HEALTH PLANS/POLICY/POLITICS: Geography-lock–Why can’t you move individual insurance to another state?

This is how the cause of universal health care wins the hearts and minds….damn slowly and one by one. So I get an email exactly like this:

This is not something I have seen addressed anywhere and it pertains to the plight of the individual insurance plan holder. I have been enrolled in the same medical plan through a high profile insurance company since 1989. About 15 years ago I added my husband and later a child. Our premiums are larger than many people’s mortgage payments and we have $2500 deductibles and a host of out of pocket costs. We nonetheless are grateful to have insurance.

However, I naively thought that our coverage was nationwide…In fact, my original policy made repeated reference to the fact that our coverage was good in “50 states.” We relocated to another state a couple of years ago. We could not get new coverage without re-application and underwriting. However my husband was (successfully/surgically) treated for localized prostate cancer in recent memory and has moderate hypertension. It appears that this alone would cause us to be denied coverage and force him at least into a high risk pool and none exists in the state we moved to. So we were forced to return to the state where we have health coverage…

Why is it that HIPAA or coverage portability is limited to people in group plans? This seems so patently discriminatory to me. I have paid over $100,000 in health premiums alone with no interruption of coverage for 17 years as a self employed individual. And I have received NO tax credits for same. I am not able to change my location and improve our quality of life and am feeling increasingly desperate about the increases in our premium costs and our ability to even hold onto coverage which we have.

If you can explain this phenomenon I would be grateful. But more importantly, is there any medical watchdog group available to lobby on behalf of the individual? Would anything be served by a lawsuit? I have no confidence in legislators.

So I reply

The problem with the “coverage in 50 states” thing is that it’s OK for your state-based insurance company (and they all are as they’re state regulated) to cover you if you travel outside their state. But they are restricted from offering the insurance of one state to someone in another.  This is actually what the whole AHP argument is about, otherwise states which impose certain regulations on their carriers (e.g. New York) would find that a plan setting up in Guam or Montana or wherever) could offer much cheaper insurance in New York by using Guam’s rules. Of course when you move from one state to another you are switching insurance companies even if the corporate parent of that company is the same. And of course they will take that chance to underwrite you.

The only way around this for an individual is never to move (as you are finding out) or get an employer who’ll cover you in their group, or (most appropriately) to campaign for universal health insurance.

And my correspondent retorts

Honestly though, what can be the justification for ensuring that group policies are portable, yet individual policies are not? I am not sure what the parallels are in other avenues of industry, but if we can deregulate banks, why not insurance companies? Or perhaps it is another issue… This is evocative of a monopoly, replete with price fixing, bad faith, and discriminatory practices. I have no protection nor am I treated equally under the law–other than the fact that the insurance company cannot cancel me as long as I pay my premiums (and reside in the service area).

My premiums are basically whatever they say they are.  I know that individual policies are a fraction of their business but I am paying top dollar for the privilege. If I have uninterrupted service I don’t feel I should be treated as a different class by HIPAA.

We are healthy people for the most part who eat well, don’t drink or smoke. But hey, we are older, and between the Scylla and Charibdys of private insurance and Medicare. In the 10-15 years we have prior to Medicare eligibility we will spend a couple hundred thousand *more* dollars, and having done the math on what we have cost the insurer to date, we have more than self funded our own medical care. They have easily captured more than 75% of what we have spent.

They use age banding, tiering, and geographical/demographic data and god knows what else to determine the cost of the premiums, so I know they are not doing this for free…

When I pay my taxes I pay the employee and employer side. I don’t object to paying taxes or medical premiums actually. I know that medical costs are through the roof and that individuals and employees in group plans have to shoulder more of the burden. But again, this means we should receive equal treatment. Anyway, I would be more than willing to be the poster child for changing this process. But I think it has to happen through the courts. Is there any move afoot in Congress to level the playing field?

So I pull out the nuclear arsenal and start explaining the ERISA launch code sequence

The problem is that self-insured group plans are regulated by a Federal law (called ERISA) while individual plans are regulated by individual state laws. It makes no sense. Welcome to America.

Incidentally, group plans are no bargains either…but in terms of geographic coverage so long as the corporation can stay self insured, they avoid having to obey state mandates and therefore can offer similar benefits across the country. Because you are not a beneficiary of a corporation, you are subject to the individual law of each state and hence are starting afresh after a move.

I’m not sure what a court could do. ERISA has been to the Supreme Court and won. If Congress passes the AHP law it would allow an insurer to  offer insurance in a different state, but no one’s going to offer cheaper insurance to your family because they will underwrite you because of your husbands condition. The only solution is for a universal insurance nationwide risk pool–that’s what Medicare is. And that needs a political solution

And in the end we’ve at least got one more small business owner on board.

Thank you. At least I now understand the issues. I did vote for universal health insurance in the last presidential election so to speak but my guy did not win.

Now if we could only get the rest of the NFIB to see sense. But that won’t happen, so this frog will continue to boil one degree at a time.

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8 replies »

  1. Matthew– the Shadegg bill is not the AHP bill… It would allow you in CA to purchase health plans offered in any of the states (which, BTW, would make them portable).

  2. Expert Healthcare Economist Barry Carol writes:
    > Presumably, even those costs (to UNH) would have
    > been at least moderately lower if deductibles were
    > somewhat higher.
    What a marvellous insight! Making less of something reduces variable production costs! Who would’ve thought?

  3. I don’t see why tier banded rating and/or age based rating could not work. The key assumption that I make is that insurance is, for the most part, a highly competitive business. Returns on capital and equity are generally about in line with the experience for Corporate America overall as measured by the S&P 500.
    Suppose insurance company A covers 250,000 young, healthy lives at several thousand per year each. After a year or two, the company and its competitors find that the medical loss ratio on this business is 50% vs 85% for their total book of business. Don’t you think that competitors will come in with a lower price and/or enhanced coverage (lower deductibles and co-pays) to try to win more of this lucrative market?
    Conversely, if higher risk business on turns out to be less profitable than planned, some combination of higher rates and higher deductibles, co-pays and out of pocket maximums could be implemented to make the profitability of the business acceptable.
    I would bet that in any given year, relatively few people have medical expenses above $10,000-$15,000, and (1) they are not the same people from year-to-year, (2) many of them are over 65 and Medicare eligible, and (3) still others are Medicaid eligible.
    I’ve heard United Health say that in its most recent year, 7% of its policyholders accounted for 63% of its claims cost. Presumably, even those costs (to UNH) would have been at least moderately lower if deductibles were somewhat higher.

  4. The HIPPA law needs to be changed to apply to individuals so that we can have true portability and competition in the individual marketplace. Once you have had 18 months of previous coverage in any form, you should be able to change your insurance company. Risk tiers are not a good idea for the following reason. They reduce and eliminate the community rating system. With tier banded rating, the insurance companies will not provide a discount for the healthy enrollees, as this will be their “standard” rate. Instead, they will raise the insurance rates on any person whom has a few claims a year and make them skyrocket on anyone with more problematic conditions, and no one will be saving any money in comparison to what they previously spent.

  5. Hmm…Trap and Eric; you’re missing the minor issue that after the Shadegg bill gets enacted, people like my correspondent will have to get re-underwritten to get insurance. The AHPs will only insure healthy people for the minimum levels, as they’ll be using the lowest denominator from the least regulated state. For the guy with prostate cancer that’s a non-starter. Barry’s concept of re-tiring, community rating (after a fashion) and catastrophic pools at least acknowledge the problem, even if I don’t believe that they’re a workable solution.
    Please explain why a universal community-rated pool would fail to solve their problem?
    Incidentally, I dont think that the AHPs will get past the power of the Blues in the Senate…but we’ll see.

  6. I don’t see how this is an argument for universal health care Matthew. If it supports anything, it supports the Shadegg bill.
    Also, your favorite Catoites have been trying to help this woman out for more than a year. Just watch this archived March 1, 2005 Cato policy forum…
    “Making Coverage Affordable through a Nationwide Marketplace for Health Insurance”
    Featuring Rep. John Shadegg (R-AZ); Michael O’Grady, HHS; and Tom Miller, Joint Economic Committee
    Trapier K. Michael

  7. I agree that this situation is outrageous. Like so much in healthcare, though, solutions that satisfy everyone (or even most people) are hard to come by. For example, in New Jersey, we have community rating, along with numerous mandated benefits that policies must cover. The upshot is that the cost of comprehensive medical coverage for a healthy man in his early 20’s is about $4,000 per year and more for a young woman. No wonder so many young people just getting started in jobs with low, entry level salaries opt to forgo health insurance, even if their employer offers it because even the employee share of the cost is too much for them.
    Personally, in addition to being able to sell insurance nationally, I would like to see something along the following lines:
    1. Divide the below 65 population into three age tiers for rating purposes. The ages might be less than 35, 36-50, and 51-64.
    2. Within each tier, like auto insurance, there could be a preferred risk group, a standard risk group, and a high risk group with the amount that can be charged the high risk group limited to, perhaps, 25%-35% above standard rates.
    3. For very high risk or already very sick people that nobody would willingly underwrite, there could be an assigned risk pool. Those risks would be randomly assigned to all insurers in proportion to their market share so no one company would have to insure a disproportionate number of high risk people.
    Finally, with respect to the comparatively small number of people with very high medical costs, I would like to see the following to control costs, at least to some extent:
    1. Intensive case management coupled with electronic medical records to insure that all doctors involved in the care of one of these patients is fully aware of all care being provided by everyone involved in the case. This should help to hold down unnecessary, duplicative, and inappropriate care.
    2. All of these patients should have living wills or advance directives for health care if they don’t already have one. Why spend serious money on futile care at the end of life when it may not even be wanted?
    3. In the absence of a living will, there should be reasonably flexible default protocols to allow doctors to apply common sense depending on circumstances without having to worry about being sued because they didn’t do everything to keep the patient alive as long as possible.
    We keep hearing that 10% of the people account for 70% of health costs in a typical year, and the best way to reduce healthcare costs is to reduce utilization. These very expensive cases are where the money is. To the extent that we can lower the cost of these cases by applying healhcare more intelligently and judiciously, perhaps health insurance costs could come down (or at least stabilize) for everyone.

  8. Matthew– you could support Congressman Shadegg’s ‘Health Care Choice Act’ (which people on the democrat side of the aisle, and some on the republican do not). This would do what your correspondent is looking for.
    HR2355 and S1015 from this Congress…

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