CONSUMER ACCESS TO COVERAGE AND CARE AFTER REFORM

New York State Bar Association – Health Law Section

Mark Scherzer

January 27, 2010

INTRODUCTION

The bills which have passed the Senate and House of Representatives, H.R. 3590 (the Senate’s Patient Protection and Affordable Health Care Act or ”Senate bill”) and H.R. 3962 (the House of Representative’s Affordable Health Care for America Act, or “House bill”), are sufficiently similar that we can already envision many of the effects on New York of the ultimate health reform bill that is likely to emerge from either a conference or a so called “ping pong” process and be enacted into law in 2010. This presentation examines the broad parameters of likely effects of such reform on insurance consumers in New York’s private insurance market -- that is, the members of the public who will either receive coverage through their employers or will be required to purchase it as individuals.

The purpose of reform is to make coverage universal. It is certain not to achieve that goal, but likely to result in coverage of over 90% of Americans. Among the most important considerations for consumers are how readilyaccessible that coverage will be, whether the costs of coverage and care will be affordable, and whether the covered services will be comprehensive. These are certainly not the only issues consumers care about. The quality of medical care they receive and the ease with which they can navigate the system are among the other issues which loom large for them. But the reform bill will have its greatest, most direct and most predictable impacts on access, affordability and scope of coverage, and it is through that prism of interdependent criteria that I believe it makes sense to concentrate our examination.

I. ACCESS TO COVERAGE

Summary: One of the biggest innovations of federal reform, “guaranteed issue” of individual and small group coverage, will not be an innovation for New York. Other access measures such as extended dependent coverage and the House’s transitional COBRA extension will have marginal impact in this state, while changes to pre-existing condition rules will have a more pronounced impact.

Reform is likely, however, to alter the mix of group vs. individual coverage. Under the House version of reform, a small group market which has been diminishing in size and stability is likely to be reinvigorated. If reform more closely follows the Senate bill, it couldresult in significant numbers of low wage workers from firms newly required to offer coverage using employer vouchers to buy individual coverage in an Exchange.

Reform is likely to diminish coverage opportunities for undocumented immigrants; the Senate version will have a far more restrictive effect than the House.

Current Law: New York has had mandated “guaranteed issue” of individual and small group policies since 1992. This means that health status and other individual characteristics cannot be used as reasons to decline to issue coverage[1]. Open enrollment is required year round. Individual insurance can be purchased by anyone who can show residence in New York, which can be proven by evidence as basic as a utility bill. It cannot, however, be purchased by people who are eligible for coverage provided by an employer or by Medicare.(Ins. L. §§ 3231, 4317)

New York has also in the last year enacted laws to enable individuals who leave insured group plans to extend coverage for 36 months, double the 18 month COBRA period (Ins. L. §3221(m)(4),(6), §4304(k)(4))., and to permit adult unmarried children to stay on their parents’ plans until age 29. (Ins. L. §§ 3216(a)(4)(C), 4235(f)(1)(B), 4304(d)(1)(B), and 4305(c)(1)(B),

New York currently permits use of pre-existing condition limitation clauses in all policies. Our rules parallel the federal rules of the Health Insurance Portability and Accountability Act (HIPAA), allowing up to a 12 month waiting period for coverage of conditions for which there was consultation or treatment in the six months preceding the enrollment date or the beginning of a waiting period for coverage, with the waiting period reduced by portability rules which give credit for any periods of prior “creditable coverage”. Unlike HIPAA, New York extends portability when moving between individual plans, and not just when moving into or out of a group. (Ins. L. §§ 3232, 4318)

Reform Proposals: Both the House and Senate bills would make guaranteed issue in the small group and individual markets the law of the land. For the vast majority of states other than New York, this will mark a major shift, especially in the individual market.

To facilitate access, coverage would be sold to individuals and small groups through new entities called Exchanges. Under the Senate bill, Exchanges would be set up on a on a state by state basis, though states could opt to participate in multistate arrangements. The House bill would create a national Exchange, though states could qualify to operate their own Exchanges. The Exchangewould operate on a model similar to HealthPass in New York for small groups, in that employees could select one of a number of plans, but, unlike HealthPass, they would not be able to buy a better category of plan than the employer has elected to offer.

The House bill would permit individuals eligible for employer coverage to purchase insurance individually in the Exchange, and would give income eligible employees premium and cost-sharing credits, if their share of premiums as employees would exceed 12% of their adjusted gross income. The Senate bill would provide such credits if the employee’s share of premium exceeds 9.8% of adjusted gross income.

The House bill would require that individual coverage be sold only through the Exchange, while group coverage could be sold both outside and within the Exchange. The Senate bill would permit both individual and group markets to exist outside the Exchange, but they would be subject to the same underwriting rules as plans sold in the Exchanges. The Senate bill would permit only lawfully residing individuals to purchase through the Exchange.

Effects on New York: The proposed federal guaranteed issue rules for the individual market are not more expansive thanNew York’s and may in some details (one month per year open enrollment vs. year round open enrollment) be less so. They will have no substantial effect here.For the small group market, the Senate bill is more liberal in including one person businesses in the small group category, and thereforelikely erasing the differences in premiums and products currently offered as between small group and sole proprietor plans.The Freelancers Union plans are in a more ambiguous position. Members are not generally one employee businesses, but are independent workers working for a number of employers, often part time. They are likely to be considered part of the individual market and sales to new enrollees could be subjected to the federal individual market rules, including general guaranteed issue rules, from which New York has exempted the program.

The extension of dependent coverage to age 26 (Senate bill) or 27 (House bill), while not as generous as New York’s recent extension to age 29, will nevertheless increase access to employer coverage in New York because the federal reform will apply to self-insured plans as well as to the insured plans covered by New York law. For the same reason, if the House bill’s transitional extension until 2013 of COBRA benefits for those who are COBRA eligible on January 1, 2010, makes it into the final law, it will augment the availability of employer coverage, because it will, unlike the new 36 month continuation rule adopted by New YorkState, apply to self insured plans. None of these federal rules are likely to preempt New York’s rules to they extent New York’s aremore generous. The intent of both reform bills appears to be preservation of a State’s right to enact laws that are more consumer protective than the federal scheme.

The prohibition in both reform bills on imposition of pre-existing condition limitations once reform takes effect (2013 in the House bill, 2014 in the Senate) would preempt and in effect repeal existing New York law. So too would the House bill’s immediate (effective January 1, 2010) shortening of the look back period for pre-existing conditions to 30 days and of the exclusion period to three months, and the Senate’s ban on imposing pre-existing condition limitations on children. Pre-existing condition limitations are penalties which are designed to encourage purchase of coverage in a voluntary market. Federal reform will substitute different penalties (through the tax system) for failure to purchase, which are more appropriate to a mandatory market. While in the long term the substitution of one penalty system for another should have no major effect on the New York market, the immediate reductions in pre-existing condition rules, before coverage becomes compulsory, could, while benefitting individual consumers, lead to “adverse selection” in the marketplace.

The federal rules permitting individuals to purchase their own policies in the Exchange even when their employers offer coverage, in circumstances where the coverage offered does not meet reform standards or the cost sharing is too high, would almost certainly preempt New York rules, which are less generous.

The House bill would likely lead to an increase in group coverage, because all employers with annual payrolls over $500,000 would face significant penalties if they did not offer coverage and pay 72.5% of individual employee premium costs and 65% of family premium costs for a plan that meets an “essential benefits” benchmark. This would inducethe purchase of group coverage by many employers who are now eligible to buy in the large and small group markets but do not. The House bill also has much more generous tax subsidies for small employers who do offer health coverage.

The Senate version of reform couldaugment individual more than group. The Senate’s employer mandate only applies to those with 50 or more employees; the penalties on those larger employers who do not provide coverage (or who provide it with such high cost-sharing that employees opt to purchase cheaper coverage in the Exchange) are much more modest than in the House bill; and employers can avoid the penalty altogether by giving certain employees under 400% of federal poverty level a “free choice voucher,” in the amount the employer would have spent on their coverage in the employer’s plan, to be applied to their premium in the Exchange. This structure could encourage employers of over 50 employees that haveheretofore not offered coverage to establish plans outside the exchanges with very high premium cost sharing for employees, inducing the lower wage employeesinstead to accept individual vouchers to applyto purchase of government subsidized coverage in the Exchange.

Finally, if the Senate provisions preventing those who cannot show legal residence from purchasing even unsubsidized coverage in the Exchanges emerges as part of the final reform law, it could as a practical matter (or, if the House provision restricting sale of individual coverage to the Exchanges prevails, as a legal matter) end the opportunity undocumented immigrants now have to purchase individual market coverage in New York.

What are Some KeyImplementation Issuesfor New York?

▪ Whether New York should opt out of multi-state Exchange arrangements and cross-border sales of insurance products. In the event of the House’s single national Exchange is adopted, whether it should then opt for a state-based exchange;

▪ Whether to permit or prohibit sale of national plans (such as the federally negotiated Community Health Insurance Option), and whether to conform its guaranteed issue plans to the guaranteed issue rules of those plans in order to avoid adverse selection.

▪ Whether New York should create a state owned public plan for sale in the exchange

▪ Whether to merge the individual and small group markets

▪ Whether and how to integrate the Freelancers Union plan into the individual market and into the Exchange

▪ Whether and how to integrate the current Direct Pay policies into the Exchange, or to establish a whole new individual market structure

▪ How to ensure access to coverage for residents who may be barred from purchasing in the Exchange because of lack of lawful immigration status.

COMPREHENSIVENESS OF BENEFITS

Summary: Because the reform bills only establish broad categories of benefits that are deemed essential, and the federal essential benefit package will be fully defined only after an administrative process, it is impossible to say how much the federal mandate will deviate from the currently available or mandated benefits in the private insurance market in New York. It seems safe to predict that the federal essential benefits will not include all the benefits New York now mandates. Whether the state will be able to support significant mandates in addition to the federal essential benefits, but without federal subsidies for the additional mandates, will be a major implementation challenge.

It also seems safe to predict that Healthy NY will no longer be able to sell to new individuals or groups because of benefit structure deficiencies, but that sole proprietors will gain considerably more benefit choices by being considered as “small groups” by federal definition. The sustainability of the Direct Pay benefit package is in doubt.

Current law: New York currently regulates the labeling of insurance policies according to categories and amounts of benefits that must be provided (see definitions of Basic Hospital, Basic Medical,Major Medical, Limited Benefits Medical and Specified Disease Coverage at 11 N.Y.C.R.R. §§ 52.5, 52.6, 52.7, 52.10, and 52.15, respectively). By statute it also dictates that an extensive list of mandated benefits and rights be provided in various types of coverage (see, e.g., N.Y. Ins. L. §3221). But beyond these thresholds, New Yorkgives wide latitude in benefit structure. In the group market, outside of the quasi public HealthyNY plan which defines benefits by statute, there are no standardized benefit plans. There are so many variables that it is almost impossible to compare the plans offered by insurers to businesses and determine their relative values (See P. Newell and A. Baumgarten, The Big Picture: Public and Private Health Insurance Markets in New York, United Hospital Fund, 2009, at 50, describing the “multitude of confusing reimbursement schemes” in the market and why businesses need help in sorting through the “complicated options”.)

For those without employer-provided coverage, New York currently has:

(a)a standardized individual HMO product which every licensed HMO must offer in its service area (Ins. L. §4321). The only product variation permitted is an additional Point of Service option permitting individuals to go out of network(Ins. L. §4322). The benefit package is comprehensive, and covers a high percentage (over 90%) of costs of covered benefits.

(b)for individuals in families with incomes below 208% of Federal poverty level and who have not had employer coverage for twelve months (with exceptions for job loss or other events), Healthy NY, a limited benefit policy whichmust be also provided by every HMO. These policies exclude all mental health coverage, substance abuse treatment, and most rehabilitative care, provide no private duty nursing or home care, and offer either $3,000 per year in prescription drug coverage or no prescription coverage at all. Ins. L. §4326. Eligibility for HealthyNY overlaps to some degree with eligibility for Family Health Plus, a Medicaid expansion program for people with income above Medicaid limits, which has no premiums and substantially more comprehensive benefits.

(c)For independent workers in certain qualifying occupations who are not eligible for employer provided coverage, under a statutory “pilot program” signed into law last fall (Ins. L. §1123), coverage by an association, the Freelancer’s Union, through its wholly owned insurance company. The benefits are more generous than HealthyNY but more limited than standardized individual plans and involve substantially higher cost sharing.

(d)Sole proprietors of businesses may purchase at least one of the group policies generally offered to small businesses from each carrier that sells coverage to chambers of commerce or other association groups, at a premium no more than 15% higher than is charged to the small businesses (Ins. L. §4317(f)).

All of the above types of coverage include annual or lifetime caps on some benefits. Some, particularly in the group market, also include aggregate lifetime benefit limits.

Reform proposals: Both the Senate and House bills would require establishment of an “essential benefit” package covering all major categories of care, comparable to typical employee plans now. While existing policies would be grandfathered for current policyholders, both bills would prohibit the sale of new policies that do not cover those “essential” benefits. There are substantial incentives to purchase insurance through theExchanges, where consumers will be provided with navigational assistance and comparisons among plans will become easier, as they will be categorized according to actuarial value(the percentage of covered benefits that the plans actually pay for). The Senate bill creates Bronze, Silver, Gold, or Platinum categories, corresponding, respectively, to 60%, 70%, 80% and 90% of actuarial value). In order to sell in the Exchanges, an insurer would have to offer at least one Gold level and one Silver level plan. The House bill creates Essential, Enhanced, and Premium categories, corresponding to 70%, 85% and 95% actuarial value, respectively). It adds a category of Premium Plus plans that include such benefits as dental and vision which are for now outside the essential benefits package. The bills do not make clear the treatment of existing plans that may have actuarial values between these benchmarks.