HB1389, The Fair Accountable Insurance Rates Act of 2008, is being considered by the House Appropriations Committee, and is sure to draw outspoken proponents and critics from all over Colorado. Currently, Colorado has what’s known as “file and use” with regards to health insurance rate increases. New rates have to be presented to the Division of Insurance, along with actuarial justification for the rates. But the rates do not have to have prior approval in order to go into effect. The DOI does have the ability to deny “excessive” rate increases under our current system. HB1389 would institute a “prior approval” system for health insurance rate increases, requiring that insurers not only submit new rates and justification for them to the DOI, but also that they wait for approval of the rates before putting them into effect.
This bill has its heart in the right place. Health insurance premiums in Colorado have been rising far more than wages for years. Jay and I pay more than twice as much now for our high deductible health insurance policy compared with what we were paying five years ago. We talk with clients all the time who are considering going without health insurance because the premiums that they were just barely able to pay have gone up another 10%. Nobody enjoys getting the just-in-time-for-the-holidays letter from their health insurance carrier with the new rates that are about to go into effect. So at first glance, any consumer advocate would tend to be in support of HB1389, as the intention is to curtail the out of control premium increases that we’ve seen in Colorado over the last several years. Proponents of the bill say that it will slow the pace of premium increases, making health insurance more affordable and thus lowering the number of people without health insurance.
But the way we see it, there are several potential problems with HB1389. First and foremost, it seems to be putting the horse before the cart with regards to how health care pricing impacts health insurance premiums. It’s true that health insurance premiums are rising much faster than wages or inflation, but pricing for health care – the end product for which health insurance is ultimately paying – is also rising far faster than wages. There is no regulation on what health care providers can charge for their services. They do have to agree to certain prices in order to participate in PPO networks, but only for patients who are insured by specific carriers. For everybody else, anything goes. When Jay tried to shop around last year for a lipoma removal that was not covered by our Humana policy (pre-existing condition exclusion), he was billed five times what he had been quoted. We had no recourse in this situation. The Colorado Board of Medical Examiners is the regulatory agency that oversees medical practitioners and deals with complaints. But they specifically state on their website that they do not deal with issues concerning fees or billing. If we really consider the purpose of health insurance, it doesn’t make sense to try to regulate health insurance premiums without first regulating overall health care pricing. There should be a system in place to protect consumers against opportunistic pricing on the part of medical providers, and a limit on the profits that the health care industry can generate. Then we could reasonably expect to be able to do the same thing in the health insurance industry. But to try to enact more regulation for health insurance premiums without doing the same for health care costs seems counter-productive.
Part of HB1389 would require health insurers to meet set requirements for the ratio between total premiums collected and the total amount spent on direct health care for insureds. While this sounds good in practice (we all like the idea that nearly all of the premiums be used to pay claims), it could have a negative impact on low-cost plans that tend to have the same administrative overhead expenses (ie, the part of the premiums that is not used to pay for health care) as the higher-cost plans offered by the same insurer. You get the same customer service reps and claims processing (administrative expenses) whether you have the deluxe plan or the bargain-basement plan. But the deluxe plan, with higher premiums, will have a much easier time passing the benefits ratio test, since the admin expenses are a smaller percentage of the premium. So the unintended effect could be that insurers stop offering their lower-cost plans and keep the plans with higher premiums that allow for higher administrative expenses.
HB1389 also contains a clause allowing “private cause of action.” Basically, it would allow consumers to sue health insurance companies over premium increases. I can already see the TV ads now… Some lawyer comes on and asks if you’ve had an outrageous health insurance premium increase (haven’t we all?). Then he tells you that his law firm is on your side, and will take on big insurance for you. And of course he’ll also take a nice chunk of anything you might win in the case. Our legal system is already overrun with lawsuits that end up costing consumers more in the long run. If Colorado health insurance companies end up paying plaintiffs because of higher premiums, where will that money come from? Will the lawsuit payouts be included in the actuarial report that gets submitted for the following year’s rate increase? I’d rather not have a chunk of my health insurance premiums being used to settle lawsuits over premiums.
Colorado currently has a very diverse health insurance market. There is a long list of insurers who do business in the state, and all of them have a wide range of options available, from the basic high deductible plans to the top of the line coverage. Competition among insurers is good for consumers. We do not have a free market insurance system (or a free market health care system for that matter), but at least consumers do have a lot of choice with regards to their health insurance company in Colorado. It’s hard to see how HB1389 would not result in at least some health insurance carriers leaving the state. Health insurance is a for-profit industry, and companies in the industry make decisions based on what’s good for business. In NY, health insurance has to be guaranteed-issue. Health insurance companies cannot underwrite policies and everyone gets approved. Sounds great for consumers, until you look at the fact that policies are hundreds of dollars more per month than they are in Colorado, and there’s only a handful of options available. Most health insurance carriers have no interest in doing business in NY, because of the industry regulations there. We have to keep in mind that there’s nothing forcing Colorado’s health insurance carriers to continue to do business in the state. If it becomes unprofitable to do so, they will leave. And if you’re insured by a company that leaves the market, you’re pretty much left high and dry, especially if you’ve developed medical conditions that would make it hard to get insurance with another company.
We are not completely opposed to HB1389. We would like to see less waste and bureaucracy in the health insurance industry, less compensation for upper management, and lower premiums. We’d like to see more representation for consumers, and to see health insurance companies (and the health care industry as a whole) being held to a higher standard simply because they literally hold people’s lives in their hands. But at the same time, we’d like to see more regulation on health care pricing at the provider, hospital, and pharmaceutical industry level. We’d like to see incentives to reduce over-utilization of health care, which is a huge factor in the rising cost of health care and health insurance. HB1389 has good intentions, but the drawbacks I discussed above need to be addressed in order for this proposal to be effective.