Individual Health Insurance

http://www.minnpost.com/stories/2009/08/24/11049/individual_policies_the_subbasement_of_health_insurance

By Casey Selix

Freelance Japanese-English translator Karen Sandness is hoping her good health lasts until she's eligible for federal Medicare benefits at age 65.

In six years of paying for an individual insurance policy in Minnesota, she has watched her monthly premiums increase 40 percent to $250 a month. The premium might not sound exorbitant until you factor in that she also hiked her annual deductible to $5,000 from $1,000 to keep the monthly bill down and that she never has met either deductible.

She also must pay 20 percent of out-of-pocket expenses up to $10,000 in-network and $25,000 for out-of-network. And her policy has a lifetime benefits cap of $2 million, so heaven forbid if she suffers a devastating illness or injury.

For all that outlay, she receives none of the upfront preventive care provided free or at minimal cost by employer-sponsored insurance plans to encourage regular screening for expensive diseases like cancer. No office visits are covered until she meets her deductible.

The subbasement of health insurance

Welcome to the subbasement of the health-insurance market. If having no insurance is considered rock-bottom, having individual insurance is the next floor up. Some call it "house insurance," thinking that by having it they won't lose their homes to pay for a catastrophic illness.

But a Harvard study released this year found that nearly half of home foreclosures were tied to medical expenses. And another recent Harvard study found that 62 percent of personal bankruptcies in 2007 were linked to medical expenses and 78 percent of those filers had health insurance.

So, it's understandable why Sandness, who holds a Ph.D. in linguistics from Yale University, casts a wary eye at the individual mandate proposed in the three major health-care reform plans before Congress.

"I haven't had a mammogram since I moved here," said Sandness, who moved to Minneapolis from Portland, Ore., in 2003. "I had one checkup in early 2004 and the doctor suggested getting those various tests and I looked at the various prices. ... For example, a colonoscopy, something I'm supposed to have at my age, was more than my monthly rent, so I just haven't had one since I moved here."

She has health insurance, but virtually no health care.

If her experience is any indication and if the Massachusetts individual mandate is the model in federal reform, Sandness doesn't expect significant improvement in costs, coverage or care.

High deductibles, significant exclusions

"Under a Massachusetts-style mandate, I would technically be 'covered,' and I would not be allowed to drop my insurance and take chances," she says. "From what I understand, a lot of people in Massachusetts are too 'rich' to qualify for subsidies but too poor to buy anything but policies that have not only high deductibles but also significant exclusions."

If Congress and President Barack Obama decide the responsibility for health insurance falls on the shoulders of individual Americans, all of us might want to pay more attention to what's going on now in this underinsured subbasement and to what's promised in the legislation. Anyone who has lost a job and is about to run out of COBRA benefits needs to pay particular attention if contemplating individual/family coverage.

Though the individual segment is a sliver of the health-insurance market — 7 percent in Minnesota, 6 percent in the nation — it is expected to grow under an individual mandate. It's already growing in Minnesota as some cash-strapped small employers have dropped group coverage, according to a report (PDF) from the Minnesota Department of Health's Health Economics Program. Minnesota has under 250,000 enrollees in the individual market.

Two of the three main proposals (PDF) in Congress call for an employer "pay or play" mandate and a public insurance option; the other plan is from Senate Finance Committee Chairman Max Baucus, D-Mont., whose panel controls the purse strings. All three proposals include a premium subsidy or tax credit for lower-income Americans.

Changes would be needed to do mandate, experts say

The individual mandate is widely supported because it offers portability, i.e. a consumer isn't dependent on an employer for insurance coverage. Though experts expect many employers will continue to offer coverage as they do now without a mandate, they say current practices in the individual market must change to make the mandate work.

Last Tuesday, University of Minnesota health economist Jean Marie Abraham told a state Senate panel that proposed changes in the market are promising for the economy. "We see that having a reformed individual market that is transparent and that functions more smoothly could help to reduce job loss and promote workers' productivity and job mobility including entrepreneurship," said Abraham, who just returned from a one-year stint as senior economist on health care for the president's Council of Economic Advisers. "That is the one very big positive related to the reform proposal."

Right now, the market is not considered consumer-friendly or entrepreneur-friendly.

"Currently, the individual insurance market is a very difficult place in which to find quality, affordable coverage," says Kathleen Stoll, director of health policy for Families USA, a Washington, D.C.-based consumer advocacy group pushing for affordable health care. "Plans in the individual market can refuse to cover individuals based on their health problems, and when they do cover individuals with health problems they usually charge them very high premiums. Plans can also refuse to cover services for health problems that they deem 'pre-existing conditions.' In addition, premiums in the individual market increase very rapidly, by double-digit percentages from year-to-year."

Larger pool would spread the risk

But Stoll, Abraham and others think that proposed federal legislation offers significant protections for individuals and families. If insurers are required to cover anyone who can pay the premiums (a policy called guaranteed issue) regardless of pre-existing conditions, they will have a larger pool to spread the risk and therefore will be able to cover more of the nation's estimated 46 million uninsured residents.

And, if a public insurance option becomes law — a very big IF at this point — they think more individuals will be able to afford coverage and get the health care they need.

Regardless of whether the option passes, sliding-scale premium subsidies are proposed for individuals and families making 300 percent (Baucus plan) or 400 percent (two plans) of Federal Poverty Guidelines. (The 2009 FPL level for an individual is $10,830; $27,570 for a family of four.) All three plans prohibit the lifetime benefit caps and annual limits now seen in the market.

"Under reform," Stoll says, "insurers will no longer be permitted to refuse to cover people due to pre-existing conditions, to charge people higher rates due to their health problems, or to sell people policies that exclude coverage of their pre-existing conditions. … These are vast improvements over the current individual market, and the fact that they are included in both the Senate and House versions of reform bills holds great promise for individuals."

'Essential benefits set'

One of the key questions for Sandness, policy wonks and lawmakers is what kind of affordable preventive care and other services will be available with limited cost-sharing. Two of the bills include language to develop an "essential benefits set," or a comprehensive set of services, for all insurance policies. One plan limits annual cost-sharing to $5,000 for an individual and $10,000 for a family.

Compiling a similar benefits list is about to get under way in Minnesota as a result of state health-reform legislation passed in 2008.

Though Minnesota has the second-highest number of health-insurance mandates (PDF) in the nation (Maryland is No. 1), nothing in current state statute requires insurers to offer "first-dollar" coverage of preventive screening costs or those 68 mandates. First-dollar means the insurer picks up the cost for the care without requiring significant cost-sharing from the policyholder.

In other words, "the plan has to offer cancer screening but there's nothing in law that says cancer screening is exempt from the deductible," said John Gross, director of health-care policy for the Minnesota Department of Commerce, which regulates the insurance industry in the state.

Sandness and others could get first-dollar coverage if they are willing to pay significantly higher monthly premiums. When she tried to add a couple of annual office visits to her policy, she was told she would have to "reapply from scratch," even though the insurer had 16 years worth of her medical records.

"In contrast, all I had to do to switch to a higher deductible plan was make one phone call," she said. "The customer service agent took my policy number and told me that the change would be reflected in my next month's premium, and so it was. This makes no sense, but I'm told that companies use this reapplication routine in order to look for excuses to drop the client." Such tactics are expected to be banned in proposed legislation.

Costs mean many skip preventive care

Meanwhile, Sandness and others with these bare-bones policies find themselves skipping preventive care and other services because of the costs.

"We don't know at this point what the benefit requirements would be for any individual mandated coverage," said Julie Brunner, executive director of the Minnesota Council of Health Plans. "It's unclear from the federal legislation what is covered in an individual plan. We know people will be covered. We assume there will be some sort of basic benefit set that gets established. It's unclear how much preventive care has to be in there, but there's a lot of push and support for preventive services."

Individual policies aren't held to the same mandates as group policies in Minnesota. For example, an individual policy doesn't have to include maternity care and mental-health services, said Robert Commodore, Commerce's director of investigations and community outreach. The reasoning is to make these policies more affordable, but perplexed policyholders often call Commerce with questions about what their policies actually cover.

Brunner, whose nonprofit trade organization represents group health plans, empathizes with the confusion over individual-plan coverage. "This part of the market just sort of accelerated. I have a brother who is self-employed and I try to help him think through this stuff and I just get flummoxed."

Complaints are growing

Commodore oversees the Commerce Department's Consumer Response Team, which fields questions and investigates complaints about individual and group health-insurance policies. Though individual policies are a small slice of the overall market, complaints about them are growing and represent close to half of all health-insurance complaints in Minnesota. In 2007, the team looked at 536 complaints about individual policies out of 1,244 gripes altogether, according to a data run prepared for MinnPost.com. In 2008, Commerce tallied 604 individual plan complaints out of 1,215 filed.

A Commonwealth Fund study titled "Failure to Protect: Why the Individual Insurance Market Is Not a Viable Option for Most U.S. Families" (PDF) found that 41 percent of adults with individual plans in 2007 said they did not get needed care because of the costs, up from 24 percent in 2001. "Survey participants were asked whether they had avoided or delayed getting needed medical care because of its cost, including whether in the past year they had skipped a medical test, treatment, or follow-up recommended by a doctor, not filled a prescription, not gone to a doctor or clinic when sick, or not seen a specialist when a doctor or the respondent thought it was needed," according to the study.

An essential benefits set is expected to address that issue, but Minnesota plans to get a head-start on any federal legislation.

"Some of the major thinking behind that (set) is precisely because of the trend around higher deductibles," said Julie Sonier, director of the Minnesota Health Department's health economics program. "While those kinds (higher deductibles, etc.) of cost-saving tools do lower premiums, people cut back on care. ... The idea is to construct a smarter benefit set that encourages more use of what people should be getting."

Deductibles have been going up

Minnesota started seeing the high-deductible trend kick in for individual plans not long after the last double-digit premium increase (19.5 percent) in 2002. In that year, 38.7 percent of individual policyholders had deductibles ranging from $1,000 to $1,999, according to a report (PDF) from Sonier's health economics program. By 2008, however, 40.5 percent of the deductibles were in the $2,000-$2,999 range and 26.7 percent were $3,000-plus.

Individuals also accepted higher out-of-pocket limits to try to control costs of their premiums. In 2002, 45 percent of individual policyholders shouldered a $2,000-or-less limit; by 2008, 50.3 percent opted for the $2,000-$2,999 category and 25 percent for $4,000-plus by 2008 (vs. 9.6 percent in 2002).

Individual enrollment in high-deductible plans with pre-tax Health Savings Accounts also doubled between 2005 and 2008.

As individuals took on more of the so-called cost-sharing, premium rates continued to increase but in the single digits: 6.1 percent in 2003; 1 percent in 2005; and 3.4 percent in 2007. In 2004, the rate actually fell 1.1 percent.

Blue Cross and Blue Shield of Minnesota, which dominates the individual market with nearly 70 percent of the business, increased its individual product offerings this spring from 22 to 38 with varying degrees of preventive care and office visits. But consumers continue to show a strong preference for high-deductible plans, according to the Blues.

"We've seen strong sales at the high (high-deductible) end," said Phil Stalboerger, vice president for policy and legislative affairs for Blue Cross and Blue Shield of Minnesota, and a former director of legislative affairs for the Commerce Department during the Jesse Ventura administration. "We recently offered our highest deductible ever — $15,000 — and it's proving to be extremely popular."

Why? "Some of it is cost and a comfort level with the kind of coverage they need," said Stalboerger. "I think it's about personal risk tolerance, too."

Minnesota task force about to meet

A state task force will start meeting in September, Sonier says, to make recommendations "around a benefit set that provides coverage for a broad range of services and technologies that are clinically effective and cost-effective and lower enrollee cost-sharing for things that are cost-effective."

At the federal level, even Republicans are asking economists to crunch the costs for high-deductible individual insurance policies that keep premiums manageable but will offer more preventive care.

Stephen Parente, a health economist and associate professor of finance at the University of Minnesota's Carlson School of Management, has spent his summer crunching some of those numbers for a few Republicans and Blue Dog Democrats in Congress (he would not name them). Parente and a partner also run a consulting firm, Health Systems Innovations, which uses a simulation model to calculate costs of various proposals from Congress.

"I get these requests from Republicans and Blue Dogs or someone inside Ways and Means who want to come up with a compromise," Parente says. "They'll say, 'OK, here's what we propose. We want this subsidy. We propose this tax. How many people does it cover and how much money does it cost?' "

He has testified on Capitol Hill, and he was a volunteer health-finance adviser for Sen. John McCain's presidential campaign. And he is involved with the state task force devising an essential benefits set.

"The thing that's intriguing to me is every time someone basically says no to one of these (individual) policies and they're not getting it (coverage) at work, that's another uninsured person," said Parente, who once worked for the Blues. "You can make the insurance market work. … The question is, How can you get people more likely to choose these things given that the level of uninsured is as high as it is?"

Scenarios to include preventive care, prescriptions

Parente and others have been looking at various high-deductible scenarios that would yield lower premiums but still have a built-in component for low-cost preventive care and prescriptions for generic drugs for maintenance of chronic conditions.

Karen Sandness also has crunched her own numbers this summer. For her, reform can't come soon enough.

"I did some math the other night," she said, "and realized how much medical care I could have afforded if I didn't have that monthly premium being automatically withdrawn from my bank account: namely, several office visits per year and all the tests I'm not getting.

"Since I would be bankrupt if I had to pay the full out-of-pocket costs for my policy anyway, I am just about ready to bail out of my insurance policy entirely."

Casey Selix, a news editor and staff writer for MinnPost.com, can be reached at cselix [at] minnpost [dot] com.