Portability-Part IVby admin on 01/10/2015 10:39 AM
The NCPA/Texas Blue Cross/Blue Shield Plan to Create Personal and Portable Insurance at the State Level
The proposal that follows was presented to Gov. George W. Bush’s Blue Ribbon Commission on the uninsured by the National Center for Policy Analysis and Texas Blue Cross and Blue Shield in 1999.
How can the purchase of health insurance be changed to allow individual ownership and portability? The goal of this proposal is to combine the advantages of individual insurance with the advantages of group insurance and avoid the disadvantages of both. This new, hybrid form of insurance will be called New System Plans (NSPs). Employers who assist their employees in entering NSPs through the payment of premiums will be called Defined Contribution Employers (DCEs).
Transition. We envision that most employees will enter NSPs by converting from group insurance and that the conversion will be through the actions of an employer. Specifically, an employer will choose an NSP for all the employees, much as employers choose group insurance today. Rules that apply to the group market today probably would still apply, including the requirement that (1) employers pay a substantial part of the premium, (2) a substantial percentage of employees elect to insure, and (3) any new employees elect to insure on a date certain, not of their choosing. In return the group could avoid the administrative cost of individual underwriting (although this would not be a legislative requirement).
A typical transition period may involve a three-year contract. After the three-year period, employees will be free to switch to another NSP if they are dissatisfied with their plan. However, an individual’s entry into another NSP is not guaranteed. During the three-year period, new employees who are not members of another NSP will be required to join the employer’s selected NSP in order to qualify for an employer contribution.
Some employers may choose to have longer-term relations with an insurer. For example, a NSP may agree to take all of an employer’s new employees without underwriting provided that eligible employees (not insured elsewhere) will not receive the employer’s insurance contribution unless they join the NSP.
Parallel Systems. No employer will be required to be a DCE. And no insurer will be required to offer a NSP. Therefore it is envisioned that for some time there will be parallel systems – with some employers and employees participating in the new system and others participating in conventional small group or large group markets.
Regulatory Status. Even though DCE employers pay premiums (to take advantage of the tax law), NSPs will be technically considered individual insurance. (Note: In most states individual insurance is not guaranteed issue.)
Relation to HIPAA. Although federal law requires small group insurance to be guaranteed issue, states are free to choose their own mechanism to insure people who convert from group to individual insurance. Most states have chosen to make such individuals eligible for the state risk pool. Under this proposal most employers who become DCE employers will be assisting their employees in converting from group to individual insurance. Therefore, NSPs do not have to be guaranteed issue.
The Role of the Employer. Currently, employers cannot pay premiums for individual insurance for their employees. This proposal would allow them to do so. In return for this right, DCE employers will have certain obligations. One such obligation is to offer a fixed sum contribution toward premiums for every employee. This contribution could vary by age and other factors. But employers could not discriminate against employees based on health status. Another obligation is the requirement to make a full monthly premium payment to each employee’s NSP.
For example, Exhibit I illustrates the case of an employer who offers a $600 monthly contribution and who sends checks of varying amounts to cover the full premium to different NSPs. Exhibit II shows an employee whose NSP requires a $700 a month premium payment. The DCE deducts $100 from the employee’s wages, adds the $600 employer contribution, and pays the $700 premium each month. In Exhibit III, an employee is in an NSP costing only $500. This means that the employer pays the $500 premium each month and $100 of the employer’s $600 contribution may go to the employee’s IRA (or to some other designated account).
Note: Employees must be in a NSP in order to qualify for their employer’s contribution. Note also: Employers have certain administrative functions under this proposal that are comparable to those associated with administering 401(k) plans.
High Cost Enrollees. We propose several protections. First, NSPs who convert employees from group to individual (NSP) insurance must accept or reject the entire group. If all NSPs reject a group, the group can still go to the conventional small group market, where acceptance is guaranteed. Second, as an inducement to NSPs, we propose that if a NSP accepts a group below a minimum size without individual underwriting, there will be a six month look back period – during which time the NSP will have the opportunity to (a) move the enrollee to the risk pool, (b) qualify for reinsurance or (c) qualify for a direct subsidy.
It is important that all three subsidies (a thru c) be funded through from general revenues and not from a tax on health insurance or health care. The reason: We want to encourage people to purchase health insurance and we want people to obtain health care when they need it – undeterred by taxes.
High Cost Employees in a Mature System. In a mature system, most eligible employees will be members of NSPs, and their membership will be guaranteed renewable. Thus an individual who develops an expensive-to-treat illness need not fear losing coverage because he switches jobs or is laid off, or because his employer switches health plans or arbitrarily changes the benefits covered in the existing plan.
However, some high cost employees may fall through the cracks and become uninsured – because they failed to sign up for insurance when eligible, because they worked for an employer who did not provide insurance, or because they previously had traditional insurance with another employer, etc. What happens to these individuals?
In some cases they will be able to enter an NSP without medical underwriting under the terms of a contract between an employer and an NSP that allows such entry. Moreover, anyone who is entitled to coverage under HIPAA will be able to obtain coverage from the state risk pool. If the individual works for a DCE employer, the DCE’s premium contribution will be made to the risk pool – just like an ordinary insurance premium payment.
Specialty Health Plans. We would like to encourage health plans to specialize in the treatment of expensive-to-treat illnesses, such as cancer, heart disease etc. These specialty plans are “focused factories” that are very good and very efficient. It should be a goal of public policy to encourage arrangements whereby individuals can leave NSPs (and perhaps traditional health plans as well) and join a plan specializing in the treatment of their condition. Such movement will require the voluntary agreement of the patient and the two plans and will almost certainly involve a payment to the specialty plan from the original plan. But both plans should gain from the arrangement because of the substitution of more efficient for less efficient care. Patients should gain because they get better care.
This series is now concluded