Extending Affordable Health Insurance to the Uninsurable
Conrad F. Meier
Approximately 2.5 million people in the U.S. --- about 1 percent of the
population --- suffer from pre-existing medical conditions making it likely
their future medical expenses will be extremely high. While private insurers
are ill-equipped to serve this population, 28 state governments play a positive
role by chartering non-profit health insurance plans, or HIPs. In order
to keep premiums affordable, HIPs are often authorized to impose a small
assessment on the premiums earned by private insurers. Capping HIP premiums
at no more than 125 to 135 percent of standard individual insurance premiums
appears to be a "best practice" for keeping HIPs affordable. HIPs
accomplish the social goal of assuring access to quality medical care for
those who need it, without the disruptions and negative side effects
caused by regulation of the insurance industry.
Ordinary Insurance Markets May
Not Work For People
With Pre-Existing Medical Conditions
More than 187 million Americans rely on private health insurance for their health care needs. Over the years, state and federal governments have enacted a number of measures to help people obtain and keep health insurance, but some people --- about 1 percent of the total population --- lose coverage when they have serious medical problems, and cannot or do not take advantage of available safety nets.
In many states, the answer is state-chartered Health Insurance Plans.
HIPs are a targeted response to a specific problem; HIPs increase access
to health insurance by allowing insurers to place people with pre-existing
medical conditions into pools and subsidizing their premiums with tax subsidies
or small assessments on premium revenue. Currently, 28 states offer access
to insurance through HIPs.
HIPs Provide Affordable Health
Without Regulation or Bureaucracy
Many states are attempting to ensure access to medical care for the medically
uninsurable simply by forcing companies that sell individual health insurance
to write policies for them. By doing so, those states are creating serious
problems for the vast majority of their residents who do not suffer from
medically uninsurable conditions. Recent studies show that such regulations
increase premiums, increase the number of uninsureds in a state, and do
serious damage to the insurance marketplace.
The Council for Affordable Health Insurance (CAHI) uses the image of an inverted pyramid to illustrate the problem (Figure 1). "The people in the individual market comprise a very small area at the bottom of this inverted pyramid. To force that small group of people to fund the burden of all of the uninsurable people coming from the rest of the pyramid [large groups, small groups, self-funded programs, government programs, etc.] simply cannot work because it requires a price that is far too high for this market to bear."
When financed by small assessments on the premiums paid to private group
insurers, HIPs spread the cost of covering uninsurables across a much larger
base of insureds. The result: accomplishing the social goal of assuring
access to quality medical care for those who need it, without the disruptions
and negative side effects caused by heavy-handed regulation of the insurance
States With Successful HIPs Follow
These Best Practices
Best Practice #1: Cap premiums at 125 percent. All HIPs cap the premium rates that can be charged to HIP participants. The caps generally range between 125 percent and 150 percent of average individual insurance premiums, though some are higher. Keeping the premium cap to 125 percent above standard increases a HIP's reach into the uninsurable population. Setting caps between 125 percent and 135 percent emerges as a second best choice.
Best Practice #2: Finance the program by assessing a small surcharge on insurance premium revenues. Of the 28 states with HIPs, only three use general tax revenues to offset fund losses. The others rely primarily on assessments against the premiums charged by private insurers. State HIP directors report that it is more risky to rely on state appropriations rather than adequate premiums and assessments, since appropriations must be lobbied for each year. In states where general revenue funds are used, the number of people who can be admitted to the plan is politically determined, and thus likely to be influenced by factors having nothing to do with either need or the efficiency of the private insurance market.
Best Practice #3: Offer a choice of service providers. To
hold down premium costs, some states have begun to offer eligible residents
their choice of insurance options, ranging from traditional fee-for-service
plans to cost-conscious HMO managed care plans with varying deductible levels.
Access to affordable health insurance can be enhanced by amending HIPs to
offer Medical Savings Accounts and the high-deductible, low premium catastrophic
insurance coverage MSAs provide. HIPs should clearly state that MSAs may
be used in conjunction with health insurance plan coverage.
Health Insurance Plans Can Help
States Comply With HIPAA
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) required that all states implement policies that guarantee access by small businesses and "eligible individuals" to health insurance of some kind. HIPAA further requires that "eligible individuals" be guaranteed access to some type of coverage regardless of pre-existing medical conditions.
To be considered an "eligible individual," an applicant must have had 18 months of prior coverage under a group plan, have elected and exhausted continued benefits coverage under COBRA (typically 18 months), and not be eligible for any other group health coverage.
HIPAA grants states flexibility in addressing the requirements for "eligible individuals." Most states made one of two choices. About half require insurers serving the individual health insurance market to guarantee-issue at least one plan. The other half opted to expand or create qualified HIPs (following the National Association of Insurance Commissioner's Model Health Plan for Uninsurable Individuals Act) to meet the needs of those persons.
The differences in enrollment are astonishing. Carriers report ensuring
coverage to "eligible individuals" in states requiring the guarantee-issue
model (first option above) in very small numbers. By contrast, the Illinois
HIP enrolled nearly 1,000 HIPAA "eligible persons" in the first
year alone. Early results suggest that HIPs are a much more effective way
to reach out and insure uninsurable "eligible individuals" than
is heavy-handed regulation of private insurance markets.
Conclusion: More States Should
Private insurance markets appear to do a good job providing affordable and high-quality insurance to most of the population of the United States. There is a small group of people, though, whose high-cost medical expenses are very predictable.
We can attempt to ensure access to medical care for the medically uninsurable simply by forcing private insurers to write policies for them. But a better way to provide access to care for people with special medical needs is through a state-chartered, nonprofit health insurance plan.
By 1998, the number of states with HIPs had grown to 28, providing coverage to over 100,000 people with special medical needs and extraordinarily high medical costs. HIP benefits are comparable and often superior to employer-provided plans offered in the private sector and, in most cases, demonstrably superior to Medicare and Medicaid coverage.
Some state legislators remain a step away from fully endorsing the integration
of a Health Insurance Plan into their states' private health insurance market.
The author hopes the research and commentary presented here helps fill the
knowledge gap that presently prevents some 22 states from doing the right
Mr. Meier is health policy advisor for the Chicago-based Heartland Institute and Assistant in Research, Center for Advance Social Research, University of Missouri. E-mail: firstname.lastname@example.org. This article is excerpted from the 20-page Heartland Institute Policy Study entitled, "Extending Affordable Health Insurance to the Uninsurable," published August 27, 1999. It is available from The Heartland at (312) 377-4000 or at http://www.heartland.org/studies/meier-ps.htm
Originally published in the Medical Sentinel 1999;4(6):216-217. Copyright ©1999 Association of American Physicians and Surgeons (AAPS).