enacted without an effective individual mandate, there has been little discussion on the details of how an individual mandate would be structured and enforced.

As we see it, an effective individual mandate must have three essential components:

(1) subsidies to ensure coverage is attainable for everyone,

(2) checkpoints to verify that every individual has coverage, and

(3) a penalty for noncompliance.

Given the fact that 82% of the uninsured are in families with a family income below 300% of the Federal Poverty Level, government subsidies will be needed to help lower-income Americans maintain their coverage.

Checkpoints would have to be established to make sure all individuals are carrying coverage on a continuous basis.  To ensure there are no “free riders,” the checkpoints would have to be structured in a way that is designed to capture 100% of the population that is eligible for “guaranteed issue.”  The tax filing process could be one checkpoint, but others must also be employed such as renewal of a driver’s license, school enrollment or applying for a federally-backed student loan or mortgage.

A new federal health insurance database (or databases at the state level) would need to be established that has the capability to confirm the coverage of every person eligible for “guaranteed issue” coverage.

And lastly, there must be a significant penalty for noncompliance.  The penalty must be greater than the cost of coverage and applied for each month where coverage lapsed.

Anthem and other private insurance companies are committed to working with government leaders and stakeholders to improve America’s health care system.  As this process begins in earnest, it is important to make sure that the efforts to reform are more than just well intended; they need to be effective.  We want to make sure that all Americans have health security and access to quality affordable health care.  We must make sure that the reform measures do not lead to unintended consequences.

Maintaining a balanced individual market in a “guaranteed issue” environment is especially challenging.  Guaranteed issue must be paired with a well-structured, effective individual mandate and sufficient government subsidies to assure that premiums remain affordable.

To take action, please visit: www.healthactionnetwork.com

John Martie, President

Anthem Blue Cross and Blue Shield in Colorado

This seems like a misguided position to take.  First of all, I have to imagine that plenty of gay Americans get health insurance benefits from their own employers.  If they could legally marry their partners, they might choose to switch to the partner’s health insurance plan, but that would mean leaving their own plan.  Thus one business would see an increase in health care costs while the other would see a decrease.  There wouldn’t just be an influx of new health care expenses for all businesses.

Second, the whole basis for this argument is illogical.  Yes, it is a business expense to offer health insurance and other benefits to employees.  But employers don’t provide health insurance for their workers for altruistic reasons.  They do so because it has proven to be a powerful tool that they can use to attract and retain good employees.  And those employees are making more money for their employer than they are receiving in pay and benefits.  Otherwise they wouldn’t continue to be employed.  When an employer agrees to offer health insurance benefits for employees and their families, they have to expect that a good number of their employees will take them up on the offer, especially if the employer pays a chunk of the premiums.

When a new employee is hired, the employer likely doesn’t know the employee’s marital situation.  But if they are providing health insurance benefits, they have to assume that the employee either has a spouse and/or children or will have them in the future (most people do not remain single forever).  This has to be expected – and accounted for in the budget – by any employer.

So when Steele starts trying to say that allowing gay marriage would hurt businesses by increasing their health care costs, I have to wonder what his actual motivation is.  Obviously he’s opposed to gay marriage as a social issue, and he’s far from alone in that view.  But trying to characterize it as a financial issue is a bit disingenuous.

We were impressed earlier this year when Anthem Blue Cross Blue Shield of Colorado starting allowing same sex couples to apply together for family health insurance in the individual market.  It didn’t change the price, since premiums are calculated per person on family plans.  But now same sex couples can submit just one application, and pay just one premium each month, and be treated just like any other Colorado family when it comes to health insurance.  This is slowly becoming more common in the group health insurance market too (with employers who don’t require that partners be legally married in order to enroll in the company health insurance plan), although there is obviously still a long way to go.