Health Care Reform: The Individual-Small Group Seesaw

One of the most frequent questions I’m asked about health care reform is whether the Patient Protection and Affordable Care Act will result drive people from group plans to individual plans or vice versa. It’s an interesting question. We have enough information to make some guesses, but not enough to know. And there are reasonable scenarios that can be created for each conclusion.

An individual coverage scenario: No small business owner I’ve met got into business for the thrill of buying health insurance for the company.  Now health care reform makes it easy for them to get out of the insuring business: give every worker a small raise along with the URL for the state health insurance exchange. The employees benefit: they get to choose their own health plan and some may qualify for premium subsidies. Their coverage isn’t tied to their employment and they can keep their plan if they change jobs. They don’t even need to spend all of their raise on premiums nor are they locked into the exchange. Once the employer decides not to provide coverage they can obtain individual coverage where they please.

Employers benefit from no longer having to shop for health insurance for their workers (they’ll have to shop for their own families, but that’s a lot less stressful). No more complaints. No more  bookkeeping.

A small group coverage scenario: Small business owners aren’t required to purchase coverage today, but there are good reasons for their doing so — and those reasons aren’t changed by health care reform. Providing health insurance helps small businesses recruit and retain good employees. Employers’ contributions to health insurance premiums makes coverage more affordable for employees. Yes, the Patient Protection and Affordable Care Act provides subsidies to some workers, but only those earning less than 400 percent of the federal poverty level ($43,320 for an individual and $88,200 for a family of four in 2010).  So, depending on their salary, sending employees to the individual market will be perceived as a loss to some employees.

Even if employees receive a small raise to help them with buying their own coverage, employees may see the loss of work-based coverage. How long before that raise is considered just part of their salary? A month? A quarter? The connection between the raise and the coverage is tenuous and easily forgotten. Look at it from an employee’s point of view who …

  • Receives a raise and buys own coverage: my boss gave me a $200 raise. Coverage costs $250. Wow that’s a lot. Of course, after the raise it’s a net expense of $50, but still — $250 a month for insurance is a lot of money.
  • Has employer-provided coverage: My share of the health insurance premium is just $50. My neighbor pays $250. I’ve got a good deal.

Which way?

There’s a lot of other factors that will impact the movement of consumers between individual and small group plans. Employers may cover the cost of Bronze benefit plans and allow each employee to buy-up to a Silver or Gold offering. Companies could drop — or add — ancillary products like dental, life, long term care or disability coverage. The exchange could be easier to use than is anticipated today — or much harder.

Predicting whether health care reform will shift consumers from small group to individual or move them the other way is simply guesswork at this point. My advice to brokers who ask what they should do to prepare for this seesaw ride is to get engaged in both market segments. Brokers active in both the individual and small group markets will have plenty of customers regardless of which direction the teeter totters. I also suggest they become expert on assorted other benefit plans (voluntary benefits, group dental, life, long term care and disability). That way they’ll have additional opportunities to meet clients’ needs. Success under health care reform will go to the nimble and flexible.

What’s your guess? (Please vote only once)

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Health Care Reform: (No Doubt Inaccurate) Predictions

I’ve tried not to make too many predictions about the impact of health care reform. Not that readers – especially brokers – aren’t concerned about what the Patient Protection and Affordable Care Act will have on how and where people obtain health insurance coverage. I get questions all the time about whether employers will tend to drop coverage and send millions of consumers to the exchange or into the individual market? Or will Americans who currently purchase their own health insurance find new coverage opportunities in the group market? How big are the exchanges likely to get?

For brokers there’s an additional layer of concern: what’s likely to happen to commissions and will the migration of consumers from one market segment to another offset expected changes (i.e., reductions) to compensation?

The questions are appropriate – and numerous – but my hesitancy in offering answers is because no one really knows. Lots of people are willing to make lots of predictions. But the truth is reality has a way of throwing its weight around in unanticipated ways. We’re talking about a lot of regulations, court cases, and proposed amendments still to come. And since many of the provisions that will determine consumer choices don’t take effect until 2014, even educated guesses are more guess than educated.

But you’ve asked for tea leaves, so here’s some tea leaves. But be forewarned, predictions can cause more stress than insight. And if they’re wrong (as they’re likely to be) why worry about them? So the sane among you will stop reading now. For everyone else, just two requests: 1) don’t shoot the messenger; and 2) assume I’m wrong. With those ground rules, please feel free to read on.

Impact of Reform on Market Segment

Of all the folks making projections on how folks are likely to move between group and individual coverage and the exchanges, the Congressional Budget Office is probably one source with credible insight. Not just because their projections are what Congress relied upon in passing health care reform, but because they’ve spent considerable time and resources trying to model this out.

What’s well known is that the CBO estimated 32 million otherwise uninsured non-elderly Americans would obtain coverage under the original Senate health care reform bill and the clean-up legislation (HR 3590 and HR 4872, for those keeping score at home). What’s less well known is that the letter (on page 21) also estimated where non-elderly consumers would obtain their coverage (non-elderly is the focus because those age 65 are eligible for Medicare).

Unfortunately, the CBO didn’t break-out coverage between large and small employers, but their projections are interesting nonetheless.

In 2010, the CBO estimates 150 million non-elderly Americans have employer sponsored health insurance, 27 million have non-group coverage (which includes Medicare – the CBO estimates roughly half of this category are in the individual market, which tracks with the estimates I’ve seen that approximately 17 million Americans buy their own coverage), and 50 million are uninsured.

Without the health care reform bill, the CBO projected that by 2015 the group market would have grown to 162 million non-elderly Americans, the non-group market segment would grow to 29 million and the number of uninsured to 51 million.

With the reforms, however, the CBO is estimating that the number of Americans with group coverage in 2015 will be 163 million (an additional one million people), those with non-group coverage will number 26 million (three million less than without reform and one million less than today), 13 million Americans will obtain coverage through the Exchange and the number of uninsured will have fall to 26 million.

The important figure here is the loss of one million consumers buying non-group plans. Given that roughly one-half of these are in Medicare, that’s a loss of approximately 500,000 people in the individual market segment. If there are 17 million in today’s market, that’s a drop of about three percent.

Then there’s the eight million the CBO estimates will be in the exchanges. This population is around half of today’s individual market. To put this in context important to producers: if brokers are fairly compensated for helping even 10 percent of these enroll in the exchange they will have more than made up for shrinkage in the individual market projected by the CBO. If brokers are engaged in just 50 percent of these enrollments they will have increased their customer base over today’s number by over 20 percent

Commissions: The New Math

Commissions on individual coverage today vary considerably from state-to-state. As a result, changes to commissions resulting from health care reform are likely to be far more noticeable in high-commission states (think California) than lower commission states (for example, Texas). But the math remains the same. Here’s how I see the calculations working out. These assume that disease management, nursing call centers and the like are considered health related and not as administrative costs. It also assumes taxes and fees are taken out of the equation.

  1. Mature, large carriers are likely to need to spend approximately 7-to-8 percent of premium for administration their individual plans.
  2. Carriers need to achieve at least 4-to-5 percent of premium for profit (or for retained earnings for non-profits) from this market segment.
  3. Given that individual carriers must spend 80 percent of premium on claims and other activities that improve health care quality, that leaves roughly 8 percent for distribution costs.

Some other considerations: the days of tying broker compensation to medical inflation are likely coming to an end – and this is what happens when commissions are calculated as a percentage of the client’s current premium) are probably over. Instead, distribution compensation will likely be based on a per contract, per member or original premium basis.

If carriers use the same math I do, commissions in this range will be a modest change in some states. In others, this math leads to a far more dramatic result. Of course, the math, like most predictions you’ll hear today, is probably wrong.

Which Health Care Reform Provisions are Ready for 2010 Debut?

Most of the major provisions of the health care reform proposals circulating through the halls of Congress won’t take effect until 2013 or later (the major exception being some of the taxes created by the reforms). There’s a huge political problem with that: opponents of the reform will throw every rock, pebble and boulder they can find at the reform package. If voters have to wait three or four years to see any of the benefits of the reforms lawmakers are taking the better part of a year to resolve, they’re going to be sorely disappointed. In fact, a Kaiser Family Foundation poll indicates that nearly half of the respondents expect to see insurance company reforms take effect within a year.

So it’s not surprising Democrats are searching for ways to implement elements of their reform package as soon as possible – preferably before the November 2010 elections. As Carrier Budoff Brown puts it in a posting on Politico.com, “Democrats are pushing Senate leaders and the White House to speed up key benefits in the health reform bill to 2010, eager to give the party something to show taxpayers for their $900 billion investment in an election year.”

What matters, of course, is what parts of the bill are implemented sooner than later. Starting the taxes right away is critical for making the financial numbers work. Yet they are likely to increase medical costs (and, consequently, insurance premiums) in the near term. Some provisions, like requiring carriers to allow families to cover young adults until they reach age 26 offer little downside. The same with creating a fund to cover catastrophic claims of early retirees (those aged 55-through-64) who receive coverage their employer. Requiring health care companies (for example insurers and hospitals) to be more transparent in reporting their costs may embarrass some companies and force them to quickly set up reporting processes, but are won’t harm the system overall. These are some of the items the Politico.com post identifies as under consideration.

What would be damaging is requiring carriers to guarantee issue individual health insurance coverage (accept all applicants regardless of their health conditions) in 2010 while delaying the mandate on individuals to obtain coverage. As I’ve written about frequently, an imbalance between requiring carriers to sell and consumers to buy health insurance will price the cost of health insurance beyond the means of many Americans.

Moving the benefits of health care reform forward makes political sense without abusing common sense. If it’s done the right way. Whether lawmakers will have the patience to find that way, is still uncertain, but they appear to be making the effort.

Making it Simpler: Reinventing Individual Health Insurance

KISS, as a business imperative, is cited so often it’s passed beyond cliché to become background noise. Keep It Simple Stupid, however, is more of an illusive ideal than a comfortable accomplishment for most businesses. The individual health insurance industry is no exception – yet it needs to be.

 

Consumers buying medical coverage for themselves and their families lack the support network larger enterprises have. They (hopefully) are working with an independent insurance agent who understands their needs and knows the way through the maze of getting coverage, fixing billing problems or getting claims paid. But there’s no human resources department in the living room or colleagues to call upon for help in the kitchen. Worse, for those without an agent, there’s often no one to call for help than the carrier itself.

 

This isn’t necessarily a bad thing. Many people working in carriers’ membership service departments are quite good – once you get past the dreaded phone system. (I just dealt with a customer service rep at the health plan for my small business who solved the problem in one phone call – and was nice about it to boot).

 

The thing is, however, if you need to call for help, then something isn’t working right. Getting health insurance shouldn’t be complicated. Neither should understanding bills or explanations of benefits (EOBs). And doctors and hospitals shouldn’t have to devote so much resources and time into their interactions with health plans.

 

If Google can make searching the web clean and simple, if Apple can make a cell phone/music player/ PDA elegant and straightforward, if Visa and Mastercard can present payment histories in a relatively easy to understand manner, if Southwest can make booking a flight a breeze, then certainly health plans could simplify their processes.

 

A place to start would be with the products themselves. Each carrier describes their benefits in their own terms. Surely there’s a best practice for this kind of thing, but every carrier has its own unique and often idiosyncratic method. The result: agents (and their clients) devote hours to creating their own apples-to-apples comparisons.

 

There are the conspiracy theorists out there who believe this is done to make it more difficult for consumers to understand what they’re buying. I believe their wrong: why assume bad intent when indifference or incompetence explains the situation? When it comes to presenting benefits I think it’s more a case of an inward orientation with a dash of pride of authorship thrown in.

 

Or take provider directories. Many have moved online, but again, there’s a best practice out there that would make finding your doctor even easier. Or claim forms. Every doctor I see (and at my age it’s more than one, now) complains about the paper work. There have been efforts to move claim submittals online, but the problems with the process are more than technical. There’s also a need to simply make the process simpler. There’s a place for uniqueness. Commodity material is rarely that place.

 

Instead, the focus needs to be on something somewhat foreign to most health plans: design. Design has become a hot business concept. Magazines like Fast Company, Inc., Fortune fawn over the concept and those who excel at it. Products like iPods and half the house wares at Target are held up as icons of a new business paradigm.

 

Yet design shouldn’t be the sole purview of gadget manufacturers or fashion designers. Processes can be well designed, too; so can forms. But good design will only come to the work flows and materials of health plans if it’s a priority of their leadership. And that takes some courage. It’s not easy to make being easy a corporate priority, especially when your industry is under fire.

 

Yet those attacks can be seen as a motivator for simplification, too. For example, individual health plans are going to have change the way they underwrite applications. Their ability to discover fraudulent applications is going to be extremely limited once lawmakers get done reforming the rescission process. With no back-up, the importance of underwriting at the front-end becomes even more critical than it already is.

 

This is a great opportunity to make enrollment applications simpler. Again, there are those who claim the applications are complicated to enable carriers to play “gotcha” with their members who later incur claims. They have no facts to back this up, but that hardly matters, especially when these critics get a lot of attention just for making the claim. Which means carriers are going to have to deal with this charge for quite awhile – or until something changes.

 

(What’s more likely to blame for complex applications is the same dynamic that haunts anything created by committee. When lawyers, underwriters, actuaries, and business managers sit down to create a form – especially one that needs to meet regulatory standards – that form is going to be bloated, complicated and annoying. No ulterior motive is required.)

 

Instead of spending time repeatedly repudiating the charge, however, health plans would be better served to move beyond it. The fact is, applications are more cumbersome and complicated than they should be. Carriers should work with their Departments of Insurance and an outside design consultant to come up with standardized and, even more importantly, simplified underwriting forms. The forms should focus on making it as easy as possible for consumers to provide enough information for the carriers to make their underwriting decisions.

 

And that should be the explicit goal: easy sufficiency. This, in turn, means using simple language in a clear, concise manner. It means laying out the questions in a manner that flows and avoids asking for the same information repeatedly. It’s a lot easier to describe than do (I know, I tried once), but if made a priority, it’s doable.

 

When lawmakers, prosecutors and others are lobbing grenades your way it might be counter-intuitive to use the situation to focus on design. In reality, simplifying the touch points where consumers, agents and medical providers interact with the carrier is an extremely visible way of demonstrating a commitment to change. As important, it’s a vehicle for getting in front of the change that is inevitable.

Executing the Basics: Reinventing Individual Health Insurance

The best strategy in the game, the most inspiring vision in the industry means nothing without execution. And if an organization isn’t executing the basic components of the business, implementing something fancy — culture change, a new business model — isn’t going to get very far.

Executing the basics is the least exciting critical component of any successful business. By definition, a successful business has proven itself. It’s an ongoing concern. Leaders like to lead and that usually involves moving in new, more exciting directions. Over time, attention to the nuts and bolts can wane. The basics become a source for savings. The attention moves from serving the customer to an internal focus on efficiency. After all, resources need to be freed up to fund those new initiatives.

In the context of individual health insurance, the basics include processing applications, issuing bills, paying claims, contracting with doctors, appointing agents, and answering the phone. Most carriers do an adequate job on these items most of the time. All carriers do a lousy job on some of these at some time. Those osciallations in performance are normal and to be expected. What’s unacceptable is that “adequate” is, well, acceptable. Carriers will talk about delivering first class customer service, being partners with their providers and producers, but few, if any, consistently succeed.

The problem, I believe, is two-fold: an inability to measure the return on investment of better service; and an unwillingness for competitors to cooperate.

Providing services, whether it’s underwriting applications, answering questions from insureds and their physicians, or paying commissions, costs money. These dollars can be measured, tallied and monitored. Given the need to keep coverage affordable, the appropriate goal for carriers is to provide these services as efficiently (meaning at the lowest cost) as possible.

These services also have benefits in the form of customer satisfaction, increased efficiencies at the partner level (less time spent in doctors offices tracking down an answer freeing up more time to work with patients), and a negative public image. The problem is that dollars are a lot easier to track than satisfaction or efficiency in someone else’s office. So when carriers do a cost benefit analysis on a new IVR system (IVRs are those automated “press 1” or “say ‘billing'” phone routing systems) they can measure the savings in personnel costs, but they lack the tools to measure the increased frustration members feel when unable to make the artificial (un)intelligence get them to the right place.

Health plans aren’t the only industry with frustrating phone systems. Sprint, AT&T, Time Warner, DirecTV and Verizon are a few others with IVRs deserving of a shout-out — or shut down, depending on your point of view. But cable and phone utilities are not the standard to which carriers should hold themselves. Nor should the standard be Nordstrom or Starbucks. It should be what consumers define as good customer service, doctors define as good physician service, and producers define as good agent service.

Carriers need to examine their basic operations from the consumer point of view. They need to define customer expectations and then think about ways to deliver those services in a cost-effective way that meets those expectations.

This means shifting the focus from an internal point-of-view to one that looks at operations through the eyes of the consumer (or physician or agent). This isn’t hard: every officer in every health plan should be required to call their customer service departments on a monthly basis. They should get a monthly bill and call in with a question. They should receive an Explanation of Benefits (EOBs) and be asked how much and to whom they would cut a check if it was for real. They should call in to the pre-authorization phone line and follow-up on an application. In other words, they should walk in their customer shoes at least monthly. Then, on a quarterly basis, their staff meetings should focus on what they experienced.

There’s other techniques that work. For example, executives and managers should be required to plug in and listen to phone calls between their service reps and customers. Not occasionally, but in a regular, disciplined way.

Carriers also need to find ways to quantify something more than dollars. Perhaps bonuses should be impacted by customer satisfaction survey results or even public surveys. Or, perhaps they should ask someone. Fortunately for carriers, there’s too many economists in the world with too little to do. Certainly some of them have come up with mathematical formulas for measuring intangibles. Give them a call — they’re hungry for someone to talk to. Make your CFOs sit down with them and come up with a formula that works.

And then share the results. Which is the other part of the challenge. Most businesses tend to think that everything they do must be confidential and proprietary. The market is a jungle and every advantage needs to be exploited to survive. In this mindset, advantages are to be hoarded, not diluted by sharing.

The problem is that most customers don’t really care about a lot of these proprietary advantages. An example from a book I read, but now forget the title, describes the foolishness of the auto industry when lawmakers required them to incorporate catalytic converters into their cars. Each auto maker spent many millions of dollars to invent and implement their own design. Yet who has ever purchased a car because of its catalytic converter? The industry could have redirected most of those dollars to features that matter if they had come together and designed a standard converter they all could have used.

This concept of standardizing and sharing resources is much more acceptable in the software world where open source systems like Linux and MySQL are widely used. It’s foreign to most companies, including carriers. 

Yet the opportunity to standardize and share resources is huge in the industry. Applications for coverage, claim forms, EOBs, bills, commission statements aren’t competitive advantages — their Babel-like diversity is merely a source of frustration for users. Better yet, by standardizing them, entrepreneurs could develop tools to increase efficiency for the carriers and convenience for consumers.

Consider: most carriers currently accept online applications from large producers like eHealthinsurance. Yet, as large as eHealthinsurance’s production is, it represents a small percentage of carriers’ overall sales. Why create mechanisms that benefit just a few agencies? Instead, carriers should agree on standards for quoting and case submission systems that works for all health plans in all states. These standards should be freely distributed as open-source software. eHealthinsurance may compete in the market based on its quoting system, but carriers don’t. By creating a publishing low- or no-cost software carriers can more easily implement customer friendly services like automated underwriting, immediate issuance of membership cards and the like.

Standardization doesn’t mean customization isn’t allowed. There are several flavors of Linux commercially available. Similarly, entrepreneurs could take the open-source quoting/submittal software and package them, adding new interfaces and functionality. So long as carriers standardize around the basics, however, they should all save money, increase efficiency and improve customer satisfaction with the industry as a whole. They could then use the freed-up funds to better compete on what does matter to consumers: benefit design, cost of coverage, and the like.

Would this kind of cooperation be legal? It depends on how it’s approached. The standards negotiations can be outsourced to an independent third party. Or they can be convened under the auspices of regulators. In California, Insurance Commissioner Steve Poizner has done something similar and has expressed an interest in helping carriers appropriately address common challenges. So yes, it can be done legally.

Attending to the basics is not exciting, but it can be impactful. Perhaps more importantly, invigorating innovations will fail unless they’re built on a strong foundation. So if the individual health insurance industry is going to reinvent itself, the nuts-and-bolts of the business is where it has to begin.

 

Reinventing Individual Coverage: Defining the Approach

In my previous post I suggested the current political environment provides more than sufficient inspiration for individual health insurance industry to reinvent itself. One of the challenges to actually implementing change is figuring out how to approach the problem. It’s often too easy to get caught up in the details without remembering the goal.

And the goal here is to deliver value to consumers who purchase their own health insurance coverage. This may seem obvious, but in too many cases, industry insiders and reformers at the barricades alike get so caught up in rules and regulations, processes and work flows, structure and platforms that they lose site of this simple truth: at the end of the day we either provide value to consumers … or else.

And it’s a truth that is agnostic as to whether the “we” is a private enterprise or a government agency. We either deliver or we go away.

So instead of structuring the gratuitous advice I intend to offer over the next several posts on specific items (dealing with rescissions, simplifying the application, etc.) I’m going to focus on a few general themes. Specifics may crop up as examples or to help amplify the themes, but it’s the overarching themes that provide a framework for change.

As of now, I’m inclined toward four major themes:

  1. Executing the Basics
  2. Making it Simpler
  3. Sharing Technology
  4. Earning Trust

Executing the Basics is all about the nuts-and-bolts of being a health insurer. Processing applications, issuing bills, paying claims, contracting with doctors, appointing agents, and answering the phone.

Making it Simpler recognizes that individuals are not businesses, even when they have the assistance and counsel of a qualified agent. Health insurance coverage is complicated enough. The process of getting and using it, however, shouldn’t be as complicated as it is. Nor should finding the plan that best fits a family’s need. Nor filing a claim. Nor … well, you get the idea.

Sharing Technology stresses that a carriers’ sales and member service technology shouldn’t drive consumers’ buying decision. A health plan’s benefit design, pricing, access to providers and the carriers’ customer service offerings should.  The industry could save millions of dollars by adopting standards that any and all technology providers can use for everything from accepting online applications, issuing online membership cards, processing claims, creating provider directories, etc.

Earning Trust may be the most important theme. After more than a year of every major office holder in the country calling the system broken, after endless legislative hearings, headlines and press conferences attacking the industry, consumer confidence in the industry is lower than its ever been. Worse, this only seems to inspire supposed industry insiders to pile on. The fact is there are problems in any enterprise, public or private. What’s needed is facing them honestly, not to score points.  Most of all, earning trust means raising the standards of behavior and meeting them.

These themes overlap with one another. What works in one area might well impact another. But they provide a general framework for discussing ways to reinvent individual health insurance. At least they are the themes I’ll be addressing over the next several days. Do you have others you think need to be considered? Are these off-target? Please let me know your thoughts by posting a comment. 

Reinventing the Individual Health Insurance Market

The health insurance industry has been under attack for years. There are those who would like to do away with it completely. While those voices have grown louder in recent years their political success has been limited at best. For evidence, just look at the campaign for the Democratic presidential nomination: no major candidate called for a government-run, single-payer system. The two remaining contenders have both explicitly taken such an approach off the table.

Yet there is one aspect of the industry that is under intense attack: the individual market. Again, this isn’t new. In the past, however, most of the attacks have been unfocused or ill-informed. Critics tended to ignore unique aspects of the coverage targeted at individuals and families buying insurance outside of work: it’s a voluntary decision. To maintain affordable premiums carriers must weed out potential buyers who are certain to incur substantial claims.

For example, carriers will often reject an applicant who is a regular user of a particular prescription drug. This strikes many as wrong, if not immoral. Just because someone needs a certain medication is no reason to deny them insurance.

Yet, when the monthly prescription costs exceeds the monthly premium, what else can the carrier do? Insurance is about spreading risk. In a voluntary market where people can choose when to purchase coverage, it means they need to buy insurance before their known risks exceeds the premium. Otherwise, they are simply asking other consumers to subsidize them. This dynamic, known as adverse selection, is at the root of much of the problems facing the individual market.

It’s not the only cause, however. Carriers exacerbated the problem by mishandling their approach to managing adverse selection. The most obvious mistakes involved how rescissions were handled. Even the industry’s most ardent foes admit carriers need to protect themselves from fraud. If an applicant knowingly and intentionally lies about material information on an application for coverage, the carrier should have the right to revoke the coverage.

It’s identifying when the misstatements are knowingly and intentionally that creates a gray area. Carriers chose to be aggressive in applying their right to rescind coverage. Now they’re paying a huge cost for this posture in the form of large fines, law suits and horrendous publicity.

The rescission issue is the hammer being used by lawmakers, regulators and pundits interested in reshaping the individual health insurance market. That their proposals would be more likely to do more harm (in the form of higher prices and less consumer choice) than good seems almost beside the point. They want change. They want it now.

While their changes are often off target their goal may not be. Perhaps the attack on the this market segment is what’s needed to prod the industry to reform itself. Perhaps it’s the motivation needed to reinvent the individual health insurance market, to make it stronger, more valuable and more respected than in the past.

I’ll be writing about the opportunities for reinvigorating the individual market over the next several days. I hope you’ll share your ideas, too. Please post your thoughts on ways to reinvent individual health insurance products, the way they’re sold, administered and used. By the end of this dialogue we’ll at the very least have built a list of alternatives to some of the misguided proposals currently being considered in Sacramento, Washington D.C. and elsewhere. At best, someone who can actually implement the changes may be inspired by your thoughts and meaningful change will follow.

Stay tuned.  

Individual Health Insurance to Get Federal Scrutiny

Over 17 million Americans purchase health insurance for themselves and their families. Of the 47 million Americans uninsured during any year, academics project that six-to-twelve million could afford coverage, but either cannot obtain it due to their health conditions or choose not to purchase insurance. For argument’s sake, let’s say the market for self-purchased policies — generally referred to as individual coverage or, sometimes individual and family coverage — is around 20 million Americans.

That’s a substantial market. For years, however, it was mostly ignored. To be sure, consumer affairs and financial writers would publish their annual article on how to buy health insurance you’re self-employed. And health insurance agents certainly talk about the product. But for most people, the difference between individual and group coverage was of no interest. It was all “health insurance.”

That’s changing. First, because Senator John McCain and others, mostly Republican lawmakers, want to shift the nation’s health care system from one built around employers to one centered on individuals. Senator McCain’s health care reform plan calls for allowing “individuals to get insurance through any organization or association that they choose: employers, individual purchases, churches, professional association, and so forth.”

The second reason for greater attention being focused on individual insurance is the result of how some insurance companies have reacted to current market realities.  Since purchasing health insurance is voluntary, insurance companies need to protect themselves from those waiting until they’ve got claims in hand before buying. This means they require a health history from all applicants and accept only those posing an “acceptable risk.” In other contexts this behavior is understandable. No one expects auto insurance companies to sell coverage after an accident. No one expects insurers to sell a fire insurance policy after the house has burned down. Yet, surprisingly, many consumers — and policy makers — seem to believe that requiring insurers to sell medical coverage to individuals who have already scheduled their surgery is both financially and morally sound.

Some states, such as New York and New Jersey, require insurers to guarantee issue coverage to all applicants regardless of their health condition. Consumers in New York and New Jersey also pay premiums costing on average twice as much as those in Californians. But some carriers went beyond screening out high risks at the time they applied for coverage and instead sought to terminate the coverage when they used their insurance. The aggressive rescission practices of these carriers earned insurers tremendous criticism and ill-will.

The convergence of these two factors: the presumptive Republican presidential nominee seeking to expand the individual market and abusive rescissions by some carriers can have but one result: a Congressional inquiry. Democratic House Committee Chairmen John Dingell, Henry Waxman, and Frank Pallone have asked the Government Accountability Office to investigate the state of the individual health insurance market. They have also asked the GAO to look into the operation of state high risk pools which offer coverage to those unable to obtain private insurance.

In making their request, the Congressmen stated “The individual market for health insurance coverage is seriously flawed. Many people who need insurance and apply for it are denied coverage in the individual market or are offered insurance coverage that turns out to be inadequate or it is too expensive or both.” If this sounds like they already know what the GAO investigation will uncover, well, they do.

This makes the results from this Congressional involvement relatively easy to predict. Insurance company CEOs will be required to testify under oath concerning their rescission practices. The Committees will determine that the current individual marketplace underserves consumers by excluding those with existing medical conditions. And while the high risk pools are serving an important purpose, the committees will determine their coverage is too barebones and too expensive.

Next will come a call for guarantee issue in the individual marketplace and, if Congress is serious about real reform, that will mean a call for requiring that all Americans obtain coverage. And that, in turn, means a health care reform package similar to what’s being put forward by Senators Hillary Clinton and Barack Obama — and it might even be acceptable to a President McCain.

Of course, just because what’s coming is predictable doesn’t mean it’s wrong. It just means change is coming, regardless of who is elected president.