Top priority: Making sure insurance is affordable

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Dedicated to affordable, quality healthcare and coverage for all Americans.

By Consumers Union on Tuesday, January 12th, 2010

Health insurance must be affordable for American families if we are all to buy it. With the proposed “public option” in doubt, we could end up with no strong mechanism to slow insurance price increases, and there’s no cap on how much prices could rise. Making sure health insurance policies are actually affordable for those who must buy them is our top priority in the coming weeks, and should be Congress’ top priority as well.

For millions of Americans, affordability is mainly secured through the discounts that will be available on a sliding scale to families earning under 400 percent of poverty (about $43,000 for an individual and $88,000 for a family of four). The discounts become available January 1, 2013 in the House bill, or 2014 in the Senate bill (see our summary of effective dates here).

The discounts will save qualifying families thousands of dollars–a huge improvement over the status quo. But, depending on the version finally sent to the President, the discounts may not be enough for some already strapped family budgets. For families who earn more than 400 percent of poverty and currently don’t get insurance from an employer, there will be a new mandate and no discounts.

That’s why we also have to get the underlying price of the insurance itself under control.

Neither the House nor the Senate proposal control insurance costs directly. Instead, they limit the price difference between young and old and eliminate a lot of distinctions that currently make insurance unaffordable for people who need it the most—they can’t charge more because of your health history, your gender or your occupation. They also require insurance companies to spend 85 cents of every premium dollar on medical care. The House bill starts this standard immediately, while the Senate version starts in 2011 with premium rebates to policy holders if companies don’t meet the goal.

Requiring insurers to direct your premium dollar to medical care will make sure we all get some medical “value” for our insurance dollars (something we don’t necessarily get right now). But it does not necessarily keep prices down. Insurance companies always claim their rate increases are related to increases in the underlying costs of care, and state regulators vary a lot in how aggressively they question those claims. And to be fair to insurance companies, doctors and hospitals are always pressing for higher fees.

So any effort to address the constantly rising cost of health insurance must look at both fronts–how we determine whether a rate is justified under the new standard, and how we actually reduce the underlying cost of care. Here I want to focus on the first question—the cost of insurance.

How can we address that? Well first, the Senate bill discourages unjustified rate increases but doesn’t define the term. The bills need to define an “unjustified rate increase” clearly so that we don’t have 50 different state approaches and big rate increases in some areas. Then, insurance companies with unjustified rate increases should be booted from the exchange. Finally, temporary provisions in the Senate bill designed to make sure insurance companies spread the cost of care across all policy holders (“risk adjustment”) should be extended past their current end date, and evaluated to see if they need to be made permanent. We’ve outlined in more detail these and other provisions from each bill, and some changes to both bills, that would help keep insurance costs under control.

Even so, there will be people who simply can’t afford to pay their required health insurance premiums, so the hardship exemptions need to be made very clear–people will not lose their house or car or be forced into bankruptcy if they cannot pay the insurance premium, and installment payments must be available. The goal of the legislation is to provide insurance, not generate new government revenue by imposing onerous penalties.

Over the long term, as we implement these reforms, insurance companies may invent new ways to cherry-pick their way to a more profitable (read healthier) policyholder base. After Congress finally passed strong credit card reforms, it took the credit card banks mere months to revise credit card contracts in ways designed to get around the new rules. We need to get the best possible bill finally passed now, and then we will need to track its implementation very closely to make sure we finally get the benefit of reform–that everyone can get the healthcare they need without drowning in impossible bills.

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