Pre-emption of State Health Benefit Laws Is a Major Retreat; Insurance Rate Justification Shows Promise
Consumer Watchdog released a list today of the 10 key positive and negative consumer protection provisions of the U.S. Senate health reform bill, HR 3590, which passed an important procedural vote this weekend.
The group lauded the bill's dramatic expansion of coverage for those currently without health insurance and subsidies to help consumers afford care, but called for amendments as the bill is debated next week.
Consumer Watchdog said that two provisions allowing for pre-emption of state laws by less protective federal standards amounted to a major step backwards in coverage and affordability. Provisions requiring insurance companies to justify their rates and providing grants to states to develop "prior approval" systems are promising, but need further development to protect Americans from price gouging by health insurers.
"The 'bad' and the 'ugly' of the Senate bill threaten to undermine the 'good.' In particular, provisions of the Senate bill that would pre-empt more protective state standards will result in insurance policies that do not provide needed services and treatments when patients get sick and need health care the most," said Jerry Flanagan, Health Care Policy Director for Consumer Watchdog. "If the government is going to require all Americans to have health insurance, then the government has the duty to ensure coverage is affordable. Insurance rate justification and prior approval of rates are essential to achieve affordability. However, even some of the 'good' provisions of the bill need additional clarifications and fixes to ensure that consumers get the coverage they pay for when the health care reform bills become law."
The List of 10 of Consumer Protections: (details are below)
1. Rate review. Insurers must publicly justify "excessive" rate increases, and federal grants would encourage states to require full "prior approval" of such increases. (Needs strengthening of prior approval, definition of "excessive.")
2. Public Option. Bill retains an op-out public option and allows states to expand access to large employers.
3. Consumer rebates. Requires insurer rebates to consumers of administrative and overhead costs higher than 20% to 25%.
4. Minimum "loss ratio." Insurers in some cases must assure that 85% of premiums are spent on medical care. (Should be expanded to all policies.)
5. Rescission ban. Insurers may not rescind policies except for "intentional misrepresentation" of material facts as determined by the coverage contract. (Needs much tighter definition.)
6. Guaranteed issue. Health insurance must be available to all, renewable for all, and rate differences, such as for age, are limited.
7. Mandate. Proof of insurance coverage is required of all Americans, while insurers are still largely free to charge what they want. (To keep insurers in check the bill needs a broader public option and mandatory rate approval to curb prices.)
8. Poor minimum coverage. Allowable minimum health plan, the "bronze" level, would cover only 60% of overall patient costs, including copays and deductibles. (Should be at least 75%.)
9. No employer requirement. Employers face only very weak fees for failing to even offer coverage. (Need more realistic requirements in House bill.)
10. Race to the bottom on state protections. State benefit requirements would be preempted by "nationwide plans" and multistate "compacts," which would be ruled by laws of the weakest states; weaker federal requirements would become the norm. Coverage of AIDS/HIV testing, reconstructive surgery, home health care services, and child delivery and mastectomy minimum hospital stays and more would likely be lost. (States must retain freedom to require stronger coverage for all types of policies.)
Rate Increase Justification, State Grants for Prior Approval (page 37, section 2794). Insurance rate increase justification, and prior approval of those rates, are essential components of controlling the kind of double-digit health insurance rate increases that led U.S. Representative Crowley (D-NY), and U.S. Senators Durbin (D-IL) and Landrieu (D-LA), to spearhead a letter from 119 Members of Congress asking the health insurance industry to explain the unusually high increases predicted for 2010. Specifically, section 2794 of the Senate bill provides that:
(1) The Secretary of Health and Human Services, in conjunction with states, shall require health insurance companies to justify unreasonable premium increases prior to implementing them. Insurers are required to post the justifications on their websites.
(2) The Secretary of Health and Human Services will provide $250 million in grants to assist states "in reviewing and, if appropriate under State law, approving premium increases for health insurance coverage ..."
(3) Any state receiving a federal grant is required to make recommendations about whether particular health insurers should be excluded from participation in the Exchange "based on a pattern or practice of excessive or unjustified premium increases."
RECOMMENDATION: Consumer Watchdog, which pioneered the most successful insurance premium regulation law in the nation, Proposition 103, called on the Senate to adopt amendments reflecting key provisions of California's landmark insurance reform law, including:
- Mandatory justification of any rate increase (including premiums, deductibles, co-pays), not merely justifications of "unreasonable" premium increases.
- Increased amount of funding available for grants to assist states developing 'prior approval' systems. The U.S. House of Representatives bill provides $1 billion in such state grants.
- Mandatory prior approval, which means requiring insurers to seek permission from government regulators, in addition to justifying rate increases, before imposing the new rates. The language conditioning such prior approval on whether it is "appropriate under state law" should be deleted. In its place, states should be required to adopt Prop 103-styled prior approval in order to maximize saving and decrease insurance company waste and overhead. Since 1988, California's Proposition 103 has saved drivers $62 billion while fostering a competitive and profitable insurance market.
- An intervenor system that provides consumers a forum to challenge unnecessary or excessive rate increases. Since 2003, Consumer Watchdog has saved the state's consumers $1.7 billion by challenging unnecessary premium increases using the public intervention process.
Read about California's landmark law to rein in gouging by property and casualty insurers at:>
Public Option (page 182, section 1323). The public insurance option is now called the "Community Health Insurance Option." Under the Senate bill:
(1) States may opt out entirely, but also may opt back in later.
(2) The plans under this option, though offered through the state exchanges to individuals and small businesses, are federally administered by the Secretary of HHS.
(3) The public option benefit is limited to the "essential health benefits" described in the law, though states may offer additional benefits. In such cases, the state must fund said benefits.
(4) All enrollees in the public plan are treated as a nationwide single pool (not state by state).
(5) Plans are subject to state "consumer protection and solvency laws, with a federal minimum standard.
(6) States accepting the option shall form a "State Advisory Council" including patients and providers to provide recommendations to HHS on policies, public awareness and payment structures.
RECOMMENDATION: The Senate bill should make clear that any individual or employer can choose to buy coverage under the Community Health Option.
Consumer Rebates if Insurer Overhead Exceeds 20-25% (Page 30, section 2718). Insurers will be required to provide annual rebates to consumers if the insurer's overhead costs (administration and profit) exceed 20% for coverage sold to employers and 25% for coverage sold to individuals. States may require lower overhead percentages. Rebates would equal the amount by which an insurer exceeds the overhead limit.
RECOMMENDATION: see 85% Administrative Cost Cap.
85% Administrative Cost Cap (Page 204, section 1331). Some analyses of the bill say that it requires private health insurance plans to spend at least 85% of premium revenue on medical costs. However, the placement of this language in the bill appears to apply the 85% requirement only to state "alternative programs" for low-income individuals.
RECOMMENDATION: The 85% so-called "medical loss ratio" should be applied to all insurers and all coverage. The required consumer rebates should be triggered if the insurer exceeds a 15% cap on administrative costs and profits, instead of the current limit in the bill of 20-25%.
Prohibition on Rescission. (page 16, section 2712). Under the U.S. Senate bill, health insurers are barred from retroactively canceling coverage after a patient gets sick, a practice known as "rescission," unless the patient committed fraud or made an intentional misrepresentation of a material fact as "prohibited by the terms of the plan or coverage."
RECOMMENDATION: The bill must clarify the grounds on which a rescission of coverage is justified, not leave it up to insurers to define in the fine print of their coverage contracts. For example, if an applicant's health condition is not a factor in determining whether an individual or group is eligible for coverage under the bill's Guaranteed Issue provisions, then failure to disclose such information cannot be grounds for rescission of the policy.