One of the most important pieces of the new health reform legislation is the expansion of private insurance. Congress tries to accomplish this by doing three things:
(1) Creating health insurance exchanges that will serve as a centralized place for regulating, standardizing, and purchasing insurance.
(2) Creating shared responsibility by individuals, employers, and the government. Employers with more than 50 employees that do not provide insurance will have to pay a fee that will be used to fund the insurance provided through exchanges. Individuals will be required to purchase insurance if it satisfies certain requirements, but will pay a tax penalty if they choose not to buy it. And to help people buy insurance, the government will provide tax credits to small employers and subsidies to individuals who make between 100%-400% of the federal poverty level (for 2009, the poverty level is $18,310 for a family of three).
(3) Creating new consumer protections and regulation of insurance to ensure that plans are affordable, provide a minimum level of benefits that are meaningful, and to prohibit plans from refusing to cover people who may seem high risk (guaranteed issue and nondiscrimination protections).
I recommend visiting the Kaiser Family Foundation website for a nice overview of the health reform legislation.
While most of the recent media and legal attention has been focused on the first two parts of this reform, the real key to success is the affordability component. In fact, people will only be required to purchase insurance if it is deemed "affordable" based on the requirements set out in the law.
This is how it works. U.S. citizens and legal residents will be required to purchase "qualifying" health coverage. But "qualifying" coverage means that individuals only have to buy insurance that meets requirements for minimum coverage and affordability. The law exempts those for whom the lowest cost plan option exceeds 8% of an individual’s income, and those with incomes below the tax filing threshold. Even for individuals that do not meet these exact requirements, exemptions will be granted for financial hardship.
Many people are concerned that this reform is a "give-away" to the insurance companies. And I do not dispute that there are legitmate concerns about our reliance on private insurance companies to deliver and arrange health care in this way. However, I think that recent trends in insurance rates evidence a different potential problem with the legislation - that not nearly as many people will become insured as we hope because insurance won't be affordable.
Insurance companies across the nation have been raising rates significantly, forcing many people to give up coverage. In fact, the most recent rate hike by Anthem Blue Cross in Calfornia (39% increase) is credited with reviving health reform legislation after it sparked outrage from insureds, consumer advocates, and lawmakers. Criticism of the rate hikes has been fueled by reports that while insureds' rates have skyrocketed, compensation for CEO's have been rising dramatically. Just a few weeks ago, the LA Times published a story about how WellPoint, Inc. (a subsidiary of the Anthem Blue Cross) increased its CEO's compensation to $13.1 million from $8.7 million, and increased three other executives' compensation by as much as 75%.
Despite all the attention, the rate hikes have not gone away; they've simply been delayed until May 1st. The fact is that this kind of regulatory and political attention to insurance rates is exceedingly rare. Despite the fact that state insurance commissioners have authority to review and even reject proposed rate increases by insurance companies, typically states have not used this power. Private insurance companies have had almost absolute discretion to increase rates despite the lack of evidence that rate hikes were justified by increases in health care costs.
There is a recent and noteworthy exception. In Massachusetts, which already has its own version of a universal mandate and health care exchange, the state Division of Insurance used its authority to reject the majority of proposed rate hikes by insurance plans as excessive and unreasonable. The Bureau of National Affairs reports that this is the first time the Massachusetts agency has used this power.
The new federal reform law creates certain limits on insurance companies' discretion to set rates - an important one is the medical-loss ratio. This requires health plans in the individual and small group market to spend at least 80% of its premiums (85% for plans in the large group market) on costs related to medical care, including clinical services and quality improvement measures. Plans must also submit reports showing how much of its premiums it is spending on these kinds of servcies -presumably for regulators to review and ensure that the plans are meeting these requirements. The law doesn't establish rates or even create a cap on rates, but it should increase transparency, protect consumers against unjustified rate hikes, and empower regulators to ensure that a significant percentage of premium dollars are spent on consumers medical needs.
But people question whether these protections will work. Similar medical-loss ratio requirements at the state level haven't prevented dramatic rate hikes, and people question whether these requirements are being adequately enforced by regulators. Affordability is critical to the success of health care reform, and affordability will depend, in large part, on government enforcement of these protections.
