The race is on to reshape the individual health insurance market, as health plans increasingly come under fire from state regulators, patient groups and the courts for revoking policies after customers fall ill.
In an effort to get ahead of a regulatory smackdown, the trade group representing insurers, Americas Health Insurance Plans, is shopping its own reform proposal to governors, insurance commissioners and lawmakers nationwide. This is a very serious effort of ours, says Karen Ignagni, AHIP president and chief executive officer. Legislators have asked a lot of questions about it. Its very encouraging.
Nowhere is this issue more topical than in California, which is leading the way in reforming both the underwriting practices of insurers and processes for rescinding coverage. In the Golden State, regulators are drafting new rules around individual health benefitsexpected in the next few months; legislators are considering a slew of consumer-protection bills; and patients are winning lawsuits against insurers over so-called policy rescissions.
Private individual heath insurance makes up just 5% of the total health benefits market nationwide, with 18 million people getting coverage this way, according to the Kaiser Family Foundation. But many more Americans at some time in their lives seek individual coverage on a temporary basis. Policymakers, including Democratic presidential candidates Barack Obama and Hillary Rodham Clinton, advocate overhauling the individual insurance market to bring more of the 47 million uninsured Americans into the system. Its a pretty important market, says Gary Claxton, vice president of the Kaiser Family Foundation. Its the only place to go if youre in between jobs or work for a small firm that doesnt offer coverage.
Unlike employer-based or government-sponsored insurance, individual private coverage is not guaranteed-issue, so it involves medical underwriting, a practice that is at the heart of the consumer complaints. Today, consumers can be denied coverage based on a pre-existing condition, and their policies can be revoked if the insurer learns a consumer lied on an application.
Patient complaints have been piling up in California alleging that insurers are abusing the system by doing post-claims underwritingillegally revoking individuals policies after they get sick and rack up large medical bills. The insurer refuses to pay, the patient cant afford the bills and the providers can get stuck with the costs through bad debt or charity care.
These rescissions are the harshest penalty for consumers, said California state Sen. Sheila Kuehl, a Democrat who chairs the Senate Health Committee, at a hearing in January.
This seems especially true considering that consumers with individual plans are paying higher and higher premiums for less and less coverage, according to recent studies. Individual purchasers of health insurance, especially with chronic conditions, really struggle to afford the costs, says Marian Mulkey, senior program officer at the California HealthCare Foundation, a not-for-profit research group. A June 2007 study on California individual plans by the foundation indicated that a consumer with individual coverage pays almost three times more in out-of-pocket expenses than a consumer with small-group coverage (See chart, below). I think the differences would be similarly large nationally, Mulkey says.
Jerry Flanagan, a healthcare advocate at Consumer Watchdog, a Santa Monica, Calif.-based group that has been tracking this issue, says hes received calls from regulators and consumers around the country, including Illinois and Florida. My guess is that this year there will be more activity in other states, he says.
Cindy Ehnes, director of the California Department of Managed Health Care, which regulates HMOs, says the agencys groundbreaking leadership on this issue has caught fire across the country.
The Connecticut Insurance Department is investigating insurer Assurant for alleged post-claims underwriting, and that state passed a law, effective last October cracking down on post-claims underwriting among all insurers. Washington states governor signed a law renewing the insurance commissioners authority to set rates on the individual market. And in Michigan, a heated debate is going on in the Legislature over whether Michigan Blue Cross and Blue Shield, the states largest insurer, should be allowed to levy assessments on the individual market.