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On July 31, 1996, House and Senate negotiators reached agreement on a compromise health insurance reform bill. The bill, H.R. 3103, is expected to pass the House and the Senate by the end of the week and the President has indicated he supports the bill. What does the final version of the Kassebaum-Kennedy bill mean for consumers? Regrettably, many details of the compromise were negotiated in secret and are not expected to be exposed to public scrutiny before Congress votes. Below is an overview of major provisions and how they will affect consumers.
GOOD PROVISIONS FOR CONSUMERS
ANTI-CONSUMER MEASURES IN THE FINAL BILL
Portability:
Employees with Employer-based Health Insurance. Employees who have employer-based health coverage are the key beneficiaries of this bill. First, the bill limits pre-existing condition periods (in general) to a maximum of 12 months. This means that insurers will not be allowed to deny coverage indefinitely to covered employees who may have had cancer, high blood pressure, or any other pre-existing condition. This is a significant provision since many employer-based plans currently allow pre-existing condition restrictions to last longer than a year. This protection, unlike any state laws, will apply to all health insurance plans, even those that are exempt from state regulation due to ERISA. Second, the bill prohibits health insurance plans from denying eligibility to employees because of their health status, and prohibits them from charging individuals higher premiums based on their health status.
Insured employees who switch jobs: H.R. 3103 will greatly reduce "job lock," (which often prevents employees from changing jobs for fear of losing their health care coverage), by prohibiting group health plans from using pre-existing condition restrictions for new enrollees who have been continuously insured and hence have already completed pre-existing condition restrictions with another policy. This is often referred to as "group to group portability." It will be especially valuable to workers who have serious pre-existing conditions or a family member with serious chronic illness. It will free hundreds of thousands, and possibly millions, of individuals to consider making a job change. Like the limit on pre-existing condition periods described above, this applies to all health plans, including self-insured health plans currently exempt from state regulation under ERISA.
Insured employees who become unemployed or whose new employer does not offer health coverage: "Group to individual" portability refers to individuals who lose their employer-based coverage and either become unemployed or work for an employer who does not offer health insurance coverage. The Senate and House bills varied substantially in how they dealt with this issue, and this issue threatened to be a deal-breaker. The approach favored by the Senate provided more choice of health plans (initially, individuals could enroll in any plan offered in the individual market), distributed the population covered across a wider spectrum of policies, provided for the possibility of some control over premiums, and gave more authority to the federal government to assure that state plans meet certain standards. The House plan, in contrast, gave a good deal of authority to the states, did not assure a wide range of policy choice, may have funneled the eligible population into just one high priced and limited plan, and did nothing to curb premiums.
The final legislation is closer to the House bill. First, the protection applies to a very small population. To be eligible for the "group to individual" protection, an individual must have been continuously insured under a group health plan for at least 18 months. He must have exhausted COBRA coverage if available, and can not be eligible for other forms of health coverage. The bill provides substantial discretion to states to meet the group to individual portability requirements through various mechanisms, such as high risk pools. In the absence of a state mechanism, insurers are allowed to offer a choice of only two insurance policies for this new population. One would offer a lower level of coverage, and one would offer a higher level of coverage. As a result of last minute negotiations, premiums on these new policies would be subject to restrictions. Consumers could face very limited choice. For example, insurers could design policies that exclude coverage for benefits that this pool of consumers are most likely to need, such as prescription drug coverage, diabetes coverage, or well-child care.
There are other ways that insurers could meet the requirements of the bill -- for example by offering its most popular policy forms. This provision is extremely complicated. There is ample opportunity for states to create various mechanisms that would comply with the bill's requirements.
The portability provisions provide substantial projections for a limited population. They are useless to previously insured individuals who have a break in their coverage because they can not afford to continue to pay the premiums. They do nothing to help people who have individual coverage but need to change health plans. They do nothing to help currently uninsured individuals, unless they enroll in a group plan (and therefore will benefit from limits on pre-existing conditions).
The Self-employed
The bill will make health insurance more affordable to the self-employed, by increasing from the current 30 percent to 80 percent the amount of health insurance premiums that self-employed people can deduct from their federal income taxes.
Medical Savings Accounts
The bill allows for the establishment of 750,000 MSAs, plans that combine high-deductible health insurance policies with tax-deductible savings accounts. After intense negotiations, restrictions on these accounts were included. Key provisions include: (1) individuals' deductibles would be $1,500 to $2,250, while family deductibles would be $3,000 to $4,500; (2) maximum out-of-pocket expenses (with respect to "allowed" costs) would be $3,000 for individuals and $5,500 for families; (3) tax-advantaged contributions to MSAs (by employers OR individuals) are limited to 65 percent of the deductible for individuals or 75 percent of the deductible for families; (4) withdrawals from MSAs for non-health purposes are subject to both income tax and an additional 15 percent tax, unless made after age 65, death, or disability; and (5) the program is limited to employees with 50 or fewer employees and the self-employed.
Many consumers may have no choice but to enroll in an MSA plan, if that is all that their employer offers. This means facing family deductibles as high as $4,500, and raises the possibility of sizeable out-of-pocket costs. Will enrollees in MSAs skimp on preventive care? Will their health needs go unmet because families simply can not afford to pay the high upfront costs for their care? Will the high deductible policies provide comprehensive benefits, or will insurance companies exclude important benefits such as coverage for prenatal care, prescription drugs, artificial limbs and diseases such as cancer? The most severe impact on consumers could be in the future. If this "demonstration" leads to further expansion of MSAs in the marketplace, it will severely fragment the health insurance market, drawing the healthy into MSAs and leaving substantially higher premiums for consumers who want a traditional, low-deductible policy. Careful study of the impact of this MSA program is needed so that Congress fully understands the implications of expanding MSAs to a broader population in the future.
Long-term Care Insurance
The bill changes the tax treatment of long-term care insurance premiums -- treating it the same way that accident and health insurance premiums are treated. Under the bill, if employers pay for long-term care insurance premiums, the premium is not included in the employees' taxable income. If individuals pay long-term care insurance premiums, it is treated as a deductible medical expense. For the self-employed, LTC premiums are treated as medical insurance, therefore deductible up to 80 percent. This new tax treatment of long-term care insurance is troubling. Long-term care insurance is typically purchased by middle and high-income individuals. The tax advantage is larger for higher income individuals, because they are in a higher tax bracket, than for lower income individuals. The billions of dollars drained from the federal treasury for this tax break will go mostly to benefit the wealthy. Given the unmet health care needs of the uninsured and of seniors, it is inequitable to create a new tax advantage for the rich.
In addition, the bill requires long-term care insurance policies to comply with certain provisions of the long-term care insurance model Act and model regulations promulgated by the NAIC in
January 1993. The NAIC has continually improved its model regulations since 1993, and it is therefore regrettable that Congress did not incorporate the most recent NAIC model into this bill. Key protections that will be eliminated by the "backdating" include: (1) the NAIC's carefully considered mandatory nonforfeiture requirement which protects ALL consumers who buy a long-term care policy and keep it in force for several years; (2) the curbs on premium increases that were unrestrained until the post-1993 revisions were adopted; (3) suitability requirements that help assure that long-term care insurance policies are not marketed to people who can not afford them; and (4) benefit trigger requirements that help assure that people who should qualify for benefits actually get them. Fortunately, the bill allows states to require more stringent consumer protection standards.
For middle and high-income consumers, long-term care insurance will be somewhat more affordable, due to the tax treatment of premiums. For the consumer as taxpayer, however, this provision will divert substantial tax revenues to benefit those who can afford to buy a policy. Consumers will have somewhat more protections than now exist in the marketplace, but the consumer protections are not as substantial as those in the current NAIC model. They will not be assured of policies that build in inflation coverage or protection in case they lapse. They will not be assured that the policy will be appropriate for their needs.
Duplicative Health Insurance for Seniors
The bill turns the clock back on efforts to curb the sale of unnecessary, duplicative health insurance policies to seniors by changing the definition of duplicative coverage. For policies other than "medigap" policies, such as hospital indemnity policies and dread disease policies, unlimited sales would be allowed as long as all policies paid benefits. The ability of insurance companies to sell policies as long as all policies paid benefits was a major contributing factor to the large scale abuses in the senior health insurance marketplace in the 1970s and 1980s.
The bill guts the disclosure requirements that were developed by the NAIC and approved by the Secretary of Health and Human Services that were developed to warn consumers against possible wasteful duplication. The required disclosures now read: "Important Notice to Persons on Medicare -- This Insurance Duplicates Some Medicare Benefits." The bill deletes the second clause about duplication. In its place, the disclosure would read: "Some health care services paid for by Medicare may also trigger the payment of benefits under this policy." Instead of a warning against duplication, consumers will get instead a marketing pitch that they will get extra benefits.
This means that insurance companies that market policies duplicating Medicare and Medicare supplement insurance will again be able to sell numerous policies of little value to consumers. For example, hospital indemnity insurance, cancer insurance and intensive care insurance are policies designed to prey on seniors fears. In addition, the bill eliminates any penalties on insurance companies or agents for violations that may have occurred between November 5, 1991 (the date the medigap reforms were signed into law) and the date of enactment of this bill. The clear signal to the insurance industry is that they are free to victimize seniors by selling them multiple, unnecessary policies. The signal to seniors is that buying health insurance in addition to Medicare and one medigap policy is condoned by Congress. This provision will undoubtedly lead to a new round of duplicative health insurance coverage by seniors.
The final bill includes no provision for parity of mental health benefits. While the Senate bill had called for full parity between mental health needs and non-mental health coverage, negotiators worked toward parity of lifetime caps on coverage. In the end, the bill was silent on mental health. This means that consumers in need of mental health benefits are at the mercy of the choices their employers make in the marketplace. Employers will continue to be free to severely restrict mental health benefits. (Even the Senate provision, though, would not have guaranteed full mental health coverage since employers could exclude mental health coverage altogether or could drop all health benefits.)
Said Gail Shearer, director of health policy analysis for the Washington, DC office of Consumers Union:
"Overall, this bill offers some consumers modest improvements that will help them keep their health insurance. At the same time, however, it puts consumers at risk by introducing dangerous MSAs and weakening measures that protect seniors from increased marketing of unneeded health insurance policies. And, unfortunately, the bill does little to make health insurance affordable to the average American family."
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