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- Presented by Janet Trautwein
- Executive Vice President and CEO
- National Association of Health Underwriters
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- Everyone needs medical care sometime, and the most common way to pay=
for
it in this country is through private health insurance.
- While most Americans have some type of private health insurance
coverage, the different types of health insurance coverage and how t=
hey
work can be confusing and difficult to understand.
- This briefing is designed to explain health insurance basics in laym=
an's
terms, and also provide you with contact information for resources t=
hat
can provide you with additional information and help.
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- You may be wondering exactly who are the National Association of Hea=
lth
Underwriters, or why we are qualified to give this briefing.
- Our association represents over 20,000 health insurance agents, brok=
ers
and employee benefit specialists nationally.
- Our members sell health insurance and employee benefit products. Annually we assist millions=
of
Americans with their insurance needs.
- Our members help both individuals and also employers purchase health
insurance products. Our
employer clients range from fortune 500 companies to sole proprietor=
s.
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- In addition to selling the insurance products, producers often help
their clients, particularly the small employers, with all sorts of
employee benefit issues, including assistance with claims processing,
COBRA administration, privacy issues, and more.
- Most of our members are independent health insurance agents or
consultants, and many are small-business owners themselves.
- As an association, our two top public policy goals are:
- Reducing the number of uninsured Americans through private-market
solutions; and
- Making sure that state-level private health insurance markets are as
vibrant and competitive as possible.
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- In the United States, this is the breakdown of how people receive th=
eir
health insurance coverage:
- 54% through their employer or the employer of a family member
- 5% purchase individual insurance coverage
- 13% receive Medicaid
- 12% receive Medicare
- 16% are uninsured
- Source: Kaiser Family Foundation
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- In Illinois, this is how the breakdown of how people receive their
health insurance coverage:
- 58% through their employer or the employer of a family member
- 5% purchase individual insurance coverage
- 9% receive Medicaid
- 12% receive Medicare
- 1% receive other public coverage
- 14% are uninsured
- Source: Kaiser Family Foundation
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- The majority of Americans have group health insurance coverage throu=
gh
either their employer or the employer of a family member.
- Many people don’t realize that health insurance is issued
differently for different types of employers, and that since insuran=
ce
is regulated at the state level, health insurance requirements for t=
he
different types of employers can vary significantly from state to st=
ate.
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- Millions of Americans work for small employers, which for health plan
purposes, are generally those with 50 employees or less.
- Millions of other Americans get their health employer-sponsored heal=
th
insurance coverage through large employers. Generally, for health plan
purposes, those are business with more than 50 employees.
- The requirements for the issuance of coverage to large groups are
different than for small groups, and the way that rates are determin=
ed
is also different.
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- In addition to employed people who have group health insurance, mill=
ions
of people who lose their group health insurance coverage, due to a j=
ob
change, a divorce, job loss or other reason are able to keep their g=
roup
coverage, at least temporarily.
- Most people who are able to continue their group health insurance
benefits are eligible to do so according to federal Consolidated Omn=
ibus
Budget Reconciliation Act of 1985 (COBRA) legislation.
- However COBRA does not apply to all employers, and many states have
mandated continuation =
of
coverage options for people who are not covered by COBRA.
- Also, many people leaving group insurance for the individual market =
have
federally mandated group-to-individual health insurance portability
benefits.
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- The federal Health Insurance Portability and Accountability Act of 1=
996
(HIPAA) requires that all small-group health plans:
- Be issued on a guaranteed basis, no matter what health conditions
members of the group have.
- Be guarantee-renewable, unless there is non-payment of premium, the
employer has committed fraud or intentional misrepresentation or the
employer has not complied with the terms of the health insurance
contract.
- To impose no more than a 6-month look-back/12-month exclusionary pe=
riod
for preexisting conditions on enrollees that do not have prior
creditable coverage.
- To give employees credit for prior coverage regarding preexisting
conditions, as long as there is no more than a 63-day break in
coverage.
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- In Illinois, small employer health plans are defined as 2-50 employe=
es.
- In Illinois, the small-group health insurance market is medically
underwritten. Rates may vary by plus or minus 25 percent of the inde=
xed
rate based on the health status of the group.
- In 40 states, the law allows small group health insurance carriers to
determine their rates using a process known as medical underwriting.=
- The other states all allow for either modified community rating or
community rating in their group markets.
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- When small-group plans are medically underwritten, employees are ask=
ed
to provide health information about themselves and their covered fam=
ily
members.
- When determining rates, insurance carriers use the medical informati=
on
on these applications.
Sometimes they will request additional information from an
applicant’s physician or ask the applicants for clarification.=
- If an underwriter is unable to obtain information necessary to
accurately determine the risk of a particular applicant, he or she w=
ill
underwrite more conservatively, meaning that the assumption relative=
to
the missing information will be negative rather than positive.
- Example: A person has a history of high blood pressure, but it is
controlled with medication and they are not overweight. If the underwriter is unab=
le to
determine if that individual smokes or if he or she has normal
cholesterol, the carrier will assume that the missing information is
negative and rate accordingly.
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- Most state laws concerning small group medical underwriting are base=
d on
a National Association of Insurance Commissioners Model and allow gr=
oups
to be rated “X” percent above or below the indexed rate.=
- The indexed rate is determined by averaging the lowest possible rate
and the highest possible rate. Most states that have this type of
rating system also have a limit on rate increases due to the health
status of the group, which is helpful in stabilizing rates over tim=
e.
- Even with initial rate fluctuations for a new group, small employer
rates in these states tend to be much lower than in states where hea=
lth
status rating is not allowed.
- A group that is rated correctly up front is much less likely to have=
a
very large increase at renewal.
- In order to rate the group correctly, the correct information on the
initial application is essential.
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- The alternative to medical underwriting is known as community rating=
.
- Community rating requires insurers to charge all individuals who liv=
e in
the same geographical area the same exact premium regardless of their
age or health status.
- Example: An employer’s cost to insure a healthy 27-year old
non-smoking male with no health conditions would be the same as it
would be to insure a 55-year old male smoker who is suffering from
prostate cancer and a heart condition.
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- A variation on community rating used by some states is called modifi=
ed
community rating (MCR).
- With MCR, health plans may vary the community rate based on limited
factors, such as age, gender and/or smoker status.
- Example: In a state that allows MCR variations for age, the employer
would pay more to insure the 55-year old male smoker with cancer an=
d a
heart condition. However, the insurer would have to use the same ra=
te
when calculating premiums for the healthy 27-year old male as it wo=
uld
for a male co-worker who is the same age but suffers from juvenile
diabetes.
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- State-level MCR laws vary greatly.&=
nbsp;
Some allow for many adjustment factors, but many allow for ju=
st a
limited few.
- Community rating and modified community rating have a severely negat=
ive
impact on health insurance rates in all states that employ the
mechanism, but the more limited the rate adjustment factors, the more
severe the problem.
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- In most states, large employer groups are defined as more than 50
employees.
- Large group health insurance contracts, unlike small group health
insurance contracts, do not have to be offered on a guarantee-issue
basis.
- Large group health insurance is underwritten based on a number of
factors, including employee demographics, participation, and prior
claims experience.
- HIPAA mandates all group insurance contracts, including large group
contracts, must be guaranteed renewable, unless there is non-payment=
of
premium, the employer has committed fraud or intentional
misrepresentation or the employer has not complied with the terms of=
the
health insurance contract.
- HIPAA also requires all employers to give employees credit for prior
coverage for preexisting condition exclusions, as long as there is no
more than a 63-day break in coverage.
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- Many employer-based health insurance plans are fully insured by a he=
alth
insurance carrier. The individual states regulate these plans.
- Larger group health plans (usually several hundred employees or larg=
er)
may choose to either fully or partially self-insure their group bene=
fit
plans.
- Companies that self-insure generally buy a stop-loss policy to prote=
ct
themselves against losses above a certain threshold.
- Self-funded employers also generally contract with either a third-pa=
rty
administrator or a health plan to administer their plans and handle
claims.
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- Many employees of companies that self-fund their coverage do not even
realize that their plan is self-funded by their employer.
- Self-funded plans are regulated federally by the Department of Labor
under the Employee Retirement Income Security Act of 1974 (ERISA).
That is why they are someti=
mes
known as ERISA plans.
- Self-funded plans are not subject to state-level rating laws, nor are
they subject to state-level health insurance mandates (i.e., require=
ment
that all group health plan contracts in the state cover diabetic
treatment supplies).
- Self-funded ERISA plans are required to abide by federal requirements
and mandates (I.e., HIPAA, federal mental health parity requirements,
etc.)
- Stop-loss plans purchased by self-funded employers are still regulat=
ed
by the state department of insurance.
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- Most Americans with employer-sponsored health plan coverage have the
option of continuing that coverage for 18-36 months at their own cos=
t if
they lose their group coverage.
- Federal COBRA legislation applies to companies that employed 20 or m=
ore
full-time workers in the past year.
- COBRA applies to both private employers and state and local health
plans, but it does not apply to Federal government plans and those
sponsored by certain church organizations.
- COBRA also does not apply if the company goes out of business, or ce=
ases
to offer group health insurance.
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- Many states have enacted legislation requiring smaller employers or
those not bound by COBRA to offer some type of continuation of cover=
age
benefits to their employees.
- In addition, many states have requirements that allow individuals who
are transitioning out of group coverage to convert their group health
coverage into an individual health insurance plan that they pay for
privately.
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- In Illinois, all employer groups regardless of size are required to
offer continuation to eligible employees and their dependents for ni=
ne
months upon termination, provided that termination is not due to the=
ft
or the commission of a work-related felony.
- Coverage must also be offered to individuals whose eligibility for
employer-group coverage is lost due to a reduction in hours.
- Individuals must have three months of prior coverage with the group =
plan
to be eligible, and have 60 days to elect coverage. The maximum prem=
ium
that can be charged is 100% of the group premium.
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- Illinois also has separate requirements to provide continuation righ=
ts
to divorced or widowed spouses and their dependents who were covered
under group plans, as well as the dependent children of deceased
employees who do not have rights under the spousal continuation law,=
and
dependent children who reach the limiting age under a group health p=
lan.
- Individuals and their dependents may choose to convert to an individ=
ual
policy at any time during the continuation period, or after the
exhaustion of continuation coverage, except if they become Medicare
eligible.
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- People who leave group health insurance coverage also have rights un=
der
HIPAA.
- HIPAA mandated that every state develop at least one option for peop=
le
who are transitioning group coverage and meet certain criteria, so t=
hat
they can purchase an individual health insurance policy on a
guarantee-issue basis.
- The people who are eligible to purchase these health insurance polic=
ies
are known as having group-to-individual portability rights under HIP=
AA
and are often called HIPAA-eligibles.
- The various states have developed a wide range of mechanisms to prov=
ide
guarantee-issue coverage to their HIPAA-eligible populations, the mo=
st
common of which is allowing them to purchase coverage thorough a sta=
te
individual market high-risk health insurance pool.
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- In Illinois, the state high-risk health insurance pool, the
Comprehensive Health Insurance Plan (CHIP), has been designated as t=
he
guarantee-issue option for individuals exercising their HIPAA rights=
.
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- Approximately 5 percent of Americans do not get their health insuran=
ce
coverage through an employer or through a government program.
- Instead, they purchase private coverage on an individual basis.
- Individual coverage is regulated at the state level of government.=
li>
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- Individual health insurance is very different than group insurance i=
n a
number of ways.
- Individual market carriers are much more limited in their ability to
spread risk.
- Benefit packages are generally less extensive than what is available=
to
most groups.
- Deductibles and cost-sharing are generally higher, due to cost
considerations of the individual purchasers.
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- Individual health insurance is also regulated differently than group
policies in most states.
- A key reason why individual policies need to be regulated differentl=
y,
is that in most cases, individuals do not purchase them unless they =
in
some way anticipate that they will using their benefits.
- This is particularly true in states where individual market premium
rates are very high.
- This occurrence is known as “adverse selection.”
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- To help prevent against adverse selection, 43 states allow for medic=
al
underwriting in the individual market.
- The vast majority of these states allow for unrestricted medical
underwriting without rating bands, which are common in the small gro=
up
market.
- Most federal HIPAA provisions do not apply to the individual market,=
and
in the majority of states, traditional individual health insurance is
not required to be issued on a guaranteed issue basis, so people can=
be
turned down for coverage due to a preexisting medical condition.
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- In many states, individual market carriers can also issue elimination
riders.
- Elimination riders allow for carriers to offer an individual with a
preexisting condition coverage, but exclude coverage of that conditi=
on.
- Example: An individua=
l has
severe season allergies, but can control them with medication. A carrier may offer a poli=
cy at
a more expensive rate with full allergy coverage or offer a cheaper
policy that excludes allergy coverage. The individual may find that=
it
is more affordable to take the cheaper policy and pay for his/her
allergy medication out-of-pocket.
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- Individual policies are also generally different than group policies
concerning the amount of time prior to the application for coverage =
the
carrier can look back for preexisting conditions, and also how long
carriers can exclude coverage for those preexisting conditions.
- On the group level, according to HIPAA look-back and exclusionary
periods are limited to no more than 6 months and 12 months. There are no such federal
restrictions on traditional individual policies.
- Also, in the traditional individual market, there is no federal
requirement that carriers give credit for prior coverage against
preexisting condition waiting periods. Some states do require cred=
it for
prior coverage.
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- In Illinois, the individual market is regulated as follows:
- Medical underwriting is allowed without restriction.
- There are no rate caps in the individual market in Illinois.
- Coverage is not required to be guarantee issue in the Illinois
traditional individual health insurance market. Elimination riders =
are
also allowed in the traditional Illinois individual health insurance
market.
- For traditional individual health insurance policies, there is a
12-month look back period during first two years of coverage. If the
condition is determined to be preexisting a 24-month exclusionary
period is allowed.
- For traditional individual health insurance policies, credit for pr=
ior
coverage is not required.
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- Since in most states, individual health insurance is not offered on a
guarantee issue basis, people can be turned down for coverage if they
have a very serious medical condition (i.e, HIV, cancer).
- States are not required to have an alternative option for medically
uninsurable individuals, but most states do.
- 33 states provide coverage to medically uninsurables through state
high-risk health insurance pools.
- 12 states use other means of providing uninsurable people with acces=
s to
individual market coverage, and 5 states have no such means (i.e.,
guarantee issue, carrier of last resort).
- In Illinois, the state high-risk health insurance pool, the
Comprehensive Health Insurance Plan (CHIP), is the means of providing
medically uninsurable people with access to the individual market.=
li>
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- Risk-pool consumers are often self-employed individuals, early retir=
ees
or employees of small businesses that do not offer benefits.
- The average amount of time an individual spends in a risk-pool is 30
months.
- Consumers that need to purchase coverage in the high-risk-pool have
access to comprehensive private-market coverage options that might n=
ot
otherwise be available to them.
- These individuals pay higher rates than other individual market
consumers, but these rates are capped, generally at about 125-200
percent of the average individual market rate.
- Consumers are provided with a very important safety net, and insurers
are provided with a predictable means of accounting for uninsurable
risks.
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- The membership of the Illinois Association of Health Underwriters al=
ong
with our national headquarters would be happy to provide you with
additional information or assistance about health insurance matters =
at
any time. Examples of
information we may be able to provide include:
- Examples of true health insurance rates.
- More detailed information about health insurance markets, and health
insurance placements actually work, particularly in this state.
- The perspective of our business-owner clients, who are the health
insurance purchasers in this state.
- Information about health insurance markets, laws relative to health
insurance and rate data for other states.
- Updates on federal activity concerning the private health insurance
market.
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- You may also wish to use our national website as a resource, www.nah=
u.org,
which contains lost of helpful information, including:
- The Healthcare Coverage Options Database, which contains information
about private health insurance coverage in each state, as well as
public and private programs available to help Americans obtain need=
ed
medical care.
- An in-depth review of all priority policy issues. Information includes an ov=
erview
of each issue
- Charts and analyses that compare different federal bills, state-lev=
el
requirements, etc.
- Consumer guides on a variety of health insurance related issues
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- You can reach NAHU at:
- National Association of Health Underwriters
- 2000 North 14th Street, Suite 450
- Arlington, VA 22201
- (703) 276-0220
- (703) 841-7797 FAX
- www.nahu.org
- Janet Trautwein, Executive Vice President and CEO
- jtrautwein@nahu.org, (703) 276-3806
- Megan Mamarella, Director of State Affairs
- Mmamarella@nahu.org, (703) 276-3818
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