One difficulty is the extent to which current proposals should be covered in detail. In a debate like the one occurring over health insurance, new proposals are continually replacing old ones, and those that are around for any length of time undergo revision. For this reason, the discussion is general and describes the following generic approaches that are being discussed:
- Managed competition plans
- Single-payer plans
- Medical savings accounts
- Reform on a state-by-state basis
- Modest reform of the current system
It is important to remember that the use of any one of these approaches does not dictate a specific national health insurance plan. Within each approach, there is wide latitude to address many of the issues discussed in the previous pages.
Managed Competition Plans
The term managed competition received considerable attention because it was the approach taken by the Clinton administration in designing its initial national health insurance proposal. However, the term and the concept have been discussed since the 1970s. The basic philosophy behind the idea of managed competition is that competition for medical expense insurance should be based on price rather than on the risk characteristics of those needing coverage. A managed competition plan would create a new type of organization—often referred to as an HIPC or a health insurance purchasing cooperative. An HIPC would act as a purchasing agent and negotiate with insurance companies, HMOs, and other providers of medical expense coverage to offer a menu of different insurance plans to employers and individuals who subscribe to the HIPC. In addition to price, subscribers would be given information on each plan's quality of care.
Under most managed care proposals, HIPCs would be established under state regulation, would operate in a specified geographic region, and would not compete with each other. Some proposals require all employers to be subscribers to the HIPC in their area, which would be the only source for providing coverage to employees. To varying degrees, however, most managed competition proposals allow larger employers to establish their own HIPCs for self-funding benefits.
Most managed care proposals also establish standards for what are often called approved or accountable health plans (AHPs). These AHPs are the only medical providers that can deal with an HIPC, which would require each AHP to offer a standard set of benefit packages. HMOs are in a position to do this, but other providers would need to form alliances, such as an insurance company forming an AHP with a network of hospitals and physicians.
All employers (and also unemployed and self-employed persons) would be eligible for coverage from the HIPC, and there would be no preexisting-conditions provisions for employees. Some proposals use community rating, which would establish a set price per covered person for the plan selected. Other proposals would adjust rates by such factors as age or sex.
While individual proposals for national health insurance may vary, there is nothing in the basic idea of managed competition that dictates any specific benefit package, level of employer contribution to the cost of the coverage for employees, or government price controls.
The critics of managed competition are many. It involves a fundamental change in the delivery of health care and has been opposed by many physicians who fear that their ability to treat patients will come under government control. Insurance agents have been particularly vocal because their role would be virtually eliminated. However, there would still be a modest role for benefit consultants to advise employers on the selection of alternative plans under the HIPC. HIPCs are also unappealing to persons who are not already in managed care plans and wish to retain control over their choice of medical practitioners. Employers that operate in many regions would also be required to deal with several HIPCs.
Managed competition has also been criticized for creating another level of health care bureaucracy by the formation of HIPCs and the additional regulation that would be needed. It has been suggested that this might also negate the effect of any cost-saving features of the approach.
Single-Payer Plans
Several proposals for national health insurance can be categorized as single-payer plans, which is the approach taken in Canada and many European countries. Under a single-payer plan, everyone is automatically covered by a single program run by the government, and the same benefit package is provided to everyone. Some proposals have a totally federal program; other proposals call for each state to administer the program for its residents, but under specific federal guidelines.
Single-payer plans eliminate the employer's role in providing medical expense benefits to employees. The agent's role is also eliminated unless the plan benefits are at a level where there is a market for supplemental insurance. However, most proposals call for very comprehensive coverage with few if any copayments.
Most proposals for a single-payer plan call for the financing of the program through taxes rather than premiums. While the taxes could take a variety of forms, a Social Security type of payroll tax on both employers and employees is most commonly mentioned.
In some respects, a single-payer plan can be viewed as a Medicare-type program that covers everyone. The single-payer approach, however, goes farther and calls for more government control of medical care. A national health care budget would be established, and reimbursement schedules to providers would be determined at the state or federal level within the constraints of this budget. In addition, the budget would result in the government's exercising controls over the types of treatment available for specific conditions and the extent to which monies would be spent on new technology and medical facilities. In effect, a single-payer plan rejects market forces as the allocator of medical resources and implies that there would be some rationing of medical care under government guidelines.
Although the broad nature of a single-payer plan would result in additional costs because of increased demand for health care, these costs would be offset by efficiencies associated with the approach. For example, the claim process would be dramatically streamlined, and marketing costs would be virtually eliminated. Furthermore, the widespread availability of medical care would probably lead to more preventive care, which would minimize the need for more expensive treatments in the future.
Much of the support for a single-payer approach to the health care problem arises from the perception that Americans have of the Canadian health care system. There is no doubt that Canadians overwhelmingly believe they have a good system, but just as in the United States, the system is becoming a subject of national debate. Costs are lower than in the United States, but they are increasing at a rapid rate. Moreover, there is rationing of care, which can lead to lengthy waits to schedule surgeries. As a result, some Canadians come to the United States for treatment that privately insured Americans can receive on demand. These facts, coupled with the American public's concern over bigger government and its bureaucracy, make the adoption of a single-payer approach unlikely.
Medical Savings Accounts
Unlike the two previous approaches to national health insurance, the use of medical savings accounts (MSAs) is seldom proposed as the sole method of providing medical expense coverage. Instead, their use is an option that would be available to employers. Depending on the proposal, employers might use this approach for all employees or let employees choose an MSA in lieu of another form of medical expense coverage.
An MSA is an alternative to a medical expense plan and has few copayments. Instead, an employee gets a comprehensive medical plan with virtually total coverage for medical expenses to the extent that they exceed a high deductible, such as $2,000. The employer then contributes part of the savings in premium to an MSA, which is often an interest-bearing account. An employee can draw from the account to pay medical expenses not covered by the medical expense plan, such as charges for routine office visits or the cost of eyeglasses. At the end of the year, any monies in the MSA might either be left in the MSA to pay future unreimbursed medical expenses or be paid to the employee.
The rationale for an MSA is that significant cost savings can occur for two primary reasons. First, the expensive cost of administering small claims is largely eliminated, as demonstrated by the fact that a major medical policy with a $2,500 deductible can often be purchased for about one-half the cost of a policy with a $250 deductible. Second, employees now have a direct financial incentive to avoid unnecessary care and to seek out the most cost-effective form of treatment.
A few employers have used MSAs for some time with positive results. Costs have in fact been lowered or risen less rapidly than would otherwise be expected. Reactions of employees have generally been favorable, but there has been one major drawback—contributions to an MSA have constituted taxable income to employees. However, this issue has been addressed by recent legislation.
As with almost any approach to cost containment, MSAs have their critics. It is argued that MSAs may make sense when used with traditional indemnity plans, but long-term health care reform should focus on managed care. Proponents counter that the concept could also work with HMOs or PPOs. Another argument against MSAs is that employees will minimize treatment for minor medical expenses and preventive care that would have been covered under a plan without an MSA. This avoidance of medical care, contend the critics, may lead to major expenses that could have been avoided or minimized with earlier treatment. A final criticism of MSAs is that they do not focus on the problem of the uninsured. In rebuttal, proponents argue that any technique that lowers costs for employers will encourage some additional small employers to provide coverage that would have previously been unaffordable.
State Reform
There is increasing support in Congress for the idea that national health insurance should take the form of a series of state programs rather than a single federal program. This support comes from many new members of Congress who are more amenable to having the states rather than the federal government solve some of the nation's problems. Support also comes from some state governors. Some other members of Congress, who might otherwise prefer a federal solution, feel that reform at the state level is preferable to partisan debate at the national level with little chance of any real reform.
To give the states flexibility in health care reform, it will be necessary for the states to be free of such constraints as ERISA. Without an ERISA preemption, states will be unable to apply reform to employees who are in self-funded plans. Employers who self-fund benefits, particularly those who have been successful with cost containment, will be reluctant to support such a change in federal law because it may ultimately result in increased costs, particularly if a state adopts some type of community rating. Self-funded employers that operate in many states would also be burdened by having to comply with each state's mandates.
An interesting paradox has developed in Congress. While Republican control has increased interest in letting the states solve problems, there is also increased sympathy for the wishes of business. As a result, support for an ERISA preemption seems less likely than in the past.
Reform of the Current System
The 1994 elections, which resulted in a more conservative Congress, effectively ended any hopes of the Clinton administration for a major comprehensive restructuring of the nation's health care system. Despite very divergent views in Washington, however, 1996 saw the most far-reaching federal legislation to affect medical expense insurance in many years. It was clear to all sides that the public strongly supported certain changes, and these changes were enacted with bipartisan support. In addition, each side seemed willing to give the other side a little bit of what it wanted. While the overall result is not a basic restructuring of the health care system, it clearly represents significant reform and change.
HIPAA was not the only 1996 legislation to affect group medical expense coverage. The Mental Health Parity Act requires that many employers provide increased benefits for mental illnesses. In addition, the Newborns' and Mothers' Health Protection Act may increase the length of inpatient benefits for childbirth in many cases.
For the foreseeable future, it appears that changes to the health care system will continue on a piecemeal approach to address specific issues and problems. For example, there is proposed legislation to make medical expense benefits available to more children. It is interesting to note that many recent state health care reforms (such as the establishment of HIPCs and small-group legislation) and many provisions of HIPAA and other federal legislation incorporate aspects of the original Clinton proposal for national health insurance.
Increased Availability of Medical Expense Coverage
HIPAA contains several provisions designed to help both employees and employers obtain coverage more easily. The discussion focuses on the plans covered by the act and portions of the act that address nondiscrimination rules, special enrollment periods, renewability and small groups.
Covered Plans
The act applies to group health plans that cover two or more employees, whether insured or self-funded. However, there is a long list of excepted benefits to which the act does not apply. The following are excepted benefits in all circumstances:
- Coverage for accidents, including accidental death and dismemberment
- Disability income insurance
- Liability insurance
- Coverage issued as a supplement to liability insurance
- Workers' compensation or similar insurance
- Automobile medical payments insurance
- Credit-only insurance, such as mortgage insurance
- Coverage for on-site medical clinics
In addition, certain other benefits are excepted benefits under specified circumstances:
Limited vision or dental benefits, long-term care insurance, nursing home insurance, home health care insurance, and insurance for community-based care if these benefits are offered separately rather than as an integral part of a medical expense plan
Coverage for a specific disease or illness or for hospital or other fixed indemnity insurance if the benefits (1) are provided under a corporate policy and certificate or contract of insurance and (2) are not coordinated with other coverage under a medical expense plan
Medicare supplement insurance or other similar supplemental coverage if the policy is offered as a separate insurance policy rather than as a continuation of coverage under a plan that also covers active employees
Flexible spending accounts (FSAs) under cafeteria plans, as long as (1) the employee has other coverage available under a group health plan of the employer and (2) the maximum payment under the FSA for the year does not exceed the greater of two times the employee's salary reduction or the amount of the employee's salary reduction plus $500
With one exception, all employers—including the federal government—must comply with the act's provisions. State and local government plans can elect to be excluded from most of HIPAA's provisions.
Nondiscrimination Rules
The act prohibits the use of any of the following health-related factors as a reason to exclude an employee or dependent from coverage under a group health plan or to charge the individual or dependent a higher premium:
- Health status
- Medical condition, including both physical and mental condition
- Claims experience
- Receipt of health care
- Medical history
- Genetic information
- Evidence of insurability, including conditions caused by domestic violence
- Disability
It is important to note that these factors relate to coverage for specific individuals under a plan. The overall plan itself (except for plans in the small-group market, as explained later) can still be subject to traditional underwriting standards. In addition, group health plans are not required to offer any specific benefits and can limit benefit levels as long as they do not discriminate on the basis of these health-related factors. The act does not restrict the amount an insurance company or other provider of health care coverage can charge an employer for coverage. The act does allow an employer or provider of medical expense coverage to establish premium discounts or to modify co-payments or deductibles for persons who participate in programs of health promotion or disease prevention.
Special Enrollment Periods
For various reasons, employees and their dependents may elect not to enroll in an employer's plan when they are initially eligible for coverage. For example, a new employee may have coverage under a spouse's plan. The act requires that employers allow these employees and dependents to enroll in the employer's plan under any one of several specified circumstances as long as the employee had previously stated in writing that the original declination was because there was other coverage. However, the requirement of a written declination does not apply unless the employer requires it and notifies the employee that it is a requirement for future coverage. The following are the circumstances for special enrollment:
The other coverage was lost because of loss of eligibility under the other plan. This loss of eligibility can result from such circumstances as divorce, the spouse's termination of employment, or the spouse's death.
The other coverage was lost because employer contributions for the coverage terminated.
The other coverage was COBRA coverage that is exhausted.
The employee has 30 days following the loss of coverage to request enrollment in the employer's plan.
In addition, new dependents (including children placed for adoption) are also eligible for coverage under special enrollment rules. The employee must enroll the dependent within 30 days of his or her gaining dependent status. Coverage for a new spouse must become effective no later than the first month beginning after the employee's request. Coverage for children must go into effect as of the date of birth, adoption, or placement for adoption.
Guaranteed Renewability
All group health insurers must renew existing health insurance coverage unless one of the following circumstances exists:
- The plan sponsor failed to pay premiums or the issuer of health insurance coverage failed to receive timely premiums.
- The plan sponsor performed an act of fraud or made an intentional misrepresentation of material fact under the terms of the coverage.
- The plan sponsor failed to comply with a material plan provision relating to employer contribution or group participation rules, as long as these rules are permitted under applicable state or federal law. For example, an employer might fail to maintain a minimum required percentage of participation under a plan.
- There is no covered employee who lives or works in the service area of a network plan, such as an HMO.
- The employer is no longer a member of the association that sponsors a plan.
- The issuer of coverage ceases to offer coverage in a particular market. The issuer must notify each plan sponsor, participant, and beneficiary at least 90 days prior to the discontinuation of coverage, and the issuer must offer each plan sponsor the option to purchase other health insurance coverage currently being offered by the issuer to a group health plan in the market. If the issuer exits the market entirely, the period of notice is 180 days, and the issuer cannot reenter the market and sell health insurance coverage for at least five years.
Similar rules require that multi-employer plans and multiple-employer welfare arrangements renew coverage for employers. It also establishes guaranteed-issue rules for the individual marketplace.
Guaranteed Issue for Small-Group Plans
With some exceptions, the act requires that insurers, HMOs, and other providers of health care coverage that operate in the small-group market to accept all small employers—defined as employers with 2 to 50 employees—that apply for coverage. In addition, all employees of small employers and their dependents must be accepted for coverage as long as they enroll during the period in which they are first eligible. This rule is in line with the small-group legislation of many states. Some states have similar rules for groups as small as one employee, and some stipulate an upper limit of 25 above which the small-group legislation does not apply.
Exceptions to this guaranteed-issue requirement are allowed if a provider of coverage in the small-group market has inadequate network or financial capacity or if applicants are not in a plan's service area.
Minimum participation or employer contribution requirements are acceptable as long as they are permitted under applicable state law.
Interrelationship of State and Federal Legislation
For the most part, the new federal legislation does not preempt state laws pertaining to group health insurance (which might be more stringent than HIPAA), except in those situations where any state standard or requirement would prevent the application of the federal law. To prevent any preemption, many states have had to make some modifications to their laws and regulations.
The act permits a state to enforce the act's provisions with respect to insurance companies and other medical expense providers. However, the federal government can take over enforcement if a state does not perform its duties. In that case, enforcement is by the secretary of health and human services. The secretary of labor has enforcement power for the act's provisions as they apply to group health plans themselves, including the act's portability provisions. When there is federal enforcement, the penalty for noncompliance can be up to $100 per day for each individual with respect to whom a plan or issuer is in noncompliance.
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