Insurers drop child-only coverage on eve of health reform mandates

As preexisting condition rules kick in for children, health plans stop selling such policies in most markets, casting doubt on their reform pledges.

By Emily Berry — Posted Oct. 4, 2010

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New requirements under health system reform took effect Sept. 23, including some the administration said would protect patients from many of the worst insurance industry abuses.

But the transition didn't go entirely as planned. A few days before rules took effect, many insurers said they would stop selling new child-only policies, citing requirements that the plans said made such policies too risky. The insurers included the five largest private-pay plans by enrollment -- WellPoint, UnitedHealth Group, Aetna, Cigna and Humana -- and some nonprofit BlueCross BlueShield plans.

Among the rules effective six months after President Obama signed the Patient Protection and Affordable Care Act was a ban on barring children from getting insurance because of preexisting conditions.

Though the number of children affected by the insurers' actions is small, the Obama administration and others saw it as a symbol of insurer recalcitrance. "I think the reaction of the insurers to the child-only policies highlights that they are more interested in ensuring profit than covering those who need health care coverage," said American Medical Association Immediate Past President J. James Rohack, MD.

That was especially galling to the administration because of what it saw as a promise by America's Health Insurance Plans, the insurers' trade group, to implement this provision.

"In March, AHIP committed to working with us to implement this important provision," Health and Human Services Secretary Kathleen Sebelius wrote in a Sept. 24 letter to the organization. "Regrettably, it appears that some of your members are now turning a blind eye and declining to sell new child-only policies in lieu of offering coverage to children with preexisting conditions. This is inconsistent with your March letter."

On Sept. 27, AHIP spokesman Robert Zirkelbach said the group was discussing the Sebelius letter. "We will continue to work with regulators to try and find workable solutions to stabilize the market for new child-only coverage," he said. Plans said they were not pulling back on family coverage, and children could be included there if child-only plans were not available. Those now in child-only plans, which AHIP estimated at 6% of the 16.7 million in individual policies, can stay in those plans.

Sebelius sent a nearly identical letter to the BlueCross BlueShield Assn. That group's spokesman, Jeff Smokler, said, "We continue to work with the [Obama] administration to find solutions to this and other reform implementation matters."

New rules in place

As of this article's deadline, the HHS and insurers were discussing ways to ensure that child-only plans were not closed to new enrollment. But ill feelings between insurers and the government over health system reform requirements began well before mid-September, and more fights are likely as health reform rolls out until its full implementation in 2014. For example, insurers and the administration are battling over the definition of medical costs because of a requirement that at least 80% of insurer premiums go toward health care.

Besides children's coverage regardless of preexisting conditions, other rules effective Sept. 23 include:

  • Insurers cannot place lifetime limits on coverage.
  • Insurance may not be rescinded except in cases of fraud.
  • Children may remain covered by their parents' insurance until age 26.
  • Preventive care must be offered without deductibles or co-payments.
  • Emergency care must be covered without a requirement for prior approval, regardless of whether a hospital is in network.
  • Patients' must be allowed to choose any primary care physician or pediatrician from an insurers' network and have the right to see an ob-gyn without a referral.

In April, WellPoint and other insurers promised to abide by the rescission rule. The Obama administration criticized WellPoint after Reuters reported that the company allegedly dropped coverage for individuals with breast cancer, which the company denied. Insurers also agreed to honor the rule to keep children on their parents' coverage until age 26, well before the Sept. 23 deadline.

In April, however, Sebelius predicted that plans would raise rates and blame it on health reform, and a Sept. 8 article in The Wall Street Journal stated that plans were blaming rate increases of up to 7.4% for individual plans solely on reform costs.

Sebelius' letter to AHIP on child-only plans was her second of September. On Sept. 9, she wrote that she would have "zero tolerance" for insurers' "misleading claims" that a portion of their proposed rate hikes were caused by reform. Plans said their rates reflected only the underlying cost of care, while critics of the Obama administration viewed Sebelius' letter as strong-arming plans into silence on reform costs.

Health plans insisted that they remain committed to the new rules but said parents have an incentive to wait until their children become ill before signing them up for insurance.

The administration had attempted to quell insurers' concerns about adverse risk selection months earlier by saying that insurers were allowed to set open-enrollment periods for child-only policies. But that wasn't enough.

As of the first week of the new rules, Colorado and Ohio insurance regulators adopted emergency rules to establish open-enrollment periods, hoping to persuade insurers to continue to offer new child-only policies. A bill introduced in the California Legislature would penalize insurers for dropping child-only plans. Kentucky's insurance commissioner has ordered insurance representatives to appear Oct. 13 so they can explain why they are stopping the sale of child-only policies to new customers.

Colorado Division of Insurance spokeswoman Jo Donlin said she isn't sure whether states will want HHS to dictate the solution to the problem.

"States are very individual. We don't necessarily want to reinvent the wheel, but we want the wheel to look a little bit unique for each state," she said.

A few insurers, including Blue Cross and Blue Shield plans in Kansas City and in Florida, said they would continue to offer coverage just for children, even where their competitors would not.

Susan Johnson, spokeswoman for Blue Cross and Blue Shield of Kansas City, said executives at the nonprofit plan discussed their decision at length.

"Providing insurance to children and adults, to the community, is part of our mission," she said. "We do feel strongly about being able to continue to provide a variety of products. It's just the right thing to do."

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