Insurer Admits Industry Could Circumvent Proposed Regulations

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"Insurer Admits Industry Could Circumvent Proposed Regulations"

During today’s Michigan Business and Legislative Forum, which the Wonk Room attended, a representative of Blue Cross Blue Shield of Michigan admitted that insurers could circumvent the market regulations proposed as part of health care reform.

In answering a question about insurer market share, Mark Cook, Vice President of Governmental Affairs at BCBS Michigan, criticized for-profit insurers for maximizing their profit margins by only covering the healthiest and youngest applicants. “[I]f you have a business model that basically says, ‘I’ll take 25-year-olds until they get sick.’ That’s a great business.”

Cook conceded that health reform would not eliminate such risk selection. In a separate conversation with the Wonk Room, Cook agreed that that despite industry concessions to accept applicants with pre-existing conditions, existing health reform measures would not prevent insurers from designing benefit packages that excluded sicker populations:

WONK ROOM: I’m just wondering in terms of designing benefit packages the standards in the bill, at least the ones I’ve seen, at least the Baucus ones are actuarial standards, so you can design packages that kind of hide packages behind high deductibles, things like that.

COOK: Yeah I suppose there could be some , um, some industry folks could take, how do I want to put this? Could take, um, a low benefit design and try to market it heavily to a young, healthy population or something like that.

WONK ROOM: Right, you can design packages that attract different pools, right?

COOK: I suppose there could be some gaming that goes on around that if that is the design that ends up happening.

Watch it:

The Baucus bill requires insurers participating in the Exchange to offer plans in four different tiers. Each plan would have to meet a different actuarial-value. In the silver tier, insurers would have to cover 73% of the health care expenses of an average population; the remaining 27% would be picked up by individuals.

But Sarah Lueck at the Center on Budget and Policy Priorities warns, and Cook seems to agree, that “an actuarial-value standard on its own” would not prevent insurers from designing packages that would attract healthier applicants and deter “enrollment by those in poorer health.” “For example, insurers could offer a benefits design that omits or severely limits services needed by people with serious medical conditions, while offering richer benefits in other areas such as vision care or health-club memberships. In that way, an insurer could meet an actuarial standard while designing a package calculated to deter sicker people (by failing to cover basic services they need) and attract healthy ones.” Insurers could offer cheaper preventive services without any cost sharing but cover more expensive services only after a high deductible is satisfied.

As former health insurance executive Wendell Potter explained in an interview with ThinkProress, insurers would “like to move us all into high deductible plans.” “[The would like to] have high deductibles that we would all have to meet and or [move us] into these limited benefit plans that are very skimpy and don’t cover you, don’t cover what you need. That way, when you do get sick, they’re not on the hook to pay you anything. They would love to have you enrolled in these.”

Transcript:

COOK: What you’re doing in selecting that five percent is making sure that you don’t get any significant or very aggressive under [inaudible]. That’s a very profitable slice of business, so if you have a business model that basically says, ‘I’ll take 25-year-olds until they get sick.’ That’s a great business. So, to me it’s not so much about, what’s the overall market share, it’s, of that market share what’s the overall loss ratio [inaudible]

About 50% or less. So that means for the dollars they’re paying out they’re taking in a lot more. And so, to us, it’s not always about market share, in fact, if you look at the federal [inaudible] summary, the market share tax is in there to try and drive more competition. For us, if you’ve got a large, between HAP? And Priority and the other nonprofits nationally, all told they’re probably 80 percent of the market place.

Right

So, you’ve got a group of nonprofits that are putting money back into the community, paying more in loss-ratio, putting more money back into the healthcare system. That’s not a bad thing, that’s actually a good thing. So, I hear a lot of the for profit health carriers saying, ‘oh, we’re just a small profit share, just leave us alone.’ To me, what we’re saying is ‘leave my profits alone.’

WONK ROOM: How do you think reform changes the business model for insurers?

COOK: The reforms they’re considering with guaranteed issue individual mandate, making everyone take everyone regardless of health will help in Michigan for the…

WONK ROOM: So do you think there is still going to be room, with those regulations for selecting that slice that is profitable?

COOK: I think because of the guarantee issue piece of it there won’t be that game playing that goes on currently, because if all carriers have to take anybody who applies…

WONK ROOM: Right, I understand that, I’m just wondering in terms of designing benefit packages the standards in the bill, at least the ones I’ve seen, at least the Baucus ones are actuarial standards, so you can design packages that kind of hide packages behind high deductibles, things like that.

COOK: Yeah I suppose there could be some , um, some industry folks could take, how do I want to put this? Could take, um, a low benefit design and try to market it heavily to a young, healthy population or something like that.

WONK ROOM: Right, you can design packages that attract different pools, right?

COOK: I suppose there could be some gaming that goes on around that if that is the design that ends up happening.

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