05/2003 Scandlen at Large: Consumer Choice Matters

Published May 1, 2003

The National Governors Association (NGA) and the National Association of Insurance Commissioners (NAIC) are in the forefront of opposition to Association Health Plan (AHP) legislation now before Congress. Yet these two organizations are largely responsible for the chaos in the small group market today.

Both groups jumped on the idea of “small group reform” in the late 1980s and early 1990s, despite warnings at the time that such regulations would strangle the market, drive out competitors, and raise costs dramatically. All of these predictions have come to pass.

The mass of regulations–including mandated benefits, rating restrictions, prompt payment laws, any willing provider laws, market conduct regulations, premium taxes, and many more too numerous to count–have made it impossible for the insurance industry to deliver low-cost coverage to their small business clients.

Employers and their employees are suffering the effects and have turned to Congress for relief. They are asking Congress to allow the creation of AHPs to gain some of the same protection against excessive state regulations that larger, self-insured employers enjoy.

If the NGA and NAIC are opposed to this initiative, they hold the solution in their hands. All they need do is roll back the regulations that created this mess. About half of the governors and insurance commissioners are brand new this year. They don’t need to defend the idiotic ideas of their predecessors. If they want to continue having the states control the insurance market, they have an obligation to move decisively to eliminate the causes of the problems. Some state legislatures are working on exactly that, as reported below.

Rollback: No Willing Provider in Washington

Peter Neurath reports in the Puget Sound Business Journal that an effort is underway in Washington state to repeal “the law (that requires) insurers to cover the services of every category of provider including chiropractors, naturopaths, acupuncturists, and massage therapists.”

The story cites Regence Blue Shield as saying these providers cost the company $44.5 million in 2002 alone, up from $20 million in 1999, $30 million in 2000, and $35 million in 2001.

The local chiropractic association is opposed, saying, “If a provider can legally do a service, within the scope of their practice, then people should have a right to select that provider.” Of course that’s true, but people should also have the right to select an insurance plan that covers only what they want to have covered.

Rollback: Opting out in Georgia

Small businesses in Georgia are also pushing for relief, according to Debbie Gilbert in the Gainesville Times. Senate Bill 50 would allow employers to buy a package without including Georgia’s 12 mandates. Insurers would still have to offer a plan that included these mandates, but employers could opt out of them.

State Sen. Renee Unterman (R) is identified as a registered nurse who worked to get some of the mandates passed. She says, “It’s a double-edged sword. Those mandates are important. But in these hard economic times, we need to do something to make insurance more accessible and affordable.”

Rollback: Mandate Free in Florida

Florida’s insurance commissioner Tom Gallagher didn’t wait for legislative action. On February 27, he issued a directive requiring all carriers in the market to offer an insurance plan that is free of the 52 state mandates. Small employers will be allowed to “pick and choose” from a menu of options. An article by Chris Kauffmann in the Fort Pierce Tribune estimates the new approach could save as much as 40 percent of premium costs. Business leaders in the area are described as “surprised and pleased” by the development.

The directive also requires MSA-compatible deductibles, wider cost-sharing options, some prescription drug and transplant coverage, and coverage of “urgent care centers” as an alternative to emergency rooms. The department spokeswoman said the program could save between 20 percent and 40 percent of premium and encourage more carriers to re-enter the Florida market.

Employers Near Breaking Point in Wichita

In Wichita, insurance broker Gary Hardman says he “has never seen rates so high and climbing so fast,” according to the Wichita Business Journal. He says when he first started writing coverage in 1977, a family plan went for $35 a month, while today it is between $750 and $800 a month. Hardman adds, “Employers are near the breaking point on premiums.” None of his clients has dropped coverage yet, but he expects “significant fallout” if premium hikes continue to average 25 percent.

Switch from Community Rating Painful in Pennsylvania

In Pennsylvania, small employers may not be dropping coverage, but they are considering the cost of coverage in making hiring decisions, according to an article in the Patriot News. An applicant with a spouse and children is looking a lot less attractive than a single person due to the added coverage costs, according to Tom Fleischer of PIP Printing in Harrisburg. He says a family policy for one of his employees went from $467/month in 2002 to $613/month this year. The coverage includes a $500 per-person deductible and a 20 percent copayment on the next $1,000 per person.

The CEO of Capital Blue Cross says, “I don’t see any let-up. I don’t see anything that is going to change this.” Part of the increase in Pennsylvania is due to a switch by the Blues from community rating to demographic rating, which the article says is “more fair because they allow groups with fewer medical expenses to pay less.” The article points out that critics disagree, arguing community rating “keeps health insurance affordable for all, especially for older people who need more medical care and have less ability to pay.”

One business owner, 58-year-old Alan Geoffrey, says the premium for his family went from $587 a month in 2002 to $987 a month this year. On the other hand, Eric Buck, a spokesman for the Pennsylvania Builders Association, says 60 percent of his members benefited from the change. He adds, “The issue of affordability is really beginning to reach a fever pitch,” and 700 of his 6,300 members stopped offering coverage this year.

No Painless Remedies

And in the Atlanta Business Chronicle, writer Julie Bryant sees “No painless remedies for the uninsured problem.” She cites the recent Robert Wood Johnson Foundation report and says, “One in three Georgians were without coverage in the past two years.” She says, “Small employers have cried out for tax credits to help ease the cost of health coverage for individuals, while others have touted medical savings accounts as a solid solution.”

But Bill Custer of Georgia State University claims such ideas do nothing “to address the overall problem of rising health care costs.” The article says Len Nichols of the Center for Studying Health System Change would prefer Congress “tackle the problems of waste and inconsistent quality of care in the health care system.”

Greg Scandlen is director of the Galen Institute’s Center for Consumer Driven Health Care and assistant editor of Health Care News. Please send all comments/questions directly to Scandlen at [email protected].