Health insurers have long argued that a key reason behind rising premiums and the growing ranks of uninsured is the long list of benefits they're forced by law to cover. Now, a new Texas statute will test that assertion by clearing the way for the sale of low-cost, pared-down policies statewide.
The law, passed by the Texas Legislature last year and enacted in January, allows insurers to sell "consumer-choice plans" that don't cover all of the state's 60 mandated benefits.
While insurers can choose which state-required benefits to exclude-such as substance abuse or hospital stays for reconstructive breast surgery-they must still meet all federal mandates and offer at least one other plan that fully complies with state requirements.
Texas is among a growing number of states now re-examining or rolling back their benefit mandates in an effort to make health insurance more accessible and affordable. The Kentucky General Assembly last month placed a moratorium on all new benefit mandates for three years to lure more insurers into the market, and it's now considering a bill that would let consumers buy "mandate light" policies excluding such benefits as hearing aids and medical care for newborns.
In January, a coalition of Wisconsin providers, insurers and employers unveiled a healthcare reform plan dubbed Healthier Choices, which includes proposed legislation that would let insurers offer leaner coverage alternatives. And last week, a group of small employers in Washington state announced plans to pursue a fall ballot initiative authorizing insurers to sell bare-bones health plans that include only basic coverage.
"If you're a small employer, you're in an all-or-nothing situation: You can either offer insurance that includes all mandated benefits-the number of which grows every year-or no insurance at all," said Eric Borgerding, senior vice president of the Wisconsin Hospital Association, which co-created Healthier Choices. "What we'd like is to extend the benefit flexibility that large, self-funded employers have to small- and medium-sized employers."
Spurred by consumer demand, state lawmakers enacted hundreds of bills over the years requiring insurers to cover an array of products and services, such as cancer screenings, hospice care and wigs for chemotherapy patients. By 2002, the number of state-mandated benefits had surpassed 1,400, up from about 800 in 1990 and 300 in 1980, according to a report by the Health Insurance Association of America.
But faced with continued double-digit premium increases in recent years, many states are allowing alternatives. Since 2001, 10 states have passed laws that permit mandate-exempt insurance options, and seven others are considering such legislation, according to the National Conference of State Legislatures. Also, 29 states now require a fiscal-impact study of all new benefit mandates, and five states have passed laws limiting or prohibiting new mandates.
Supporters tout the no-frills policies as a way to offer at least some coverage to the millions of uninsured Americans who can't afford more generous plans. According to the HIAA report, up to one-quarter of the nation's uninsured may lack coverage as a direct result of state mandates. A separate study by PricewaterhouseCoopers attributed $10 billion, or 15%, of the $67 billion in total premium increases from 2001 to 2002 to benefit mandates and other government regulation.
Traditional insurers also want to be able to compete on price with association health plans, or AHPs, which would be created under federal legislation now pending in the Senate. AHPs, which would allow small businesses to band together nationally to buy lower-cost insurance, would be exempt from virtually all state benefit mandates (Jan. 26, p. 8). But consumer advocates fear that bare-bones plans could ultimately add to healthcare costs by discouraging preventive care and could leave patients saddled with large medical bills if they unexpectedly develop an illness, such as diabetes, for which care is no longer covered.
Lisa McGiffert, a senior policy analyst for Consumers Union, also predicted that rather than providing coverage for those who are uninsured, mandate-light plans would simply be used as a cost-cutting measure by businesses that already offer insurance. "People with full coverage will just end up with less coverage and higher out-of-pocket costs as employers switch to (stripped-down) plans to save money."
Flopped in the '90s
Kala Ladenheim, program manager for the conference of state legislatures, points out that bare-bones plans flopped in the early 1990s because they were viewed as too skimpy and too expensive. "The challenge now is to still have a desirable package (of benefits) but at a better cost," Ladenheim said.
UniCare-one of the first seven insurers approved to sell a consumer-choice plan in Texas-says it's done just that. The company rolled out a PPO for individuals in February that costs 16% less than standard offerings while excluding only four state-required benefits: mental-health care, contraceptives, off-label drugs and telemedicine. The plan also has higher deductibles and requires members to pay 50% of costs for out-of-network providers, up from a state-mandated 30%.
"We chose to eliminate benefits that a majority of consumers did not want, would not use and therefore did not want to pay for," said David Cheek, sales director for the Southwest region of UniCare, a unit of WellPoint Health Networks.
Cheek concedes that some of UniCare's members have already switched to the new PPO from more comprehensive plans. But he pointed out that about 21% of the PPO's new enrollees were previously uninsured, compared with 11% of enrollees in its other plans. "This is definitely a new option for people who have been priced out of the (health insurance) market," Cheek said.