Federal Legislation: Implications for Federal Legislation: Implications for State ReformsState Reforms

August 2006August 2006State Coverage InitiativesState Coverage Initiatives

Mila Kofman, J.D.,Mila Kofman, J.D., Associate Professor Associate Professor Health Policy Institute, Georgetown UniversityHealth Policy Institute, Georgetown University

202-784-4580 direct; 202-687-0880 main202-784-4580 direct; 202-687-0880 mainmk262@georgetown.edumk262@georgetown.edu

www.healthinsuranceinfo.netwww.healthinsuranceinfo.net

S. 1955 Health Insurance Marketplace S. 1955 Health Insurance Marketplace Modernization and Affordability Act (Sen. Enzi) – Modernization and Affordability Act (Sen. Enzi) – manager’s amendment May 2006manager’s amendment May 2006

H.R. 2355 Health Care Choice Act (Rep. H.R. 2355 Health Care Choice Act (Rep. Shadegg) Shadegg)

S.1955: amends ERISA &S.1955: amends ERISA &

the Public Health Service Act (PHSA)the Public Health Service Act (PHSA)

Title I (ERISA):Title I (ERISA): small business health plans (a.k.a. AHPs) small business health plans (a.k.a. AHPs)

Title II (PHSA):Title II (PHSA): health insurance premiums for small businesses health insurance premiums for small businesses mandate-free individual and group health insurancemandate-free individual and group health insurance

Title III (PHSA):Title III (PHSA): regulation of insurance companies regulation of insurance companies

A fundamental change in how health insuranceA fundamental change in how health insurance policies and policies and companies are regulated in the United Statescompanies are regulated in the United States

Title I: AHPsTitle I: AHPsFraud: self-reporting and deeming (90 days deemed certified):Fraud: self-reporting and deeming (90 days deemed certified):

Crooks don’t report to the feds that they are lying, cheating, and Crooks don’t report to the feds that they are lying, cheating, and stealingstealing

– DOL (1/300 years audits), 2001-2003 144 scams (3 DOL, 41 DOL (1/300 years audits), 2001-2003 144 scams (3 DOL, 41 states), $252 million claims (200,000 policyholders); #1 way states), $252 million claims (200,000 policyholders); #1 way to sell is through associations; MEWA registration problems; to sell is through associations; MEWA registration problems; a problem since 1974a problem since 1974

Cherry picking (product design, marketing, and rates): Cherry picking (product design, marketing, and rates):

– Each business underwrittenEach business underwritten

– Dumping bad riskDumping bad riskAdverse impact on regulated marketAdverse impact on regulated market

Title II rating for small group marketTitle II rating for small group market SBHPs separate rating class (rates not tied to small group rates)SBHPs separate rating class (rates not tied to small group rates)

– Association: rate variations among employers at Association: rate variations among employers at leastleast 5:1 5:1 Small group:Small group:

– Adopting states: at least 5:1 (states may allow broader Adopting states: at least 5:1 (states may allow broader variations)variations)

» 3:1 for age, health, or both …insurer’s choice3:1 for age, health, or both …insurer’s choice

» other rating factors: industry, group size, geography, other rating factors: industry, group size, geography, participation rate, class of business, wellness programsparticipation rate, class of business, wellness programs

» RenewalRenewal: same (may increase 500%+ if claims are high): same (may increase 500%+ if claims are high)

– Non adopting states: unclear (“plan” can’t vary by more than Non adopting states: unclear (“plan” can’t vary by more than 500%, “plan” undefined…each insurer chooses between new 500%, “plan” undefined…each insurer chooses between new federal standard (not required to follow federal standard) or federal standard (not required to follow federal standard) or existing state lawexisting state law

» RenewalRenewal: trend + 15% for claims: trend + 15% for claims

Two products: Two products:

1.1. Mandate free productMandate free product– exempt from state benefit mandatesexempt from state benefit mandates– Broad: benefit requirements, provider requirements, Broad: benefit requirements, provider requirements,

special population protectionsspecial population protections

2.2. Product available to state employees in CA, FL, TX, Product available to state employees in CA, FL, TX, NY, and IL (insurer’s choice)NY, and IL (insurer’s choice) HDHPs HDHPs No requirement on cost-sharing/affordabilityNo requirement on cost-sharing/affordability

Title II: individual, small group, large group health Title II: individual, small group, large group health insurance (including SBHPs/AHPs)insurance (including SBHPs/AHPs)

Title III: restrictions on oversight and other Title III: restrictions on oversight and other provisionsprovisions

Restrictions on state oversight authority over insurance companies Restrictions on state oversight authority over insurance companies (rate/form filings and market conduct)(rate/form filings and market conduct)

Unprecedented deregulation of industry: NO oversight of new Unprecedented deregulation of industry: NO oversight of new federal standards:federal standards:– No federal authorityNo federal authority– Adopting states: federal courts exclusive right to interpret Adopting states: federal courts exclusive right to interpret

(insurers challenge states in federal court)(insurers challenge states in federal court)– Non-adopting states: insurers sue states in federal court Non-adopting states: insurers sue states in federal court

(expedited review federal court of appeals)(expedited review federal court of appeals)» This could bankrupt statesThis could bankrupt states» Unusual: congress allow regulated industry to sue state regulator in Unusual: congress allow regulated industry to sue state regulator in

federal court on expedited reviewfederal court on expedited review

– No private right to sue in federal court to enforce standards No private right to sue in federal court to enforce standards

S. 1955: S. 1955: A fundamental shift in the way health A fundamental shift in the way health insurance is regulated in the United Statesinsurance is regulated in the United States

Preempts existing state-based regulation that Preempts existing state-based regulation that protects consumers of insurance (loss of rights in protects consumers of insurance (loss of rights in every state)…creates a federal “ceiling”every state)…creates a federal “ceiling”

Restricts state oversight authority of insurance Restricts state oversight authority of insurance companiescompanies

Creates an unregulated insurance industry: relies Creates an unregulated insurance industry: relies on self-regulationon self-regulation

Opens the door to fraud and abuseOpens the door to fraud and abuse

To-date:To-date:– Letters from insurance departmentsLetters from insurance departments– Attorneys Generals (41 signed) Attorneys Generals (41 signed) – GovernorsGovernors– State Legislators: NCOILState Legislators: NCOIL

Groups: consumer groups (e.g., Consumers Union, Groups: consumer groups (e.g., Consumers Union, AARP, Families USA, National Partnership for AARP, Families USA, National Partnership for Women and Families, etc), patient groups (American Women and Families, etc), patient groups (American Cancer Society, American Diabetes Association), labor Cancer Society, American Diabetes Association), labor unions (AFL/CIO), doctors (AMA, APS, APA), nurses unions (AFL/CIO), doctors (AMA, APS, APA), nurses and other health care providers, small businesses and other health care providers, small businesses (Small Business Majority), some insurance companies, (Small Business Majority), some insurance companies, etc. etc.

H.R. 2355H.R. 2355

Licensed in one state (“primary” state) and do Licensed in one state (“primary” state) and do business in all states exempt from state laws (don’t business in all states exempt from state laws (don’t have to do business in primary state)have to do business in primary state)

Primary state: RBC + optional external reviewPrimary state: RBC + optional external review Restrictions:Restrictions:

– SolvencySolvency– Unfair claims settlementUnfair claims settlement– Fraud and abuseFraud and abuse– Market conduct Market conduct – Forms and ratesForms and rates

Individual Health Insurance ProductsIndividual Health Insurance Products

Primary state’s laws apply:Primary state’s laws apply:– Access (if any) Access (if any) – MandatesMandates– Rating (if any)Rating (if any)– Other: external review, marketing standards Other: external review, marketing standards

and practices, network adequacy, disclosure, and practices, network adequacy, disclosure, etc.etc.

secondary state’s laws and authority: limited and secondary state’s laws and authority: limited and restrictedrestricted

State jurisdictional and financial issuesState jurisdictional and financial issues

– Must expand authority of DOI to enforce laws Must expand authority of DOI to enforce laws extraterritorially extraterritorially

– Resources: funding for DOI to enforce nationally Resources: funding for DOI to enforce nationally (even if no in-state consumers are affected)(even if no in-state consumers are affected)

CBO: CBO:

– Estimates 1 million people will lose job coverage as Estimates 1 million people will lose job coverage as healthy people drop it (and employers drop coverage) healthy people drop it (and employers drop coverage)

– Medicaid spending would increase by $1 billion (2007-Medicaid spending would increase by $1 billion (2007-2015) in part as a result of lost job coverage among 2015) in part as a result of lost job coverage among low-wage workerslow-wage workers

Public policy…Public policy…

Private health insurance: finance medical care and Private health insurance: finance medical care and financial securityfinancial security

goals: make health insurance more accessible and goals: make health insurance more accessible and more secure, and ensure adequacymore secure, and ensure adequacy

S. 1955 and H.R. 2355: S. 1955 and H.R. 2355: – not accomplish goalsnot accomplish goals– destabilize already fragile insurance markets (risk destabilize already fragile insurance markets (risk

segmentation; cost-shifting)segmentation; cost-shifting)– hurt vulnerable populationshurt vulnerable populations– undermine new state reforms (that rely on private undermine new state reforms (that rely on private

insurers taking on risk)insurers taking on risk)