For those who see private health insurance as a major problem in the healthcare system, reform is a chance to get insurers in line. But insurers and their supporters say added industry regulations will simply increase healthcare costs.
The health insurance industry has already come forward to say that it will accept certain regulations if the federal government requires all Americans to have health insurance. America’s Health Insurance Plans said health plans will accept everyone regardless of preexisting conditions and not charge women more for individual insurance if an individual mandate is part of healthcare reform.
Health insurers will allow these two changes without a fight because an individual mandate would flood the system with an influx of millions of newly insured, including young people with low health costs.
“Guaranteed issue can only work if everyone—the young and healthy, as well as higher-risk individuals—purchases coverage. This would help keep premiums affordable,” says Justine Handelman, executive director of legislative and regulatory policy at the Blue Cross and Blue Shield Association (BCBSA).
As long as everyone is required to have health insurance coverage, Handelman says, the BCBSA supports new rating rules, including phasing out the practice of varying premiums based on health status. The change must be phased in gradually state by state “to avoid major disruptions and large premium increases for current enrollees,” she adds. “It would still be critical for insurers to adjust premiums based on age [and] wellness factors, such as nonsmoking and geography.”
But there are other regulations being discussed in Congress that health insurers are not ready to accept, such as benefit design requirements that include removing lifetime benefit limits and limiting premiums based on differences in age, community, and family size; guaranteed issue without the individual mandate; and coverage mandates. Private insurers say these kinds of requirements would increase premiums and have the biggest effect on the less regulated states.
Rather than finding ways to regulate insurers, Joseph Antos, Wilson H. Taylor Scholar in Health Care and Retirement Policy at American Enterprise Institute for Public Policy Research, says lawmakers should look to reduce healthcare costs. Focusing on insurance regulation does not improve “a very inefficient healthcare system” or address the “fundamental cost drivers,” says Antos.
“The question is how onerous do we want those regulations to be, and do we want regulations that will substantially increase costs of insurance?” says Antos. “If you tell insurers that they have to take on all comers regardless of their cancer diagnosis they just got and now they want to buy insurance, that means the average premiums will have to go up to account for the fact that they are taking on people they were not taking on before. That means average cost of insurance goes up. That means young, healthy people will buy insurance less, and it will have less value to them.”
Robert E. Moffit, PhD, director of the Center for Health Policy Studies at The Heritage Foundation, says lawmakers should not place limits on health insurers’ underwriting policies, especially if new regulations supersede state law. Local conditions should drive health policy and regulations—not the federal government, Moffit says.
Regulations to the health insurance market, such as mandates and benefit design requirements, limit innovation, Moffit says. “The danger I see is the federal government creating a straitjacket that will prevent any kind of serious creativity and insurance market reform at the state level, and we can basically say good-bye to innovation,” he says.
The Council for Affordable Health Insurance, an insurance carrier research and advocacy association, reported in its Health Insurance Mandates in the States 2009 that there are 2,133 mandated healthcare benefits and providers throughout the country. Those mandates are increasing health plan costs—in some states by about 50%—according to the study.
In response, some states now let insurers offer mandate-lite plans, which allow lower-cost options to under-covered groups, such as recent college graduates. Fewer mandates allow young adults to purchase basic health insurance without being required to pay for mandated coverage that won’t likely affect them, such as chronic disease and coverage for grandchildren.
Antos says adding regulations will price people out of health insurance, especially young people, and require the federal government to offer subsidies or make exceptions for people who can’t afford it. “If you put enough regulation on it, then you better start making exceptions because you will have a fairly large population that can’t live by your rules,” he says.
Health insurers are not against all new regulations. They stand behind the individual mandate, which would require most or all Americans to have health insurance.
Requiring coverage would serve as a shot of adrenaline to the health insurance industry, which is struggling with dropping enrollment in the employer-based insurance market because of layoffs and businesses dropping coverage.
President Barack Obama opposed the individual mandate during his presidential campaign, and it appeared as though the idea was dead, but the president and many congressional leaders are now open to the idea. Bruce McPherson, president and CEO at Alliance for Advancing Nonprofit Health Care, says the employer mandate is now a lightning rod for controversy.
“I’m pretty surprised that there’s been such a consensus on that one already,” says McPherson about the individual mandate. “I have to believe that labor and some other groups will be pushing back pretty hard, but it doesn’t seem like they have a lot of allies on that.”
Public insurance and insurance exchanges
If a public insurance option and/or insurance exchanges are part of healthcare reform, insurers will likely face additional new regulations. The federal government could impose minimum federal requirements for insurers to operate within an exchange.
The public insurance option would have a much larger effect on private insurers. McPherson says insurers in his group are most concerned about the public plan because they believe a public plan will lead to an unlevel playing field and the federal government will ultimately create Medicare and Medicaid for all in a few years.
“It is a scary proposition,” says McPherson.