The Future of Individual Plan Underwriting vs. Guaranteed Issue

By Clive Riddle

United Health Group betting on continued patchwork of State Regulations

An ongoing conundrum central to health coverage reform is the chicken and egg issues of health plan acceptance of individual health care coverage, mandates and guaranteed issue.

If all plans were required to accept all individual applicants for all policies (full guaranteed issue), the argument goes that significant adverse selection would occur, as only those uninsured with funds that could reliably project their actual health expenses would exceed the insurance premium costs would purchase coverage. In order to correct for this, it is argues that a mandate is required (requiring all of an applicable population to obtain/receive coverage.)

For example, the health plan industry, through America’s Health Insurance Plans (AHIP) have just proposed guaranteed issue in exchange for a mandate, stating in a press release: “Health plans propose guaranteed coverage for people with pre-existing medical conditions in conjunction with an enforceable individual coverage mandate. To help working families afford coverage, advanceable and refundable tax credits should be available, phasing out as income approaches 400 percent of the federal poverty line. Right now, in most states, individuals can be turned down by insurance plans when they apply for individual health plan coverage, if they do not satisfy the plan’s underwriting criteria. The only sure way for an individual to get coverage is to live in one of the few states with guaranteed issue, or obtain employment where group health plan coverage is offered.” (Refer to AHIP December 3rd, 2008 Press Release: Health Plans Offer Comprehensive Reform Proposal.)

But will a health care reform package include such a mandate that extends to the individual, non-group market, particularly in the current economic climate? The Obama reform proposal had focused on employer mandates.

In the current group environment, employees and dependents whose group coverage is ending can self-purchase continuing coverage to maintain their group policy benefits, at 102% of the cost of their group policy under provisions originally set forth under COBRA continuation of benefits regulations, but this coverage is generally limited from 18 to 36 months, depending on the circumstances (refer to for details on COBRA continuation of coverage provisions).

Also in the current environment, guaranteed issue for all individuals just in Maine, Massachusetts, New Jersey, New York and Vermont. Washington provides guaranteed issue for some classes of individuals, and of course many states have incremental provisions extending coverage provisions. (refer to Kaiser Family Foundation for a summary of Individual Market Guaranteed Issue.)

So the question is, assuming health care coverage reform isn’t so far-sweeping that the individual market is removed due to full universal non-group based coverage, will the future of individual health plan coverage involve:

A. Federal Guaranteed Issue With Some Type of Coverage Mandates
B. Federal Guaranteed Issue Without Mandates
C. Continued Patchwork of State Regulations

United Health Group is betting on the latter, and now selling the right to Guaranteed Issue to qualified prospects. They have announced in a December 4th press release and as reported in the New York Times (refer to the Times December 2nd, 2008 article, UnitedHealth to Insure the Right to Insurance ) that UnitedHealth has unveiled “a ‘first of its kind’ product: the right to buy an individual health policy at some point in the future even if you become sick. Called UnitedHealth Continuity, the product is not actual medical insurance, but is aimed at people who may have insurance now but are worried they may lose it — and may not be able to obtain replacement insurance on their own.”

United states that “with Continuity, consumers only need to go through the medical underwriting process once, at the time of application. Once they are approved, their coverage is guaranteed when they need it regardless of any medical conditions that may have developed in the meantime...With Continuity, consumers can choose from a wide range of health plans, deductibles and optional benefits including traditional health insurance plans, health savings account plans and lower-cost high deductible plans. Once the plan is approved and issued, the Continuity rider gives policyholders the option to leave the plan deactivated while covered by group insurance or activate the plan when they lose or voluntarily leave group health insurance coverage because of early retirement, job loss or simply because the employer no longer offers health benefits.”

The Times reports the cost for holding the Continuity Guarantee is 20% of a standard individual premium, and is subject to underwriting before the Guarantee is issued. On the surface, it is difficult to imagine a large market for United’s Continuity product at such a steep price, given that COBRA is available as an interim stopgap for those with group coverage. The Times quotes a broker who states “I think it’s got very, very limited application.”

However, United’s innovation does open the door to variations on this theme that could have more widespread appeal, if in fact, federal requirements for guaranteed issue do not materialize. Health Plan competition for group coverage could result in rider provisions for no-cost or low-cost individual coverage guarantees, as part of the group policy, so that the employer can advertise improved continuation of coverage or portability in the event employees lose their group eligibility for whatever reason. That type of product could have widespread interest in the group market.


What can we deduce about Deductibles?

By Clive Riddle

Mercer’s Study finds the median individual deductible jumps to $1,000

Mercer just released results from their 2008 National Survey of Employer-Sponsored Health Plans, with headlines declaring “$1,000 health plan deductible was the norm in 2008.” And this was just for traditional PPO plans, not counting consumer driven high deductible health plans. And this was the median figure, not the mean which is more susceptible to skewing upwards given the wide range of benefit design out there. And this was for individual, not family coverage.

Certainly the ongoing increase of consumer cost sharing built into plan design, and the growth in consumer driven high deductible health plans that has paved the way for the trend and acceptance in higher deductibles in traditional PPO plans as well. As Blaine Bos, of Mercer tell us, “The introduction of the HSA may have changed employers’ thinking on just how high a deductible can go without causing employees to revolt. Raising the deductible has become the fallback for employers faced with cost increases they can’t handle. It’s the easiest way to reduce cost without taking more out of every employee’s paycheck.”

But not so fast, there’s a little more to the deductible story than just $1,000 individual deductibles. Deductible amounts are quite different for small versus large employers. Mercer found the median deductible for large employers is just $300. Other surveys have borne this out as well. The Kaiser Family Foundatio/HRET Employer Health Benefits Annual Survey yielded lower deductible amounts for traditional PPOs, but with the same separation by size: a mean of $560 overall, but $917 for small employers and $413 for large employers.

It also shouldn’t be glossed over that the KFF/HRET study found the mean deductible at $560, a far cry from $1,000. Too bad KFF didn’t share what the median was, but they report the following distribution: 52% under $500; 30% $500 to $999; 13% $1,000-1,999; and 4% $2,000+.

The trend for first dollar coverage of wellness and certain value-based benefits should be noted as well. While deductibles are rising fast, more employers are adopting plans designs with first dollar coverage for specific wellness and "value based" items. This at least make a larger deductible a little more palatable, and allows plan design to influence desired objectives.


15 Big Health Care Business Questions for 2009 and beyond by Clive Riddle

by Clive Riddle

The impact of reform, recession, technology and emerging initiatives

Here’s a list of 15 questions to ask as we start to ponder the upcoming new year which will close out this decade:

  1. Reform: What final health care reform package will emerge from the new administration and Congress, what will be the timing, and what portions of it will get adopted, given the current recession/financial crisis?

  2. Regulation: Will significantly increased regulation ensue, with the compliance environment become even more stringent?

  3. Medicare Advantage: Assuming Medicare Advantage health plan compensation is further targeted, will plans accelerate mass market withdrawals as they did prior to the MMA increases?

  4. Consumer Driven Plans: Will the Democratic congress and the new administration diminish the viability of account based consumer driven health plans?

  5. Patient Collections: How deep will be the impact of provider collection problems with higher consumer cost sharing in the current financial climate, and will there be any new initiatives from the hospital industry or other provider in response?

  6. Patient Deferral of Care: In a recession environment, will consumers further defer and adjust their health care utilization and spending, even at long term detriment to their health?

  7. Funding Wellness: Will immediate health benefit cost pressures trigger reduced support for initiatives that require longer term ROI, such as wellness incentives?

  8. Tighter Managed Care: Will health benefit cost pressures fuel a demand and acceptance for a return to more stringent managed care delivery and care management?

  9. Payment Reform: How widespread will provider payment reform initiatives evolve, advance and be adopted?

  10. Medical Homes: To what degree will medical homes take hold, and how different vs. standardized will medical home initiatives evolve?

  11. Fights over the Shrinking Pie: Will specialty physicians associations organize to more actively combat medical home, p4p and other payment reform initiatives if they are perceived as realigning distribution of physician compensation more towards primary care or further reducing income?

  12. Investment Income: How deep will the ultimate impact of reduced investment income be upon health plans and health care institutions, and will it cause fundamental changes in investment portfolios, rate increases or reduced staffing or services?

  13. Mergers and Acquisitions: Will the fallout of financial pressures cause an acceleration in Mergers and Acquisitions in the various health care industry components, or will tighter financial markets and conditions combined with increased regulatory scrutiny dampen the M&A environment?

  14. EHR spending conundrum: A conundrum exists over the need for massive infrastructure and conversion spending on EHR initiatives and related issues such as ICD-10 coding in order to make the health care system more efficient, versus the immediate need to reduce cost pressures in the current financial climate: So will these initiatives lose or gain momentum?

  15. Health Portals: Will one or more consumer health portals/web personal health records, such as Microsoft’s Healthvault or GoogleHealth emerge to achieve the same level of consumer significance as online banking/bill payments or social media such as Myspace/Facebook?

So what questions can you add to the list for 2009?


Medicare Prescription Drug Coverage in a Big Box

By Clive Riddle

Retail health care will continue to emerge and develop in new arenas. Retail health care started with prescription drugs decades ago, and now retail, convenient care clinics have been the rage. But there are certainly more retail avenues to develop, starting with health insurance at the individual level. Marrying individual Medicare distribution with prescription drugs at the retail would seem a natural. At least it has to Aetna and Costco.

This week, Aetna and Costco announced an alliance to offer a Medicare Part D Prescription Drug Plan: the Aetna Medicare Rx - Costco Plus Plan, to be available in 17 states, with Costco providing sales distribution to its members, and preferred Rx benefits provided for prescriptions filled at Costco pharmacies.

The plan will be available in Alaska, Arizona, California, Colorado, Florida, Hawaii, Idaho, Illinois, Michigan, Nevada, New Mexico, New York, Ohio, Oregon, Utah, Virginia and Washington. Monthly premiums will range from $50 to $70, depending upon the state. Under the plan generic copays, typically $10 at other pharmacies, will be $5 at Costco, or in some cases, zero copay.

Costco operates 545 “membership warehouses”, including 400 in the United States, and also operates Costco Online, an electronic commerce Web site at


Data from the Consumer Driven Healthcare Summit

By Clive Riddle

The Third National Consumer Driven Healthcare Summit was held earlier this week in Washington DC, addressing a wide range of current key health care consumerism issues, with leading thought leaders and industry experts from around the country. Here's some interesting data shared by speakers from four selected Track Sessions during the conference:

Individual Health Insurance

Samuel Gibbs, Senior Vice President of Sales of eHealth, Inc.(parent of eHealthInsurance) gave a presentation on "The Online Individual Insurance Market - Perspectives, Experiences and Trends." EHealth represents over 180 health insurance carriers nationwide, which are available directly to consumer via their eHealthInsurance web site. Sam shared that eHealth's individual plan profile for 2007 was as follows:

* Average Age: 36
* Percent Male: 54%
* Percent Single: 61%
* Average Annual Premium: $1,896
* Range of Average Monthly Premiums: $83 to $388
* Average Annual Deductible: $1,971

Ann Ritter from the Convenient Care Association participated in a session on "The State of Convenient Care for 2009" and shared just released RAND convenient care data including:

* Patients by age breakdown as follows: under age 2 - 0.2%; age 2-5 - 6.3%; age 6-17 - 20.3%; age 18-44 - 43.0%; age 45-64 - 22.6%; age 65+ 7.5%
* 2.3% of patients were triaged to an emergency department or physician's office
* Among patients age 65+, 73.65% of visits were for immunizations
* Ten basic treatments and services accounted for more than 90% of visits

Paul H. Rubin, PhD, Samuel Candler Dobbs Professor of Economics and Law, Department of Economics, Emory University, in a presentation on "The Cost Effectiveness of Direct to Consumer Advertising for Prescription Drugs" discussed findings from a study and paper he co-wrote with Adam Atherly of Emory University, in which they found during patient visits to their physician:

* 4% of patients schedule physician visits to ask about a drug
* 14% of patients discussed a concern because of DTC advertising
* If patients ask for a drug, 39% receive that prescription, 22% are prescribed a different drug, and 18% receive no drug
* 5.5% of physicians prescribed a requested DTC drug, but thought a different drug was better
* 88% of patients requesting a DTC drug had a relevant condition
* 75% who received the requested drug reported subsequently feeling better

Michael Vittoria, Vice President, Human Resources, Sperian Protection, in his presentation on "Integrating Wellness & Preventative Care into a CDHP" told us that Sperian, with 1,300 U.S. employees, adopted a self funded HRA in 2004, introduced HSAs in 2007 and introduced Wellness Incentives in 2008. Sperian currently has 56% of employees enrolled in PPOs, 14% in HMOs and 30% in the self funded HSA options. 34% of their 2008 HSA participants earn < $30k, 21% earn between $30k to $50k, 17% earn between $50k to $75k, 16% earn between $75k and $100k, and 12% earn more than $100k. Sperian conducted various wellness incentive programs during 2008, with their weight loss program yielding a BMI reduction in participating employees from 30.7 to 29.4. Sperian's overall medical cost trend from each previous year has been:

* 2004 - 11.7% increase
* 2005 - 4.5% increase
* 2006 - 3.6% increase
* 2007 - 2.6% increase
* 2008 - 1.8% increase