With Greater Use Comes More Scrutiny

It's a "Tale of Two Cities" story for individual health insurance plans: the best of times and the worst of times.

Individual health insurance plans are on the rise as more employers end health benefits and Americans turn to individual policies as a way to avoid being uninsured. According to American's Health Insurance Plans, approximately 18 million Americans are covered by individual health insurance compared to the more than 230 million who are enrolled in group plans through their employers or government programs. The rising use of individual plans is causing some states to review their laws governing health insurers and the plans' actual policies.

Take California, for instance. A woman won a $9 million judgment against Health Net for canceling her coverage while she underwent chemotherapy. With that making news from coast to coast, the Golden State's Department of Managed Health Care took notice. After a review of the situation and negotiating with two insurers, the state announced that Kaiser Permanente and Health Net would reinstate nearly 1,200 individual policies that were cancelled since 2004. California is seeking similar deals with Anthem Blue Cross, Blue Shield, and PacifiCare.

The news from California is making others take note.

Healthcare advocacy group Families USA recently released a 50-state survey of the individual insurance market called Failing Grades: State Consumer Protections in the Individual Health Insurance Market. In response to the survey findings that showed "many abuses" and "few state-level consumer protections," Ron Pollack, executive director of Families USA, called the individual market "the wild, wild west" of healthcare.

Some of the findings did not put laws that govern individual insurance in the best light:

• Only five states prohibit insurance companies from "cherry-picking" the healthiest consumers and excluding "everyone else from coverage"
• In 21 states and the District of Columbia, insurers can exclude coverage for pre-existing conditions, such as cancer and heart ailments, for more than one year
• In 44 states and the District of Columbia, insurers can revoke an individual's health insurance without advance review by the state
• In 45 states and the District of Columbia, insurers do not have to spend at least 75% of their revenues on healthcare
• In 20 states and the District of Columbia, insurers can set and raise premiums without oversigh

It's easy for health plans to dismiss the Families USA survey as the latest criticism of the individual market. Rather than simply ignoring the report, health plans should review individual policies to make sure they are providing the best consumer protections. One only needs to look at California and the more than a dozen health insurance-related bills in the legislature to see that if there is enough bad publicity the states will rise up and make decisions that could harm health plans.

AHIP released a report in December 2007 called Guaranteeing Access to Coverage for All Americans in which it offered a new strategy that included limiting the use of pre-existing condition exclusions, restricting rescission actions, and establishing a third-party review process for pre-existing conditions and rescission decisions.

As more businesses end health coverage because of costs, the individual health insurance market will continue to rise. With that greater interest will come more opportunities for government intervention.

The question is: Are health plans going to get ahead of this issue and review their rescission and coverage policies, or wait until the state comes knocking on their doors?