Magazine article The American Prospect

Getting Insurers to Behave: Job No. 1: Write New Rules for Health Insurers and Make Sure They Follow Them

Magazine article The American Prospect

Getting Insurers to Behave: Job No. 1: Write New Rules for Health Insurers and Make Sure They Follow Them

Article excerpt

Now that the Patient Protection and Affordable Care Act is law, the Obama administration has to translate the law's requirements into specific rules, particularly for the health-insurance industry. The act requires insurers to do a lot of things they haven't done before, like making sure all plans cover at least a basic array of services and limit out-of-pocket expenses. But under a so-called grandfather clause, plans already in existence are exempt from many of the new requirements. How the administration has interpreted "grandfathering"--one of its first rule-making decisions--may be an indication of things to come.

The exemption exists because of the president's promise that people who already have insurance can keep their current coverage if they like it. But from a policy perspective, the grandfather clause is dangerous. An employer eager to slash its benefit costs could try to exploit the exemption to whittle away coverage in a plan it currently offers.

The Affordable Care Act left it to the secretary of health and human services to determine the precise rules for when plans lose grandfather status. Under the interim rule that Secretary Kathleen Sebelius and her staff issued in June, employers can make modest adjustments to their workers' plans and remain exempt from most of reform's requirements. But if an employer tries to reduce coverage significantly--say, by suddenly bumping up deductibles by more than $1,000 per person--the plan becomes subject to the full protections of the Affordable Care Act. Insurers and employers didn't much like the decision, which discourages them from reducing benefits, but consumer advocates were delighted.

For the new law to fulfill its promise, it must change how insurers behave. But as with the grandfather clause, it's up to the administration to turn the law's general language into clear regulations. The challenges are political as well as technical: Plenty of conservatives see the regulatory process as a chance to re-litigate health reform and perhaps roll it back. If they succeed, they could undermine much of what reform is supposed to achieve.

FIRST, THE GOOD NEWS: The most important new restrictions on insurance-company behavior are also the most straightforward. These are the rules guaranteeing that people who represent high medical risks because of their personal characteristics or preexisting conditions have access to policies at the same prices as healthy people do. For the most part, this is already true for people who get insurance through large companies--but not for people who buy on their own or through small businesses. As of 2014, under the law, insurers that sell to these markets will have to practice "community rating" (charging everybody the same rate for a given policy) and "guaranteed issue" (selling policies to anybody willing to pay the premiums).

The Affordable Care Act leaves relatively little to chance here. The law spells out the requirement unambiguously, allowing insurers to vary rates only by geographic area, tobacco use, and age (on a three to one ratio between old and young). In 2014, the prices for all policies will be publicly listed on the new insurance exchanges, where people can sign up for them. Enforcing the rule will be a simple matter of checking what insurers are charging for policies and investigating any reports of discriminatory pricing in policies sold outside the exchanges.

But community rating and guaranteed issue alone won't be sufficient to change the behavior of insurance companies. Even if insurers are required to take all comers at relatively nondiscriminatory prices--"relatively" since age can be a rough proxy for medical condition--they'll still have financial incentives to restrict care. This isn't entirely a bad thing: Given the evidence of rampant overtreatment in American medicine, insurers should exercise some check on the use of technology, drugs, and other resources, for the sake of the patients as well as the insurers' bottom line. …

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