Guaranteed Issue Is Key Component, But May Force Health Plans To Boost Rates
Source: Health Plan Week – August 31, 2009
By: Steve Davis
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Guaranteed-issue health insurance coverage is included in House and Senate health reform bills, has bipartisan support and is expected to be a key component in any final bill that lands on President Obama’s desk. But requiring health plans to take all corners could lead to higher insurance costs for all products, actuaries and other industry observers warn.
Last November the health insurance industry’s major trade groups, the Blue Cross and Blue Shield Association and America’s Health Insurance Plans (AHIP), each proposed reform efforts that would combine guaranteed-issue coverage (and no pre-existing condition coverage exclusions) with an individual coverage requirement. AHIP said the individual mandate would need both a system to verify coverage and “effective” enforcement of the requirement.
Brian Weible, an actuary and a principal with Wakely Consulting Group, Inc., says AHIP’s concessions would likely improve access to coverage, but won’t have much impact on affordability, which he says is much more a barrier and more likely to attract high-risk enrollees. “Look at small-group insurance. Nearly every state has had a guaranteed-issue provision for over 15 years. Yet a very large proportion of the uninsured are employees of small groups,” he says. “The guaranteed-issue provision [now] is not coupled with a mandate, and therefore [adverse selection] occurs, which drives up the premiums, creating an affordability barrier,” he explains. The elimination of such underwriting would mean that high-cost individuals are eligible for coverage, which would make it critical for health plans to enroll the low-risk population to maintain the viability of the insurance pool, Weible adds.
A health reform law that requires health plans to accept all applicants regardless of health status would likely force health plans to compete on their ability to control costs and provide effective medical care, suggests Jim Galasso, president and consulting actuary at Atlanta-based Actuarial Modeling. Health plan actuaries would be required to establish, monitor and comply with the risk-adjustment mechanism. They would also be needed to certify compliance with new “actuarial equivalence” requirements across benefit plans, Galasso explains. “The more traditional actuarial roles with respect to financial reporting, pricing, medical management evaluations and provider network evaluations would also be required,” he adds.
Ron Wince, CEO of Guidon Performance Solutions, an Arizona-based consulting firm, says actuaries would need to estimate likely claims costs and adjust premiums to cover the cost of the previously uninsured, some of whom could have high-cost, chronic conditions. And insurers, at least initially, would likely experience a large spike in medical services utilization due to pent-up demand from those who previously were uninsured, adds Cori Uccello, senior fellow at the American Academy of Actuaries. Moreover, if an individual mandate is unable to reduce adverse selection, insurers would be forced to boost premiums, she says.
A federal guaranteed-issue requirement, coupled with some form of modified community rating, is likely to prompt health plans to increase rates for all members, suggests J.P. Wieske, director of state affairs at the insurer-backed Council for Affordable Health Insurance. “This is something no one seems to want to acknowledge.”
He estimates that roughly 70% to 80% of the population would see a rate increase as a result of a guaranteed-issue mandate. And those most likely to see a rate increase would be low-risk, healthy individuals. If those people move to lower-cost coverage plans, or opt out completely, health plans will face adverse selection. “The philosophy of an individual mandate suggests that you mitigate the risk by having everyone enrolled. But that’s not the way it works in the real world,” he asserts.
And higher insurance costs could give “good risk” employers a financial incentive to self-insure their employees, says Robert Hinckley, senior vice president of government and external relations at CDPHP (formerly Capital District Physicians’ Health Plan), a physician-founded health plan based in Albany, N.Y. “If that happens, then the community [risk] pool would become more expensive.” New York is one of five states (the others are New Jersey, Maine, Massachusetts and Vermont) that have a guaranteed-issue requirement.
Can an Individual Mandate Work?
Hinckley says the biggest problem with New York’s guaranteed-issue requirement in the individual market is the lack of an individual mandate. The state mandates two benefit packages for the individual market, which tend to attract primarily high-risk enrollees because the benefits are rich. And because coverage also is expensive, healthy people tend not to enroll until they need care, Hinckley tells HPW. CDPHP has about 350,000 members, including 1,500 in the direct-pay, individual market.
David Oliker, president and CEO of Schenectady, N.Y.-based MVP Health Care, agrees that an individual mandate would help normalize the risk in the individual market. “Anyone who is young and healthy can’t justify the cost” of coverage now, he tells HPW. In addition to an individual mandate, Oliker says subsidies would be needed for people who are uninsured but earn too much money to qualify for safety-net programs such as Medicaid. MVP has approximately 800,000 enrollees.
But Wieske says he’s not convinced that an individual mandate will be effective and argues that such a rule would likely lead to gaming of the system. “If you assume that 10% of people aren’t compliant with the IRS tax laws, and are willing to risk jail, I’m not sure how you would design an individual mandate that works,” he says. “People buy coverage because they believe they need it. But people will look at it differently if it’s mandated. In order to make it work, you really need to start infringing upon people’s individual liberties.”
States that require auto insurance typically require proof of insurance to obtain or renew a driver’s license. Lawmakers have hinted at using the tax code as an enforcement mechanism to require health coverage. But any tax deduction or penalty would need to be substantial enough that it becomes more cost effective to have health coverage, Wieske says. An individual mandate, he adds, would need to define a minimum level of health coverage. And that could be difficult. Deductibles, premiums, copayments and coinsurance, for example, would all need to be actuarially equivalent.
While some type of an individual mandate is likely to be included in a final reform bill, a better option might be guaranteed continuation of coverage, suggests Galasso. Under this model, which is used by Medicare, any individual with “creditable coverage” would no longer be subjected to medical underwriting by any health insurer, he explains. “When Medicare Part D [becomes] available, and individual has an option to select or reject coverage on a guaranteed-issue basis,” he explains. “The longer one waits to opt in, the greater the financial penalty. And one cannot drop out and drop in at will without severe penalties. This strongly encourages individuals to stay in the system.” Rather than a financial penalty, health plans could use medical underwriting for individuals who delay or want to re-enroll after dropping coverage, Galasso says.
All contents © 2009 Health Plan Week. All Rights Reserved.
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