Rejecting a proposal to create a high-risk pool as a cure for an ailing insurance market, Kentucky lawmakers recently voted to try another strategy to cover individuals who may be costly to insure.
KY rejects risk pool as cure for market ills, develops alternative
April 30, 1998
Kentucky rejects risk pool as cure for market ills,
develops alternative for insuring high-risk residents
Rejecting a proposal to create a high-risk pool as a cure for an ailing insurance market, Kentucky lawmakers recently voted to try another strategy to cover individuals who may be costly to insure.
Under legislation expected to be signed by the governor, individuals with one or more of 28 chronic conditions will be able to continue purchasing policies on the open insurance market. However, there will be several restrictions placed on their access to insurance.
Carriers will be allowed to rate their policies on the basis of health and to raise premiums up to 35% above a plan's average or "index" rate. Individuals with one ore more of the 28 conditions will no longer have guaranteed access to all of the plans offered on the individual market, but they will be guaranteed access to three, including a plan designated by the state as the rich standard benefit plan.
Only carriers that have at least a 25% share of the individual market will be required to issue these policies.
Lawmakers are hoping the latest changes they've made in the state's insurance law will help lure back to the individual market at least some of the more than 40 carriers that have left since the state adopted guaranteed issue and modified community rating four years ago. Carriers said they could not charge premiums high enough under modified community rating to cover the many high-risk individuals in the market.
Legislators had considered legislation to eliminate guaranteed issue in Kentucky, but instead decided to limit it to a few plans for high-risk individuals. Consumer advocate Thomas E. Templin said the state's guaranteed issue provisions are "diminished, but still quite substantial, protections."
Led by Kentuckians for Health Care Reform, consumer advocates vigorously opposed the high-risk pool approach because they maintained it could leave many state residents with inferior benefits at high cost.
Mr. Templin, who served as a member of the consumer task force advising the insurance commissioner, said that ensuring access for high-risk individuals to both a standard plan and two of the other most popular plans helps ensure that people with chronic conditions are not "pushed into a ghetto" and relegated to second-rate plans.
"It's absolutely the best we could end up with," said Sheila Shuster of Kentuckians for Health Care Reform.
The only remaining two carriers in the individual market, Anthem Blue Cross and Kentucky Kare, the state's self-insured plan for individuals, which is now being phased out, say they have lost millions of dollars in this market. Anthem, which has 45,000-50,000 covered lives in the individual market, about 80% of the market, lost $9 million last year on its coverage of 1,860 high-risk individuals, according to Lawrence Ford, Anthem's director of government relations.
Insurance Commissioner George Nichols who did an exhaustive report on the impact of the state's insurance reforms last year, concluded that the market was "unstable and (would) not be able to sustain itself over the long term."
Many blame the problems in Kentucky's market on a special exemption to modified community rating won by associations. This exemption allowed associations to enroll low-risk individuals into experience-rated plans, leaving the more high-risk individuals in the state purchasing alliance and the individual market. The exemption for associations was put in place in January 1996, only six months after the other insurance reforms took effect.
"The sad reality was insurance reforms were in place for six months," said Ms. Shuster. Individuals never got the advantage of being part of that whole buying block."
While some supporters of reform have downplayed the importance of the carriers who left the market, Mr. Ford noted that, at one time, they were writing about half of the individual policies in the state.
However, several of the carriers that pulled out of the Kentucky market, remain skeptical about whether the changes will stabilize the market or make insurance more accessible for state residents.
Lee Tooman, vice president of Indianapolis-based Golden Rule Insurance Co., one of the most high-profile opponents of the reforms approved four years ago, believes the 35% rate band could pose a major problem for insurers. "It is a limitation that we are faced with in virtually no other state," he said. Because 35-40% of individuals give up their policies each year, often when they go to work for an employer with a group plan, individual carriers wind up with the sickest people. That makes it "difficult to keep a good product," he said. Mr. Tooman said Golden Rule has not yet made a decision about whether it will reenter the market.
Joe Holahan, lobbyist for the Council for Affordable Health Insurance, which represents insurance companies, said carriers remain nervous about whether the $15.6 million available for the reinsurance pool is sufficient. Current law caps total assessments on insurers to pay for the pool at 1%.
Mr. Holahan believes it will take at least a year to assess the impact of the new legislation, including its impact on rates. Meanwhile, he expects most individual carriers to take "a wait and see attitude" before investing a substantial amount of money to reenter the market.
While the changes in the individual market have attracted the most attention, the legislation also includes substantial new patient protection provisions. Don Chasteen, director of government relations for the Kentucky Medical Association, said the KMA was particularly pleased with provisions that allow direct access to specialists when conditions warrant and a requirement that health plans provide detailed information about participating providers.
Mr. Chasteen also cited new requirements that insurers provider 24-hour phone access to patients and that insurers have a standard process for handling claims denials. Under the legislation, the insurance company must identify the person making the denial, give a reason for the denial and outline alternative services or procedures that may be available.
Other provisions include a requirement for a point-of-service option, the use of a prudent layperson standard for emergency services, and a requirement that insurers pay for brand name drugs if a physician determines that the generic substitute is inappropriate.
Contact Ms. Shuster at 502-894-0222, Mr. Ford at 502-423-5945; Mr. Holahan at 202-463-9041; Mr. Tooman at 317-297-4123; and Mr. Templin at 606-277-1989.
Rejecting a proposal to create a high-risk pool as a cure for an ailing insurance market, Kentucky lawmakers recently voted to try another strategy to cover individuals who may be costly to insure.
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