Benefits Business
Assessing the health care benefits market
Expansion of individual health insurance market and acceleration of changes to retiree benefits bear watching
By Len Strazewski
Group health insurance is usually considered to be the cornerstone of employee benefits programs, but if your agency’s employee benefits division has been ignoring individual health insurance sales—or has been considering solo policies only as an accommodation for ineligible dependents—think again in 2008.
In addition, start paying attention to health funding for retirees who are not yet Medicare-eligible. Retiree medical benefits may be changing, too, according to the PricewaterhouseCoopers Health Research Institute in New York.
The research organization, operated by one of the nation’s largest employee benefits consulting companies, made these predictions as part of its Annual Review of Top Health Industry Issues.
“The future strategies of hospitals, commercial insurers, and pharmaceutical companies and life sciences firms will be influenced by big changes ahead in governmental policies, market pressures and global trends,” says R. Carter Pate, global and U.S. health industries and government services leader at PricewaterhouseCoopers.
“With health care costs taking a bigger bite out of the assets of individuals, businesses and the U.S. economy, there is a demand for greater accountability from health industries and a demonstration of the value they create,” Pate observes.
Employers and insurers will likely be caught up in that drive for accountability as they respond to state and national health insurance reform movements, the Institute notes. Among the most important changes for agents and brokers could be a dramatic expansion of the individual health insurance market.
“Typically more expensive than group health insurance, individual health insurance could see market growth as more states mandate health insurance such as Massachusetts has done, and if an individual mandate or additional tax incentives come to fruition from proposals by Republican and Democratic presidential candidates,” the report says.
“Hospitals and other providers may suffer if these plans offer limited benefits, but in the long run would benefit from fewer uninsured Americans. Look for insurers to tailor producer and distribution strategies to individuals in the year ahead.”
About 34 states are already proposing health insurance reforms of various sorts designed to mandate health insurance coverage or increase access to affordable individual health insurance. Michigan is shaping up to be one of the key state battlegrounds as health plan providers take sides on reform legislation that passed the Michigan House of Representatives in October.
The Individual Market Reform legislative package (HB 5282 to HB 5285) calls for insurers to pay assessments to finance a high-risk pool for individuals who were previously considered medically uninsurable and would restrict rate increases for policyholders whose health has worsened prior to renewal.
The legislation is opposed by most health insurers but supported by Blue Cross Blue Shield of Michigan, which recently funded a survey of Michigan voters. The survey of 604 voters, which was conducted by Greenberg Quinlan Rosner Research in Washington, indicated that more than 80% of Michigan voters support the legislation.
“We know that these proposed reforms would be popular because they address some of the outrageous anti-consumer practices of the for-profit insurance companies,” says Mark Cook, vice president of governmental affairs for Blue Cross Blue Shield of Michigan. “We just didn’t know how exceedingly popular these reforms would be.”
Health insurers’ plan
America’s Health Insurance Plans (AHIP), the health insurance industry trade association in Washington, says the individual health insurance market is already both accessible and affordable. The organization proposed its own access reform plan for adoption by states.
The proposal calls for states to create Guarantee Access Plans to provide coverage for uninsured individuals with the highest expected medical costs and guarantee coverage to all applicants who are not eligible for the Guarantee Access Plan.
States should also provide consumers with access to a third-party review process to resolve disputes involving medical issues related to pre-existing condition exclusions and rescission decisions.
In late 2007, AHIP also released its latest study on the individual health insurance market that surveyed members on individual coverage access, premiums and plan design.
The survey revealed that individual health insurance is already more available and affordable than state reformers believe, says AHIP President and Chief Executive Officer Karen Ignagni.
“Consumers purchasing individual health care coverage have access to a wide variety of affordable health care coverage options,” she says. “Most applicants, regardless of age, were offered health care coverage at an affordable rate, giving them peace of mind and protecting their health security.”
According to the survey, nine of 10 applicants who completed the application process were offered coverage and nearly 90% of those were offered standard or preferred lower rates. Among applicants 60 years to 64 years old, 71% were offered coverage and 74% of those individuals were offered standard or preferred rates.
The national average premium for single coverage was $2,613 and family coverage $5,799, although premiums were higher in states that mandate guaranteed issue or community rating to increase access.
The most commonly purchased coverage option was preferred provider organization/point-of-service coverage, representing 78% of single policies and 66% of family policies in force.
Health savings accounts (HSAs) continue to be a popular option among consumers in the individual market. Ten percent of single policies and 23% of family policies involved an HSA as the primary form of cost sharing.
Most of the policies chosen had annual out-of-pocket limits under $5,000, and the average lifetime maximum benefit (among plans with a maximum) was nearly $4 million.
Changes for retirees
The PricewaterhouseCoopers Research Institute review also predicts an acceleration of changes to retiree medical benefits. The study cited a PricewaterhouseCoopers consulting study in 2007 in which about three-quarters of executives of multinational companies said that they believed employers should help provide access to affordable retiree health benefits, but they no longer should be expected to pay for those benefits or carry the anticipated cost of those benefits on their balance sheets as long-term debts.
As a result, employers are likely to re-examine their approach to providing retiree health benefits and either cap benefit levels, shifting increases to plan participants, move to a defined contribution model or cease offering benefits altogether.
The defined contribution approach received some early support late last year in auto industry labor negotiations. Big Three automaker negotiations with the United Auto Workers union resulted in a compromise that created an alternative funding mechanism for retiree medical benefits.
The agreement called for the employers to make contributions to a Voluntary Employee Benefit Association (VEBA), which would fund benefits and be managed by a group of employer and employee trustees. VEBAs previously have been used by other unions to fund regular health benefits under multi-employer labor agreements.
Applied on a smaller scale by non-union employers, the defined contribution model would allow employers to contribute to an employee-managed fund that could be used to pay premiums to the employer’s health plan or purchase individual health insurance coverage.
The author
Len Strazewski has been covering employee benefits issues for more than 20 years and is employee benefits editor of Human Resource Executive magazine. He has an M.A. in industrial relations from Loyola University.