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Transcript of Web-assisted Teleconference

Individual Health Insurance: Are You Ready For Change?

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Cindy DiBiasi: But that is not just specific to the individual.

Steve Larsen: It is not, but it is an aggressive tactic that they are using in the individual market because, generally, carriers view younger people as being healthier. If they are healthier, then they are less likely to make claims and therefore not generate expense for the carrier. So the carriers that are out there operating in the market are all scrambling to get the low-cost people. So they want to be able to offer them the lowest rates to get them in the door.

Conversely, for the older folks, people who maybe have retired earlier, a lot of those people need to be in this market. They are getting older and they now need to buy insurance. They are more likely to enter the market whatever the cost. Those are the people that are paying some of the highest rates.

I think what it means is it is a very, very difficult market for consumers because there are huge rate variations. Many things are beyond your control. It is hard to comparison shop. Large companies have benefit managers who handle all this kind of stuff. Small carriers usually deal with a broker who goes through the processes of explaining what the provisions of the policy mean. What are the consequences of the co-pays and deductibles? Many policies have caps on drug coverage. You need to understand that if your policy only pays $1,000 annually for drugs, what is that going to get you?

If you are an individual, in many cases you are sorting through all this stuff by yourself.

Cindy DiBiasi: Is there a place to go to analyze this?

Steve Larsen: I think there is a patchwork of sources that people can go to. Sometimes it is the insurance department. Sometimes, people can go to individual agents to buy health insurance; but many people don't do that. They go to the company directly. I think this is one of the big challenges of the individual market. I think when we are looking at the individual market as a source to increase the number of insured in the country, we have to think about some of these characteristics of the individual market.

Cindy DiBiasi: What are you hearing from insurance commissioners from other States? How does Maryland stack up to what is going on out there?

Steve Larsen: Well, it is interesting because within the last six months or so, as we are all seeing larger rate increases in all markets, not just the individual market. There is more of an informal discussion going on about what role State regulators can play in dealing with the problems of the uninsured. Generally, and particularly with folks that are going to be shopping in the individual market, one of the things that we are talking about is having a conference this fall to talk about what some regulatory solutions to this are. Guaranteed issue and rate restrictions are some of the things, but there are always consequences to doing those things. People often describe the individual market as a fragile market. There are carriers who are in as long as they are making money and if oppressive—what they call oppressive—regulation is put in place sometimes they just say: "Fine. We are going to leave." So there is this delicate balance between not over-regulating the market and keeping carriers in, or not regulating it but being subject to these problems.

Cindy DiBiasi: Well, we have gotten a pretty good picture of the needs and behavior of the players in this market. From our discussion it sounds like regulating this market is a pretty challenging task. But policymakers do have tools to address this challenge. Deborah, let me ask you about HIPAA, the Federal Health Insurance Portability and Accountability Act. Is there anything in HIPAA that addresses any of these problems?

Deborah Chollet: HIPAA made a lot of changes in the small group market. HIPAA is legislation targeted primarily to the small group market and how people fare in the small group market. To the extent that HIPAA dipped into the individual market, it was primarily for people who were coming from the group market. It was, again, to stabilize and regularize coverage for people in groups. HIPAA did endorse something that was in place in the individual market at the time (in 1996 when HIPA was enacted): guaranteed renewal. Most States had already told insurers that once you accept a risk, once they accept someone into a health insurance plan, when the renewal time comes up, they have to renew the policy. We may or may not tell you how to rate at a renewal, but you have to renew a policy; you can't drop them at that point. This issue is coming up again, by the way, in terms of re-underwriting at renewal. We may talk about that.

But HIPAA said guaranteed renewal in the individual market and guaranteed issue if you are coming from the group market. You have had a long period of coverage in the group market. You haven't dropped coverage at any point during that period. If you have COBRA continuation benefits in the group you have to play that out. But once you have used up all of your resources, all of your ways of getting group coverage, then there has to be some provision in the individual market to make sure that someone will offer you a policy.

What HIPAA did not do is two very important things, and I think a lot of our conversation today is around HIPAA neglecting to do these things. One is it didn't say anything about how that coverage would be priced. Even if I am leaving the group market, I have lost coverage in the group market for reasons I do not control, HIPAA did not constrain insurers in any way for how they price you coming in. Karen has done a lot of work on how people coming in saying, "I am HIPAA eligible. You have to offer me coverage," and how they get priced. That is not a very pretty picture.

The other thing that HIPAA did not do is make the world safe for people who live in the individual market. If I am in the individual market, I can easily get trapped in a policy. I may have gotten into this policy, but I decided the rates have gone up so I want to shop around. I want to look for other coverage. I don't have guaranteed issue. I have no guarantees that I can find another insurer who will accept me. If I have a guarantee, it comes from the State. It doesn't come from any Federal guarantees.

Cindy DiBiasi: So the States are really left dealing with this, by and large. What have they done?

Deborah Chollet: Good question. It is all over the board. Health insurance in this country in the individual market is essentially a function of where you live. It will be very different in some States versus another, and it is kind of sad to my mind that when someone calls you with an intractable problem the only advice you can offer them is to move. But sometimes in fact that is the case.

There are a number of States that have put into place guaranteed issue provisions, things we have talked about. Those guaranteed issue provisions can take any number of forms. Sometimes you have to be a qualified resident to have guaranteed issue. That means, essentially, you have to look a lot like a HIPAA person, someone who would be guaranteed coverage under HIPAA.

Sometimes it is only a few products that are available to you. Sometimes there are only a few insurers who are required to offer it to you. It can be an insurer of last resort. Some States are now requiring that HMO's guarantee issue coverage all or part of the year. So it depends. If you are going to go into the individual market, it is a very good idea to learn what the provisions are in your State because there is going to be no particular norm that you can rely on.

States have also looked at this issue of affordability. The most common response to problems of affordability is to band rates. That is, to tell insurers that there is a limit to how much you can rate-up relative to a standard rate. Rate bands can be four to one, six to one. That is, compared to the best rate for my rate class, I can be charged as much as 400 percent more than the best rate. So if I am in, for example, a rate class of older people, or I am in a rate class related to my health habits—I am a smoker—I can be charged, there is a health rate band of four to one, as much as 400 percent of that high rate for an older person.

There are rate bands on health. There are rate bands on age. Those are the most common. Only a few States have what we call "pure community rating" which is when everyone of the same age gets charged the same thing regardless of age and health status. The premium will vary by where I live in the State. It will vary by the number of people covered by the health insurance plan. It will vary by the design of the health insurance plan but given those parameters, I get charged the same thing. So it is very much an averaging, forcing this pooling kind of idea in rate bands.

Most States have limits on exclusions for pre-existing conditions. That is, I can be issued a policy and told that I have to wait some period of time before the condition that I was admitted with is covered, but that time period can't last longer than six months or a year.

Now to put in place, for example, a twelve-month limit on the ability of insurers to exclude coverage for pre-existing conditions in effect raises the premium to the individual enormously relative to the value of the policy to them. The reason they are buying insurance is excluded. So I am paying a premium for 12 months, but what I predict that I will need the insurance for isn't covered.

The pre-existing condition exclusions usually address the look-back period that Karen mentioned. They can look back on all your life for conditions. Or if you have survived cancer for seven years, are you requiring insurers to ignore that diagnosis seven years ago? They can also look at the period over which you wait.

Some States prohibit what is called an "exclusion rider." Again, as Karen mentioned, you cannot "rider-out" someone's circulatory system. Most States allow exclusion riders in the individual market and some 30 States have high-risk pools. I have a slide here that will give you an idea of how these kinds of provisions stack up in terms of how common they are among the States. Clearly the winner here is a limit on pre-existing conditions, both the look-back period and the waiting period as the most common provisions. In one case, those limits can run five years. Typically they are six months or 12 months, but in one State they are five years.

The next most popular thing for States to do is to put in place a high-risk pool. The high-risk pool typically accepts an individual that is denied coverage in the individual market once or twice. A large number of States list a set of qualifying conditions. If you have this diagnosis, you don't have to go through the process of being rejected by an insurer. Most States that have high-risk pools will allow you to apply to the high-risk pool if you are charged a premium that is higher than the high-risk pool premium. But that is not true in every State.

Cindy DiBiasi: Earlier Karen illustrated the problem of finding an individual policy that was inclusive enough. How have States addressed the design of these policies?

Deborah Chollet: Some States have put in place a standard benefit. That standard benefit can be the only product sold in the market. That is rare. Or there is a requirement that carriers offer the standard benefit. The standard benefit is as close to reasonable group coverage as the State feels they can get given the conditions in the market. It is very hard to legislate a standard benefit because of the discussion that goes into it: what is adequate coverage? What doesn't get covered is very contentious. It limits the opportunity for changing that benefit. You have to re-do that discussion when you want to alter the benefit over time.

The good news with the standard benefit, however, is that it makes health insurance plans comparable. You actually can shop, which is something that is very difficult in this market. I think Steve mentioned it; you don't have a professional buyer in this market. You have everybody trying to decide themselves what an adequate benefit is and what the best value for what you are getting is. That is virtually impossible to discern in the individual market.

Cindy DiBiasi: Thanks Deborah. Let's get some additional input from our other speakers. Karen, how do all of these pieces fit together? How do States combine these policy levers?

Karen Pollitz: Well, the combination is important because, again, from the consumer's perspective health insurance has to meet three tests. It has to be accessible; it has to be something that you can't be turned down for; it has to be something you can afford and the coverage has to be adequate. Again, a subjective evaluation for sure, but if I buy a cheap policy that covers a toothbrush, what is the point? It is important to combine these levers. I think the Feds, in passing HIPAA, deserve some credit. It was the first effort in the individual market, so they only addressed access and not these other two. States have tried to take a more comprehensive approach. Again, there are almost as many approaches as there are States. Just to group them into rough categories, I want to focus on a few main ones that I have labeled as high-risk pool only, portability, or comprehensive approach. Then I will talk about some others in addition.

The high-risk pool only approach, that is one in which States pretty much leave the individual market undisturbed. They let medical underwriting continue as it has been described. Instead they set up sort of a safety net or a pool that will accept people, as Deborah just described, who are uninsurable or who can only get extremely substandard offers. By definition, when you create a pool just for such sub-standard risks, it is going to lose money. So the State is going to have to subsidize the cost of that pool and those losses. That can get expensive, and tax increases being as popular as they are, most States try to look for other ways to minimize or limit those high-risk pool losses. Some of those ways can result in the coverage becoming less adequate or less accessible or less affordable to the people that it was intended to help in the first place. So we have a dilemma here in the high-risk pool-only approach.

Some States have tried to minimize pool losses, by charging higher than standard premiums. I think the cheapest high-risk pool premium is set at 125 percent of the standard rate that is typically charged in the individual market. In most States it is more like 150 percent or 200 percent. So again, in some States, if you are someone who is coming in with a health problem and you are 58 or 62, you could be looking at $800, $900, $1,000 a month for high-risk pool coverage.

A number of States have also limited the benefits that are covered and often those benefit limits mirror those same kinds of ones you see in individual policies. Many State high-risk pools don't cover maternity care for example. Several cap coverage for prescription drugs. Many of them offer high deductibles, some as high as $10,000 deductible, but a $1,000 or $2,500 deductible is very typical for people signed up in high-risk pool coverage.

Finally, there are States that cap enrollment. The legislature passes whatever money is available to fund the pool losses for that year. Once they have run up those losses, they just stop enrolling people. So, again, the high-risk pool from end to start can sort of counter-mand the access cure. Having said that, this is by far the most popular approach; I count 22 States that have high-risk pool only. There are additional States that have high-risk pools that they combine with other approaches and I will get to that next.

Another approach that is interesting is portability. States preceded HIPAA. There are 11 States that acknowledge that people tend to pass through the individual markets when they are between jobs or when they are waiting to qualify for other coverage so have created rules that say that: "well, as long as you have been continuously covered, as long as you are not just waiting until you check into the hospital to buy coverage, we are basically going to give you a pass on medical underwriting" and you have to be offered coverage without any medical underwriting. Carriers simply have to take you.

Unlike HIPAA which simply says carriers have to take you when you are first leaving group coverage, these 11 portability States have added the additional protections. They have set some limits on what you can be charged for the coverage that has to be guaranteed issued to you. In some States that is the community-rated policy and in others you can be charged more, but only within limits because you are in less than perfect health. These States tend to prohibit exclusion riders, they give you credit for prior coverage, and they also tend to set some kind of a standard on what this portability-available product has to cover. So again we have got 11 States that have taken this approach. There isn't, I think, a lot of research on the impact or the effectiveness of this, but these portability States all had their systems up and running in advance of HIPA, so this is an approach that has been around now for a while.

Then there is the comprehensive approach. There are five States that simply say that medical underwriting is prohibited, end of story. For the Moms in the audience you will appreciate the analogy, "What part of 'no' don't you understand?" Carriers are simply not allowed to segregate risks, so they can not select against risk in any shape or fashion. All policies have to be guaranteed issue. All policies have to be community rated; you can never be charged more because you are sick or you have been sick in the past. There can't be exclusion riders. In these States there are standardized benefits. As Steve described, every policy looks the same and in some policies the standard benefit is sold exclusively. There is an option for non-standard policies to be sold alongside of them. That also helps in spreading the risk, so you don't have the sick people electing the policy that has prescription drug coverage and the not-sick people electing the policy that doesn't, or the pregnant ladies electing the policy that covers maternity and the young single men selecting the policies that don't. It tends to keep the risk more evenly spread. This is a controversial approach. There are, again, only five States that do it and certainly trade offs are involved. When you have comprehensive risk spreading like this, a lot of the variation that we saw when we sent our hypothetical applicants out goes away. So the $400 great, cheap policy that was available to Alice in one State? You are not going to find that in these comprehensive reform States, but neither will you find the policy that costs $30,000 a year and excludes your circulatory system. So it really just sort of moves everything to the average. If you benefited from being a below average risk in an underwritten State, this is not going to look good to you. But if you were older or above-average health risks then it is going to feel like a deal to you.

This is not an exclusive list. There are other market strategies that States have tried to follow to make sure that there is some accessible coverage for everybody. There are still a handful of States that have a carrier of last resort, often BlueCross BlueShield, which is required to accept everybody, but no other carrier in the market is. There are a handful of States with open enrollment periods—Maryland being one, just for a brief amount of time longer. So there are these other approaches as well.

Cindy DiBiasi: All of these strategies are meant to address some of the challenges inherent to the individual market. What about working around some of those challenges by bringing individual purchasers into a group? Have any States employed this kind of strategy?

Karen Pollitz: Yes, they absolutely have. There are a number of ways that States have gone about doing this. Again, individual coverage is something you buy when you don't have access to group coverage so there are a number of ways to sort of make that group coverage option re-available to people and States have followed this. There are about a dozen States that allow self-employed individuals, also called "groups of one," to buy group coverage. So they get to be like any other small employer and buy in the group market all policies are guaranteed issue. You can never be turned down in the group market. So that is one approach that allows one segment, at least, of this market to come out and go into the more protected small-group health insurance market.

There are also States that have sort of expanded on the protections that COBRA offers. COBRA is the Federal law that allows you to continue in your group health plan once you would otherwise lose eligibility for that group because: you lost your job, or you retired, or you got widowed, or divorced from your spouse who had the group coverage. COBRA applies to groups of 20 and larger. For any group policy in about 38 States, there is COBRA-like continuation available in the smaller end of the group market, for the 2-19 group. This is another way people exiting small group coverage can at least forestall entering the individual market, and maybe keep their group coverage while they are waiting to get into that next job that offers group benefits.

Then there is one State, New Mexico, which I am always very fond of, which allows some individuals—some qualified individuals—to buy individual coverage through the State-sponsored small employer purchasing policy. So, it is another trend on the "group of one."

Actually, just to refer back to when I was talking about the portability States (the States that allow free access into non-group coverage for people leaving group coverage), in several of those States they use a group conversion model. Essentially, these people who are buying non-group policies are buying it from group carriers. They are not buying it really in the individual market. They are buying a group policy from a group insurer, so the cost for their care is kind of being spread back into the group market, and doesn't have to be spread into this smaller, more fragile individual market.

Cindy DiBiasi: Thank you, Karen. Steve, I understand Maryland is preparing for some changes in their approach. What is the status quo in Maryland and what changes are on the horizon?

Steve Larsen: Our legislature just enacted a significant rewrite of the way that we deal with high-risk individuals. Maryland is unique. We have a hospital rate setting system so we have a commission that sets hospital rates. It was through that rate setting system that we funded access for high-risk people. We are now moving to a more traditional high-risk pool that has been described. There will be an assessment on the hospitals in the State which will generate about $50 million in revenues, essentially to serve as a pool to subsidize the high-risk individuals. Our plan would set up a governing board of various State officials. The governing board would establish a minimum benefit package for the high-risk product. There are some rate restrictions in the law. You don't want the rate so low that you have people who aren't high-risk people deciding that the rates are better in the high-risk pool. Carriers don't want that because they don't want the good risk going and subsidizing those bad high-risks. So we have basically a 100 percent swing in the rate. Ultimately, the rates for these high-risk individuals couldn't be more than 200 percent of what is called the standard rate. Then we would hire a third party administrator to administer this plan. Maryland also already has this, as Karen referred to it, this "group of one" rule where if you are self-employed but you are not a group—it is just you—you can purchase through our small group process, which is guaranteed issue and has rate restrictions on it. So that is what we are doing.

Cindy DiBiasi: Now, as I mentioned before, you are the Health Committee chair for the National Association of Insurance Commissioners (NAIC). What has NAIC done to help States develop their regulatory strategies?

Steve Larsen: Well, you know it has been a while since, I think, we have been, as an organization, active participants in looking for solutions to this problem. Prior to HIPAA passing, we had developed a couple of models on the individual health insurance market. We had a model law on portability and a model law on availability that had provisions for guaranteed issue. In fact I think many of the States that Karen referenced that were out ahead of HIPAA did so as a result of the models that the NAIC has done.

Then we have a high-risk model, which is kind of a generic blueprint States can use as a resource as they develop the high-risk pool. The high-risk pools do vary tremendously from State to State because the funding mechanism varies: assessments on insurers, assessments on hospitals, and there is a State the just funds it out of the general fund. So the role of the NAIC, historically, has been to provide a forum to discuss possible solutions, "model laws" that States can either adopt or modify. As I mentioned before, I think we are kind of getting to the point where we need to revisit what it is that State regulation can do and if there is a next generation of "stuff" that the NAIC can look at to facilitate an improvement in the system. I think it is important to remember that there are two problems that you are trying to solve. There are the high-risk people who need coverage. Then there is just the general affordability problem that is common to all health insurance but is particularly a problem, not just for high-risk people in the individual market. It is an expensive market for many people even if you are not sick. Just to give an example, you can compare (the Kansas commissioner did this): take the same policy at the same benefit level; in the small group it was about half as much as it was for someone buying basically the same policy in the individual market. So there is a high-risk problem: people that are sick. Then there is just a general question: how do we deal with the affordability problem that is particularly acute in the individual market?

Cindy DiBiasi: From your perspective do you see States favoring one strategy more than another?

Steve Larsen: Well, I think most States have some type of solution for the high-risk individuals. I think that the more difficult problem, that is growing (and, I think, what is giving rise to the discussion), is that we need to do something about is the general affordability problem for everybody, not just the high-risk people.

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