Consumer Watchdog on Health Reform Loopholes
posted by Frank Pasquale
Consumer Watchdog has authored an important letter to HHS Secretary Kathleen Sebelius on loopoholes in PPACA. The letter highlights the importance of rapid and forceful rulemaking at HHS to ensure that the framework set up by the legislation actually promotes affordable access to care. Here are some highlights.
1) Vague “review” of insurance rate increases: The statute provides grants to assure that states “review” insurer rate increases, but does not provide adequate guidance on acceptable performance here. Without something like “all-payer rate setting” operating as background cost-control, the legislation’s prescribed “medical loss ratios” could even encourage insurers to increase rates:
The federal law’s requirement that insurers spend 80% or 85% of the premiums they collect on health care services will—absent strict rate regulation—perversely encourage insurers to raise their premium rates. In the same way that a Hollywood agent who gets a 20% cut of an actor’s salary has an incentive to seek the highest salary, insurers will have incentive to increase health care costs and raise premiums so that their 20% cut is a larger dollar amount.
2) Lack of real rescission reform: One of reform’s key selling points is preventing rescissions–an insurance company’s cancellations of policies for members just at the point they need them most. Consumer Watchdog worries the protections will turn out to be illusory:
A key rallying cry for federal reform was the insurer practice known as rescission—retroactive cancellation of coverage after a patient makes a claim for health care services. Insurers often argue that a rescission is warranted because the patient intentionally failed to report minor health problems when applying for coverage. Such rescissions are carried out unilaterally by the insurer and regardless of whether the patient even knew about, or understood the significance of, the health problem the insurer claims was intentionally omitted from the application. Since an applicant’s health condition is no longer relevant to determining insurability, coverage rescissions should be barred outright.
However, section 2712 of the Senate legislation allows for rescission of health policies on the basis of fraud or the “intentional misrepresentation of material fact as prohibited by the terms of the plan or coverage.” The insurers are left to define the terms of future coverage rescissions in the fine print of their policies. No new regulatory oversight of rescission is provided to ensure that omissions or errors are indeed fraudulent or intentional, rather than innocent mistakes.
3) Manipulating the Medical Loss Ratio: Here CW calls out Wellpoint, whose CEO enjoyed a massive pay increase last year while socking it to those unlucky enough to be in the individual insurance market:
The new federal health reform law requires that insurers spend at least 80% of customers’ premiums on medical care in the individual insurance market, and 85% in the employer/group market. HHS must narrowly define what constitutes medical care to block gaming of the new medical loss ratio requirement by health insurers. [because insurers like Wellpoint have said they would] simply re-label administrative costs as “medical care” in response to the new health reform law.
4) Weak federal fallback: This is one of the most disturbing aspects of the Consumer Watchdog letter, and definitely bears watching as state governments hostile to reform begin implementing it:
The threat of strong federal fallback is the kind of carrot and stick approach that would encourage state regulators to act where they otherwise may not. However, federal enforcement fallback provisions are virtually absent from the bill.
Since the courts have not been very supportive of judicial interventions to enforce Medicaid beneficiaries’ legal rights (given Gonzaga v. Doe), it’s essential for the feds to develop a record of enforcment when wayward states fail to protect their citizens.
Image Credit: Linda Hirschman.
April 8, 2010 at 11:51 pm
Posted in: Health Law
Print This Post
Responses (1)
Sam - April 9, 2010 at 12:54 am
Thanks for the insight! Everyone pretends to be an “expert” on health insurance reform, but its really a complex interaction of multiple legal disciplines.
In fact, the personal health and life insurance market depends heavily on technology to collect underwriting information, expedite policy coverage, and reduce fraudulent pay-out costs. How many consumers are aware that, just like financial companies rely on “credit reports” to establish credit for customers, insurance companies utilize “medical reports” to assess the health, determine the insurability, and set the price for insurance applicants and policyholders?
Under federal law, these corporations are classified as “nationwide specialty consumer reporting agencies” and must comply with certain legal requirements (though they do not have the same rules as the major consumer reporting agencies Experian, Equifax, and TransUnion. In addition to the Medical Information Bureau Inc. (MIB), the companies Ingenix Inc. and Milliman Inc. also sell consumer reporting profiles to insurance companies.
https://www.annualmedicalreport.com/howto-request-medical-report/
Most consumers and even many insurance agents are unaware that Humana, UnitedHealth Group , Aetna (AET), Blue Cross plans, and other insurance giants have ready access to applicants’ prescription histories. These online reports, available to insurers in seconds from little-known intermediary companies, typically include voluminous information going back five years on dosage, refills, and possible medical conditions. The reports also provide a numerical score predicting what a person may cost an insurer in the future.
An investigation in 2008 by the Federal Trade Commission found that the two companies supplying these pharmacy profiles—Ingenix Inc. and Milliman Inc.—violated federal law for years by keeping the system hidden from consumers. But the FTC has merely required disclosure if prescription information causes denial of coverage or some other adverse action; the agency imposed no penalties.
Leave a Reply