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Advocacy Inc. Center for Public Policy Priorities Children's Defense Fund
Consumers Union Healthcare Matters!
Mental Health Association in Texas Patients' Assistance League Texas HEART
The above consumer organizations appreciate the opportunity to provide input to the Blue Ribbon Task Force on the Uninsured. While each of our organizations has special areas of expertise, we are coordinating our testimony and recommendations today to facilitate your work.
We come to this discussion about health insurance regulation and its impact on the uninsured understanding that about two thirds of the uninsured don't have the money to pay premiums and regulatory reform alone is unlikely to significantly decrease the numbers of uninsured. Two ways to address this problem would be to (1) provide targeted subsidies to make health insurance more affordable to people with low and moderate family incomes, and (2) strengthen our current health care safety net by eliminating barriers to Medicaid eligibility, especially for families leaving TANF to go to work and the estimated 600,000 children eligible for the program but not enrolled. These issues will be discussed in more detailed testimony from our organizations at future Task Force hearings.
With that said, if we could leave you with one message on the subject of helping the uninsured through health insurance regulation it would be: The answer to health insurance problems is in broad pooling of risks - keeping the sick and the healthy in one broad risk pool. Every problem for consumers in the health insurance can be traced back or connected to segmenting of the health insurance pool. Health insurance is different than any product or service purchased by a consumer because we are all subject to health problems and we will all age. Access to health insurance should not be determined by a person's health status or the amount of time they probably have left on this earth. A fair health insurance system must spread the costs of health care among the healthy and sick, young and old.
Today, insurers cherry pick the healthy, low-risk people, carve up the community, and put the sickest people together, making insurance unaffordable to them. Health care is a public good--more so perhaps than highways or libraries, infrastructures we have already elected to fund as a community.
Several fundamental questions must be answered as you consider proposals for reform:
· Should health care be allocated based on survival of the fittest, or should everyone have access to it?
· Should everyone have access to the same or similar coverage or do we want their health status to determine the kind of insurance they can buy?
Your answer to these questions will set your course in reforming the health insurance market to address the uninsured problem. We encourage you to set a goal to cover everyone. For example, we have chosen to create a system that will offer insurance coverage to all Texas kids, but it is a public and private patchwork of coverage through employers, individual policies, Texas Healthy Kids Corporation, the Children's Health Insurance Program, and Medicaid. For sure, short of a public universal health insurance plan, your solutions for adults who are uninsured will have to include a similar patchwork of options.
Broad Pooling of Risks
We support broad pooling and the formation of large groups who do not come together based on health status. Large groups yield more predictable costs and can get the best prices. This is often a controversial issue pitting those who favor individual freedom and responsibility (supporting high deductibles, medical savings accounts, increased privatization, and at the extreme, self insurance) against those who favor joining forces as a community to meet everyone's needs (supporting cross-subsidization of the sick by the healthy, community rating, and comprehensive benefits packages).
The Texas Health Insurance Risk Pool (THIRP), the state's high risk pool, is an example of NOT pooling risks. In this program all of the participants have been previously rejected for coverage by private insurers. The Texas Insurance Purchasing Alliance (TIPA), a pool for small employers, provided us with an example of what happens when we fail to pool risks. It essentially became a high-risk pool for small employers and folded. Medical Savings Accounts (MSA) are an example of a product that further fragments the market, separating the sick from the healthy through underwriting practices and policy design. If these types of policies proliferate, they could make comprehensive coverage unavailable because the sick will seek it more and cause rates to escalate. The Children's Health Insurance Program (CHIP), for children in families with incomes up to double the poverty level ($33,400 for a family of four) is an example of broad pooling of risk. This program allows no exclusions or differing costs based on health status.
Typically, as a consumer, you have more protections in group insurance market than in the individual market. The individual market in Texas is often unaffordable for older people or those with pre-existing conditions and premiums tend to rise steeply over the years. It is not unusual for premiums to double and triple. Allowing individuals to join a large group, for example, the Texas Employee Retirement System (ERS) could help to make insurance more affordable to individuals and would protect them from ever increasing premiums and limited coverage. We encourage the Task Force to consider all possibilities of allowing such pooling.
Genetic testing may soon make all of us susceptible to risk-based rating and underwriting, no matter how healthy we look and feel. The Task Force's recommendations should keep an eye on the future and consider this very real threat to affordable insurance coverage.
As you consider proposals to help the uninsured, keep several questions in mind:
· Does the proposal move us in the right direction by creating large, broad, and diverse insurance pools that spread the risk among the healthy and sick?
· Does the proposal move us in the wrong direction by segmenting the sick from the healthy by pushing more consumers into an unprotected individual market?
The oxymoron of Health Insurance Competition
Policymakers must recognize that "health care" is not a product like toasters or cars. Rules of competition that work well in a market for toasters or cars do not work well in a market where bottom-line profitability depends on who is purchasing the product (in this case, an insurance policy). Because health risks vary substantially, insurance companies can build their profits substantially by excluding from coverage even a small number of applicants. A competitive environment where insurance companies compete by avoiding the sickest applicants, leads to denial of coverage or unaffordable premiums for people with pre-existing conditions and risk pools that divide the healthy from the sick. To set fair rules in the health insurance market, you must prohibit unhealthy competition and encourage healthy competition.
Unhealthy competition is fueled when insurance companies are allowed to deny coverage to high-risk people and charge premiums without restriction. Tools that help promote healthy competition include standardization of benefits to facilitate informed choices, greater freedom of choice of health plan by consumers, and risk adjustment that requires companies that sell only to the healthy to pay for the bills for the sick as well.
Reforming the individual market
Since Texas tends to have many small employers, and an increasing number of self-employed and "contract" workers, the temptation to create more individual type policies is great. The current system ensures that the individuals who need health insurance the most - those with pre-existing health conditions - are the least likely to find an insurer to sell them an individual health insurance policy. We must either completely reform the individual market or find ways for individuals to join larger pools. Below are options the Task Force should consider to reform the individual market. These reforms must all be taken together or they will have a negative effect.
Community rating. Insurance rate reforms have been adopted by a number of states to address the problem of small groups and individuals facing escalating premiums or cancellations of coverage due to a costly illness or health condition. Insurers typically use different factors to "underwrite" a policy so that their risks are minimized. One counter to such practices that eliminate many people with present or past health conditions is community rating. "Community rating" can take various forms, such as requiring premiums to be the same regardless of health conditions or eliminating health status as a factor in adjusting premiums but allowing other factors such as age, gender, or geographic location. We support this type of rate reform for the individual market; it has already been instituted in a modified form for the Texas small group market. Community rating is a key element to making individual coverage affordable to consumers who are unable to get coverage through an employer.
Guaranteed issue. Currently, people can be excluded from buying individual policies because of their health status. Frequently, they are asked to pay full price for a product that will never cover the health condition for which they need coverage. Their only option is to go to the high-risk pool, paying high premiums with the continued threat of premium increases because the only people in the pool are high users. The state could require insurance companies to offer plans to people seeking coverage. This recommendation will not help consumers unless community rating is also implemented.
Give individuals access to larger pools, such as the state Employee Retirement (ERS) System. Allowing individuals to buy into the ERS insurance pool would provide them with a variety of choices at an affordable price. Since some individuals would still buy policies elsewhere, this should only be done in tandem with the above mentioned reforms. Otherwise, the sickest individuals will end up in the ERS pool because they are being screened out from individual policies either by cost or exclusions. (Similar to what happened with TIPA and small group market.)
Standardize health insurance policies. With most products, the consumer can shop around, compare products, and often, unbiased resources are available regarding the products' quality, benefits, and disadvantages. Without an informed consumer population, an essential element of true competition is missing. This key element does not exist in the health insurance market, and therefore, "competition" as we traditionally think of it, does not enter into the cost of health insurance.
We support creation of multiple standardized policies that will enable consumers to make informed choices by placing the policies side by side and comparing them. In today's market this type of exercise is impossible because so many policies exist - many with no real differences but which create much confusion for consumers.
Disclosure to potential buyers. Consumers considering purchasing HMO coverage have the right to request a copy of the actual policy they are buying with all limitations and restrictions explained. This same right does not exist for people purchasing coverage through a Preferred Provider Plan (PPO) or any other individual insurance plan. Most people don't even realize that the summary they receive is just that, a summary. If they read the fine print they would know that there is more information available. If they call for that information, the agent does not have to provide it and often refuses to do so. We recommend that companies be required to let prospective buyers look at the actual policy before they have to lay their money on the table or go through the underwriting process.
Small employer health insurance issues
Texas small employer reforms have been unsuccessful at significantly increasing the numbers of small group employees with insurance coverage. Although we created a statewide pool, the Texas Insurance Purchasing Alliance (TIPA), we also allowed other pools to be created and allowed insurers to sell policies directly to the small employers without going through the TIPA. Agents were able to "cherry pick" the young and healthy, directing them to insurers outside the TIPA, while referring the older and sicker groups to the TIPA. In the end, TIPA became a higher-risk pool and folded because insurers withdrew due to a diminishing number of participants. Employers dropped out because TIPA's choices of plans diminished and their costs became unaffordable. We have the following recommendations for reforming the small group insurance laws:
· Tighten the rate band to limit premium fluctuation and to keep premiums affordable.
· Create a strong statewide small employer cooperative--a true statewide pool--by requiring insurers to sell to small groups only through a reinvigorated TIPA. Employees would have a wide choice from among a full menu of plans, and insurers would pool together all the people who sign up through the TIPA thus stabilizing rates and spreading risk. A cooperative also ensures that small employers have a strong intermediary (like a large employer's human resources staff) to make sure they are getting a fair deal. In the small group market, employers with little knowledge of insurance and little time are on their own and must figure out this complex industry without much objective, reliable or knowledgable help.
· Eliminate the ability to sell separate, "list billed" individual policies to small groups.
Texas Health Insurance Risk Pool (THIRP)
While a high risk insurance pool takes us in the wrong direction by pooling a lot of sick people together, this is currently the only choice for consumers with pre-existing conditions. We have several recommendations to improve the state's high-risk insurance pool:
· Limit the allowable rate increases on these policies - currently escalating at a rate of 20% per year.
· Require that insurers who refuse to cover people with health conditions support the cost of their care through their high risk pool assessment. Currently the statute effectively mandates that premium increases should "provide fully" for the expected cost of claims, thus requiring a small pool of people with existing health conditions to essentially pay their own medical costs through escalating premiums. At the same time, the assessment on insurers was created to cover anticipated higher losses and to keep premiums affordable. The assessment is an indirect form of risk pooling that spreads cost back to the broader population of all covered people.
· Specifically allow for and fund subsidies for low-income people to help pay for coverage under THIRP.
· Do more to encourage families of THIRP eligible people to join the pool so it will have more of a mix of healthy and sick participants.
Medicaid and the Children's Health Insurance Program (CHIP)
Although both of these programs include coverage by state licensed and state regulated health plans, the programs are exempt by law from regulation by the Texas Department of Insurance. We assume this exemption for Medicaid was put in law years ago to address issues relating to the National Heritage Insurance Company, a modified insurance arrangement under contract with the state to assume a substantial portion of the risk and pay claims for the Medicaid program. However, since much of Medicaid coverage, and now CHIP, is being delivered by managed care plans, consumers in these programs should have the same protections as those covered by managed care plans in the private market. These exemptions currently deprive low-income children and people with disabilities vital consumer protections such as independent review of denial of care, access to information about plan limitations and exclusions, and continuity of care when their doctor leaves the health plan.
The Task Force should eliminate these exemptions for the Medicaid and CHIP programs, giving low-income participants the same rights as others in the managed care marketplace.
Ombudsprogram on Health Insurance
In 1999, the Legislature passed HB 3021, which, among other things, created an ombudsprogram for HMO enrollees. This provision was added as an amendment and was based on HB 2418 by Representative Elliott Naishtat, which was drafted and supported by Texas consumer organizations. (See attached information) The HMO ombudsprogram was to be run out of the Texas Department of Insurance, but was not funded. We are currently working with TDI to see if there is a way to begin these services with private funding and some support from the agency.
However, there is a real need for Texas is to create an independent ombudsprogram to help all health insurance consumers as was envisioned by HB 2418. Health insurance presents one of the most complex and confusing purchases a consumer must make. Not only is the insurance purchase confusing, but the actual use of the "product" confounds even the most savvy consumer. Texas has many consumer protections in place but few know of their existence or how to use them. An independent ombudsprogram would give Texans a place to call to sort through the confusion and to inform them of the resources already available to help them and help them where no resources exist. An ombudsprogram by its fundamental nature must be independent and should not be attached to an agency with regulatory responsibilities, such as TDI. Ideally, this state program should either be operated by contract with a private, nonprofit entity or be attached to the Governor's office.
ERISA Issues
A huge segment of the market is excluded from state regulation because they are covered by a self-funded employer health plan. In 1996, 11 million Texans had private health insurance, 10 million of those through their employer. Of those covered, an estimated 54% fall under ERISA. Therefore, most Texans getting insurance through their employers will not be protected by or affected by anything you do. Unfortunately, there is little the Task Force can do, short of encouraging Congress to act.
For the consumer with insurance complaints, being covered by an ERISA plan can become a huge bureaucratic runaround. They must deal with the US Department of Labor, an agency that devotes few resources to regulation of ERISA plans. To further complicate the issue, some employers partially self-fund and others self-fund contracts with HMOs who in turn assume all of the risk. These two situations can send a consumer into limbo-land because it is unclear whether they are considered to be covered by ERISA or a state-regulated plan. The issue of who regulates these plans will no doubt be for the courts to decide. The pending appeal of the decision of the U.S. District Court for the Southern District of Texas (Corporate Health Insurance Inc. v. Texas Department of Insurance, S.D. Tex., H-97-2072, 9/18/98; 7 HLR 1483, 9/24/98) may clarify this issue. The judge in this case - more commonly known as the Aetna suit to prevent implementation of Texas' HMO liability and independent review law - declared that HMOs and managed care entities are not "insurance" and thus, employer based plans which offer these options via a fully-insured arrangement are no longer clearly subject to state regulation.
Managed Care
Managed care has done nothing to decrease the numbers of uninsured in Texas. Texas had the highest or second highest percentage of uninsured in the US before managed care took hold in the state and we still have the highest percentage. The "savings" achieved under managed care have simply gone into different pockets - what once went into health care provider pockets is now going into health plans' pockets. A significant number of HMOs have experience losses every quarter in recent years and premiums are increasing. Most consumers are either paying the same for less coverage or paying more for less coverage. Often this increase in out-of-pocket expenses comes from limitations on coverage or higher co-payments or deductibles for services and for prescription drugs.
Most issues of concern to consumers in the managed care arena are more about quality, cost, and access for those who have insurance than about the uninsured. If the committee is interested in what consumer organizations' recommend for further managed care reforms, we will supply this to you at a later date. The issues of concern include consumer protections for enrollees in IPAs, access to prescription drugs including formulary issues, and regulation of PPOs.
Health insurance benefits mandates
We are certain that you will hear in testimony that mandated benefits are integrally linked to the rising number of uninsured in Texas. This is often repeated as a "fact" but is not backed up by studies on the issue. As reported by TDI in their 1998 report to the Legislature on the impact of mandated benefits: "A number of studies conclude that factors other than mandated benefits are mainly responsible for increasing insurance rates. There does not appear to be any correlation between premium costs and uninsured rates, or between prevalence of mandated benefits and uninsured rates (i.e., states with a high number of mandated benefits do not have higher uninsured rates than states with a low number of mandates)."
Consumer organizations will be making recommendations to The Joint Committee on Health Insurance Mandates and will share those with the Task Force. In general consumer issues include:
· The definition of "mandates" should be limited to benefits covered and not every regulatory requirement on insurers;
· The real cost drivers are not the benefits that are typically criticized by the "no mandated benefits" crowd (except chemical dependency, the cost of which dropped by more than 75 percent from 1992-1996). Based on claims data collected by TDI, total claims paid by group insurance plans for all nine mandated benefits has decreased from 5.53% in 1992 to 3.25% in 1996.
· Require that all health insurance policy limitations, exclusions, and restrictions be based on sound actuarial principles or actual or reasonably anticipated loss experience and provide consumers a private right of action to enforce this requirement.
If you consider tax breaks for health insurance…
Our employer-based health insurance system if financed primarily by premiums which are not income-adjusted, and therefore are extremely regressive. Even when employers pay the full premium for their employees, in reality, employees pay the bill through reduced wages. Bigger tax incentives for employers who charge their employees graduated premiums based on the employee's income, with the lower income employees paying less of the premium than upper income employees would create a fairer system.
Pay close attention to which income group will benefit the most from tax-breaks or tax-incentive plans. For example, although federal tax breaks for employer-purchased or provided health insurance are an integral part of our national health policy, if we were creating a health care finance system from scratch today, it would probably be much different. Few people realize that this is one of the biggest federal health care programs funded by tax dollars and that, by design, if offers bigger benefits for higher tax brackets. During 1998, the country excluded $248 billion from income taxation because of employer-paid health insurance premiums. This exclusion cost the federal government $66 billion. An estimated 69 percent of federal health benefits tax expenditures benefit the 36 percent of the population with the highest incomes (over $50,000 per year).
We appreciate the opportunity to provide testimony regarding insurance regulation in Texas. All of our organizations will be closely following the work of the Blue Ribbon Task Force throughout the year and will be available for further questions and discussions. In order to reach the appropriate contact person for each organization, please contact Lisa McGiffert, Consumers Union at 512-477-4431, ext. 115.
