Business

States rapped for lax regulation of individual insurance market

Analysis by a consumer group finds that more Americans are moving to policies that offer them less government protection.

By Emily Berry — Posted July 14, 2008

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A report from the consumer group Families USA concluded that state regulation of individual health insurance is inadequate -- which is a problem, because more Americans are relying on individual coverage.

With the influx of new customers and loose regulations, "the individual health insurance market constitutes the 'wild wild west' for individual consumers," said Ron Pollack, executive director of Families USA.

According to U.S. Census Bureau data for 2006, the most recent year available, an estimated 9.2% of Americans bought their health insurance directly, rather than getting coverage from their employers. Other surveys have found declining percentages of employers offering health insurance.

In most states, the Families USA report said, health plans are able to refuse coverage, set prices and cancel individual policies without any significant oversight.

Specifically, the group found that:

  • Only five states ban health plans from accepting just the healthiest people and excluding people who are ill or who have preexisting conditions.
  • In 35 states and Washington, D.C., there are no limits on how high companies can raise a patient's premium if he or she becomes ill.
  • In 21 states and Washington, D.C., a company can decline to cover preexisting conditions for more than a year.
  • In the vast majority of states and in Washington, D.C., there is no required minimum medical-loss ratio, and some companies spend as little as 60% of premiums on medical care.
  • In the majority of states, health plans are allowed to dig into a member's history and scrutinize his or her application for coverage to find reasons to cancel or rescind a policy.

"This survey calls attention to the fact that we need not only more insurance for health care, but also good insurance," Pollack said. "Too often we confuse the two and accept any insurance as meaningful and adequate."

Industry defense

Individual coverage works for millions of people, said Robert Zirkelbach, spokesman for health insurer trade group America's Health Insurance Plans.

The group, in 2007, released a survey of its members that looked at the individual health insurance market, and concluded that "individual health insurance is more affordable and more accessible than is widely known," and covered about 18 million people, Zirkelbach said.

The report found that 89% of applicants for individual health insurance polices are offered coverage.

Some state legislatures are trying to tighten the requirements on health plans selling in the individual policy market. After highly publicized and criticized rescissions of policies in California, lawmakers there are considering requiring state approval for any policy cancellations.

According to the Families USA report, Colorado passed a law in May requiring regulatory review of premium increases for individual and small-group policies, and New Mexico passed a law, which took effect July 1, that requires more evidence of fraud before insurers are allowed to cancel policies.

"Families USA is bringing up a very important issue in that there are still gaps in terms of how our citizens get coverage," said Kim Holland, Oklahoma's insurance commissioner and vice chair of the health and managed care committee for the National Assn. of Insurance Commissioners.

Holland said insurance commissioners generally are opposed to federal or uniform rules over the insurance market, however, because every state is different, and because mandates tend to drive up the cost of health insurance, which could leave more people uninsured.

"We're trying to balance ensuring affordable products with trying to provide broad coverage," Holland said.

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