Health Insurance Reform - Building Momentum for Change

For working families, access to and the affordability of health care continue to be a top economic concern.  Feeling the burden of higher prices on all fronts, voters are especially angry at health insurance companies and cite rising premiums, higher out of pocket costs, less coverage, and hassles dealing with claims departments.  Harnessing this anger will create strong momentum for change and comprehensive health care reform.

This Stateside Dispatch will highlight how Progressive States Network will be working with its partners in the coming legislative session to make health insurance reform a key strategic part of the broader debate on health care reform.  By targeting the health insurance industry, state legislators will help build public support for comprehensive reform at state and federal levels.  Inevitably, the health insurance lobby will spend hundreds of millions of dollars to block health care reform.  As a counterweight, state legislators can use the model policies discussed here to put the industry on the defensive, to spark a debate on health insurance company abuses, and undermine the industry's credibility in the health care reform debate.  Health insurance reform will remind the public that the health insurance industry is a business, concerned with their own profits, not the health and financial security of America's families and small businesses.  

Please join us on a conference call this Thursday to discuss the role of state health insurance reform in the broader health care reform effort.  Speakers will discuss key state legislation and national campaigns that are using the need for health insurance reform to rally the public's support for bolder health care reform in 2009.  Speakers include Washington State Senator Karen Keiser, Kathleen Stoll, Deputy Executive Director of Families USA, and Robyn Martin, Senior Policy Analyst, Americans for Health Care-SEIU. You can RSVP for the call here.




Mobilizing Voter Anger at the Insurance Industry

Recent public opinion research underscores that tapping into voters’ anger at insurance companies will help build public support for broader health system reform.  As explained by the Herndon Alliance, a national coalition of health care reform advocates conducting cutting edge public opinion research:

Identifying the problems with the insurance market can strengthen the argument for health system reform. Voters hold a strong belief that insurers are not working in the interest of consumers. The practices of health insurers infuriate most voters. Identifying these problems so they resonate with voters helps strengthen the argument for reform.

Voters are angry that health insurers regularly deny coverage for pre-existing conditions, discriminate against women, older and rural residents by charging higher rates, and cancel coverage at the time families need it most.  This anger “needs to be channeled toward changes that both resolve system problems and provide a stepping-stone to health reform.”? Mobilizing this anger and distrust with insurance companies will be a cornerstone of campaigns for federal reform ”“ including Families USA's Stand Up for Health Care initiative, the new coalition Health Care for America NOW and its grassroots mobilization, Americans for Health Care-SEIU, and the Herndon Alliance.  

State health insurance reform campaigns will tap into that same anger by highlighting the difficulties and frustration voters have with private health insurance.  These campaigns, supported by Progressive States Network and its partners, will bolster public support for comprehensive reform and advance important protections for families and small businesses in states.  Additionally, by threatening a proliferation of reforms across the states, these campaigns will help encourage the industry to come to the table for a more uniform and strong set of national standards.

Key Policies:  Health insurance companies are able to gouge the public by taking advantage of the uncoordinated and disjointed mash of public and private systems offering various levels of health care coverage ”“ which still leaves at least 47 million Americans uninsured and millions of others without the care they thought they were promised by the insurance companies.  States can and are taking action to end this profiteering and guarantee better health care for their residents through a number of key policies:

  • Use "Care Share" ratios (also knows as Medical Loss Ratios) to guarantee that most insurance revenue go to actual health care, rather than insurance company profits and wasteful administrative expenses;
  • Establish state prior approval and review of insurance company rates to stop spiraling premium increases;
  • Stop insurance company cancellation of coverage (so-called rescissions) when customers receive medical care;
  • End health insurance discrimination through community rating, guaranteed issue of insurance, and requiring coverage regardless of pre-existing conditions.

By mobilizing to enact these policies, state legislative leaders will help shine a media focus on the abusive policies that harm so many families and help focus the debate on health care reform on serving the needs of patients, not the health insurance industry.

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Ending Waste and Profiteering: "Care Share" or Medical Loss Ratios

With skyrocketing health insurance company profits and reserves, state lawmakers should ensure that our health care dollars are being used for actual medical care, rather than profits, administrative waste, and shareholder dividends.

Despite, or perhaps because, the US lacks a coordinated health care system that achieves coverage for all Americans, US administrative costs - as a share of total health care spending - are 30% to 70% higher than in countries with public/private universal systems.  There is clearly room for improvement, particularly considering that within the US system, administrative expenses for private insurance are two and a half times as high as for public programs.  In fact, a survey of state insurance regulators conducted earlier this year by Families USA found instances where insurance companies spent a mere 60% of premiums in the individual market on medical care, using the rest for profits and administrative expenses ”“ for example, using premiums to pay administrative staff to knock insured people off the insurance roles. 

Additionally, insurers are able to amass huge reserves, which industry observers say are far beyond reasonable levels.  For instance, the Pittsburgh Post-Gazette reported that health insurer Highmark enjoyed a total revenue of $12.4 billion in 2007, growing its surplus to $3.5 billion.  The article went on to report that several insurers are planning premium hikes over the summer of 2008 because "per-share earnings" have not met projections, down from a forecasted $6.41 per share to between $5.76 and $6.01 in the case of the huge multi-state insurer Wellpoint.  However, the Post-Gazette reports that Highmark's $3.5 billion surplus represents 734% of its risk-based capital - a measure of the money an insurer might need on hand in case of unforeseen claims.  The National Association of Insurance Commissioners, however, say that surpluses exceeding 250% of risk-based capital are troubling.

"Care Share" or Medical Loss Ratios"Care shares", or medical loss ratios, are state regulations which require insurance companies to spend a certain percentage of premiums and other revenue on direct medical care, rather than profits and inefficient administrative expenses.  "Care share" requirements put teeth into the basic expectation that health insurance premiums paid by families and businesses ought to be used by insurance companies for actual medical care.  As Families USA reports, New Jersey has a medical loss ratio of 75% for the individual and small group markets. If less than 75-cents of every premium dollar is spent on direct medical care, an insurer must issue the difference in refunds to their members.  Recently, legislators in California went further by passing legislation (SB 1440) to create a medical loss ratio of 85%; the bill awaits the governor’s signature.

Model Policy:  Model legislation can be found in the form of Massachusetts Senate Bill 593, sponsored by State Sen. Patricia Jehlen.  The legislation, titled An Act Relative to Promoting the Efficient Use of Health Care Revenues, would set a 90% "care share" requirement and include other forms of income that are derived from premiums paid, including insurers' investment income.  A 2006 report from the Health Reform Program at the Boston University School of Public Health found that some Massachusetts insurers were spending 91% of total revenues on medical care for group plans, indicating that a 90% threshold is quite attainable for the market. Elsewhere, Minnesota has a tiered loss ratio, setting different levels for the large group, small group, and individual markets.  Pennsylvania would establish an 85% loss ratio for the small group market if the Senate joins the House and passes HB 2005 this year.

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Accountability: Rate Review and Oversight "Prior Approval"

From 2002 to 2007, family insurance premiums rose 78% while inflation rose 17% and wages a mere 19%.  In Washington State, news that a Washington state-based non-profit insurer transferred $49 million in premium revenue over the past three years to a faltering for-profit subsidiary in Arizona fueled the legislature's passage of stronger oversight and rate regulation in early 2008. States should require health insurance companies to receive “prior approval”? of health insurance rates, ensuring that premiums are spent on medical care, rather than profits and inefficient administrative expenditures. 

Under "prior approval" laws, insurance companies must submit proposed rates to state regulators and justify rate increases before putting them into effect.  Regulators are authorized to reject unfair and unjustifiable rates.  These laws are most effective with adequate transparency of insurer finances, including claims paid, profits, and administrative expenditures.  As a Families USA memo shows, 33 states have some form of prior approval law, to great benefit to consumers.  In fact, “prior approval”? in New Hampshire enabled regulators to negotiate a proposed 100% rate increase down to 12.5

Model Policy: In 2008, Colorado lawmakers beat back fierce industry resistance and passed the Fair Accountable Insurance Rates Act (FAIR Act, HB 1389), which brings “prior approval”? to the individual and small group insurance markets. In Washington State, lawmakers enacted “prior approval”? (SB 5261) in the individual market.  The action was fueled by rate increases of 40% and 70% and reports that the state’s three largest insurers had reserves of $2.2 billion. 

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Fairness: Regulating Coverage Rescissions (or Cancellations)

News reports that California insurers were canceling health insurance policies after members received costly medical care or severe medical diagnoses prompted lawmakers to clamp down on when and how insurers rescind, or cancel, a policy.  Several insurers were re-examining applications for minor inconsistencies and delving further into medical histories to find cause for canceling a policy after a member incurred an expensive claim.  In fact, HealthNet was exposed for awarding employee bonuses that were proportional to how many policies had been examined and rescinded. As the Los Angeles Times reports, critics claim that insurers purposefully use confusing applications so that when a member begins filing claims, the insurer can go back and find mistakes in the application to justify a rescission.  Many insurers have been fined by the state for their abusive rescission practices, including Blue Shield of California and Anthem Blue Cross, which must pay $13 million in fines and offer new plans to 2,220 residents whose plans had been unjustly rescinded.

In response, California lawmakers recently passed a number of bills to bring fairness and accountability to the business practices of health insurance companies.

  • AB 1150 was enacted to prohibit insurance companies from giving bonuses or other incentives to employees for rescinding coverage.  State regulators had found that insurer HealthNet was giving bonuses that were scaled to how many policies an employee had canceled.
  • AB 1945 seeks to standardize the application process to prevent unfair rescissions.  If signed by Governor Schwarzenegger, the legislation will establish state review of rescissions and require the state to create standardized questions that insurers can use to determine an applicant’s medical status and history as part of the application process.   
  • AB 2569 would require health insurers to maintain coverage for family members of people whose health insurance coverage has been rescinded.

Other steps that states can take to rein in the rescission policies of health insurance companies can be found in Families US's recent report, Fighting Revocations and Limitations of Health Insurance Policies.  These include: limiting or prohibiting, through various means, the use of health status as a factor in the application process; requiring state approval of any decisions to rescind coverage; defining what medical history is relevant in the application process; prohibiting or limiting the duration of exclusions for pre-existing conditions; requiring the use of simple and understandable insurance applications; and, require that all medical underwriting -  the process by which insurers investigate and rate an applicant's medical history - be conducted during the application process.

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Access: Ending Health Insurance Discrimination ”“ Guaranteed Issue, Community Rating, Coverage for Pre-Existing Conditions

With proposals on the federal level to shift tens of millions of Americans from employer-based group coverage to individual market coverage, it's important that states prepare to counter regressive federal reforms with legislation to ensure consumer protections across insurance lines.  In June 2008, Families USA released an extensive 50-state survey and scorecard of the laws governing the individual insurance market in each state - "Failing Grades: State Consumer Protections in the Individual Health Insurance Market."  They found great variation across states and, overall, too little that states are doing to protect consumers from the anti-consumer behavior of insurance companies. 

Key findings from Families USA's report are:

  • Only 5 states prohibit all insurance companies from cherry-picking the healthiest consumers and excluding everyone else.
  • In 35 states and the District of Columbia, there are no limits on how much insurance can vary premiums based on health status.  
  • In 21 states and the District of Columbia, insurers can exclude coverage for pre-existing conditions for more than one year.
  • In 45 states and the District of Columbia, insurers can spend less than 75 cents of every premium dollar on medical services.
  • In 44 states and the District of Columbia, insurers can revoke an individual's health insurance policy without advance review by the state.
  • States have many options to ensure consumers in the individual and small group markets are treated fairly and that more of our premium dollars actually go to health care rather than profits and share-holder earnings.

By moving legislation in the states to shore up protections for families and small businesses, state legislators can increase the likelihood that federal lawmakers will enact similar standards.  The following policies can ensure working families have the coverage they need when they need it:

  • Guaranteed Issue - This health insurance regulation prevents insurers from refusing coverage to individuals because of their health status, age, gender, or other factors.  As Families USA reports, only 5 states have guaranteed issue laws.  Guaranteed issue helps ensure the availability of coverage and prevent discrimination against people with a history of medical illness.  Guaranteed issue is especially important in the individual market, where many states allow insurers to cherry-pick their customers and refuse coverage to certain residents.  While federal law requires “guaranteed renewal”? of health insurance, meaning that insurance companies must continue a health insurance policy except for a few circumstances, such as moving from a plan’s service area ”“ as explained by Families USA in Fighting Revocations and Limitations of Health Insurance Rates ”“ in most states, insurance companies can refuse to sell an insurance policy for any number of reasons, including an applicant’s medical history or for being pregnant.
  • Community Rating - This health insurance regulation creates more consistency in health insurance rates across insured populations. Community rating laws limit whether and how much an insurance company can adjust premiums based on a person's age, gender, health status, and other factors. “Pure community rating”? sets the same rate for an entire insured population, regardless of demographic factors. “Modified community rating”?, the more common form, sets a rating band within which insurers can vary rates based on certain factors.  In 2007, Colorado strengthened small group community rating by removing health status as a factor in setting premiums (HB 1355).  Removing health status, gender, and age as allowable categories from rating decisions is a key step in eliminating discrimination by health insurance companies and bringing fairness to health insurance.
  • Coverage for Pre-Existing Conditions - Heart disease, a hernia, even a pregnancy; if you have a pre-existing condition and buy individual health insurance, you will likely not have coverage for your immediate health care needs.  In all states, health insurance companies in the individual market can refuse coverage for pre-existing conditions for a set amount of time after a new policy begins.  As Families USA reports in Failing Grades: State Consumer Protections in the Individual Health Insurance Market, over half the states limit coverage exclusions to nine or twelve months.  Only two states, Massachusetts and New Mexico, limit exclusions to less than 6 months.  To bring fairness to health insurance, states can outlaw pre-existing condition exclusions altogether, or limit exclusion periods to no more than three months.  Additionally, as Families USA reports, states can limit the “look-back period”?, how many months/years back insurers can mine a member's medical history when determining exclusions; and, employ the "objective standards" when determining what qualifies as a pre-existing condition, whereby medical conditions that members unknowingly had do not qualify as pre-existing conditions.


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Ask any constituent about health care in the US and she will raise concerns about its cost, rising premiums and out of pocket costs, and hassles dealing with health insurance companies. While health care reform needs to address the cost and quality of health care as well as access to coverage, advancing health insurance reforms will help broaden public support for bolder reform. Voters see health insurance companies as part of the problem. Targeted health insurance reform campaigns will help sideline the insurance industry in the health care reform debate and enable lawmakers to advance lasting reform that guarantees access to quality and affordable health care for all.