In an effort to resurrect its all-but-extinct individual health insurance market, Washington state is taking the unusual step of shielding carriers from its sickest residents.
A new governor-appointed panel of consumers, employers and insurance company representatives has begun drafting a medical screening questionnaire designed to funnel the sickest 8% of insurance applicants into a state-managed high-risk pool, with the hopes of encouraging wary insurers to resume offering policies to less-risky individuals.
By last fall, virtually all of the state's major carriers had stopped writing new individual policies, blaming their ballooning losses there on a 1993 law that forbade them to deny coverage to any applicant. Since then, some 600,000 self-employed individuals, early retirees, employees without workplace insurance and other residents who rely on individual insurance have been left stranded.
"The state's three major insurance carriers withdrew from the market within two weeks of each other. The individual market disappeared virtually overnight, with the exception of a few counties," said Ed Denning, executive director of the high-risk pool, formally known as the Washington State Health Insurance Pool.
Some 2,000 people have joined the WSHIP, which was opened to general enrollment at the height of the individual insurance market crisis. The high-risk pool is funded by premiums paid by enrollees, state subsidies and an assessment on insurers. Enrollees pay a monthly premium of anywhere from $114 to $727 depending on their age.
The screening system, a concession won by the insurance industry in the last legislative session, is meant to get carriers back into the market by guaranteeing them a healthier group of applicants.
Washington's three largest health insurers--Group Health Cooperative of Puget Sound, Premera Blue Cross and Regence Blue Shield--have already vowed to resume selling individual policies within 60 days once the screening system is in place. According to the Health Insurance Association of America, out-of-state insurers are showing interest in the market.
"We lost over $70 million on individual policies over the four years prior to us pulling out of the market in November 1998," said Premera spokeswoman Clara Kinner. She said she expects the new protections to spur competition.
The WSHIP's new board members are relying on a team of actuaries from Milliman & Robertson and William M. Mercer to review three years of claims data from Group Health, Premera and Regence to identify insurers' worst risks.
The screen may be based on Milliman's point system, used in several other states, whereby medical conditions are reviewed and assigned a point value. Costly chronic diseases receive greater point values than one-time illnesses or more easily manageable conditions.
"Ideally, the questionnaire will balance simplicity with comprehensiveness," Denning said. "Without being too complex, the questions will have to isolate the conditions that result in higher costs." A question about diabetes might distinguish between the mild form and the early-onset, insulin-dependent type.
The 10-person board is working under a tight timetable, fueled by election-year pressures and a market bereft of an entire layer of insurance products. The goal, Denning said, is to have a draft of the questionnaire done by early September.
Creating a screening system is one facet of a new state law, passed in early April, which strips away some consumer healthcare protections enacted in 1993.
The new law also allows insurers to boost the waiting period for coverage of pre-existing conditions to nine months from three months. Insurers had argued that the shorter period encouraged people to purchase insurance only when they were sick, driving up costs.
Another provision lets insurers raise premiums on individual policies without regulatory approval, as long as they spend at least 72% of premiums income on claims. If the loss ratio is less, the difference will go to the high-risk pool.
Since the law took effect, Premera has already hiked rates for all its individual health plans by 23.8%, citing losses in individual plans. And its remaining 80,000 individual policyholders aren't allowed to downgrade to a cheaper policy because that would be the same as buying a new policy, spokeswoman Kinner said.
Consumer advocates have criticized the law as blatantly favoring the insurance industry, especially criticizing medical screening. "What this all means is that those programs we once created as safety nets have become the moral equivalent of leper colonies," said Kathleen O'Connor, a healthcare industry analyst. "We put the old and disabled here, the poor over there . . . and banish the sick to yet another colony."
But Denning said strong employer and consumer representation will enable the board to hammer out a fair set of screening criteria. The board has two consumers, one provider, one insurance agent, one small employer, one large employer and representatives from Aetna, Group Health, Premera and Regence.