Individual Mandate not necessary – But will you like the alternative?

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SUMMARY

Of all the issues in the Patient Protection and Affordable Care Act (ACA or PPACA), one that has drawn an extraordinary amount of attention is the Individual mandate. Looked at in isolation, it may seem like an overreach. However, a broader view indicates why this provision or similar was included at all.

It is included because another section of ACA prohibits Health Insurers from rejecting people with pre-existing conditions as they do now. Some medical conditions may be avoidable, but the vast majority of pre-existing conditions occur through no fault of the individual. Insurance of all types is to spread risk, and the more skewed the risk the greater the need for insurance. Health costs are extremely skewed making health insurance vital to a modern economy.

ACA mandated that everyone buy insurance and that makes sense. However, the objection is forcing people to buy from a private company. There are several options to resolve that. One is to create a government-run insurer. That would eliminate forcing people to buy from a private insurer. A second is to make payment for any service obtained by an uninsured person a loan similar to student loans that could not be discharged for any reason. They would carry interest and be payable in full no matter the circumstances.

DISCUSSION

The percent of people with pre-existing conditions is small and to the majority of folks without such a condition, it may seem like a trivial matter. However, the number of people with pre-existing conditions is in the millions, and the cost to them has been and can be horrific. Medical expenses for these people have led to thousands of bankruptcies as health care costs sapped all their savings and more.

Insurers soon will be required to insure ALL persons regardless of medical condition. There is the very real risk of some people will avoid buying insurance, and then when they have an injury, or find they have a chronic condition like asthma or diabetes, they would only buy health insurance AFTER they know they have a medical condition.

One would think that any notion of personal responsibility would have all persons get insurance in order to spread health costs risks over the greatest population. The more people that buy insurance, the lower the cost per person. However, experience has shown that some people will NOT buy insurance if they feel they will not get sick or injured.

Fortunately, many employers offer health insurance for their employees, and by law, health insurers covering insurance through work (group insurance) MAY NOT exclude people with pre-existing conditions after some limited period of time, usually less than a year. However, the same did not apply to individuals until health care reform.

Note that employed individuals usually have access to health insurance.  Full time employees, that is. With rising costs, what have many employers done including some of the largest?  They have reverted to greater use of part time employees who do not enjoy the same privilege and access to health insurance as do full time employees. This is putting more pressure on reforming individual insurance plans.

People do not just dream up laws in a vacuum. Most fall into two categories. One is responses to maintain clean food, air and water, or help disadvantaged people, often the result of some abuse (social laws). The second are financial laws, like taxes or efforts to reduce taxes via special treatment for some (loopholes). ACA addresses the former by adding a financial provision, the individual mandate.

Everyone who works pays into social security and Medicare. Since Medicare is health insurance, there already is a mandate for working individuals to buy health insurance from the government. The only distinction is that Medicare is government-run insurance, while the ACA mandate applies to buying insurance from private companies.

ALTERNATIVE ONE

In the state run insurance exchanges to which any health insurer can join, add a government-run health insurer. Then the individual mandate does not require buying from a private insurer. However, if an individual decided against all private insurers they would have to buy the government-run insurance plan, just like Medicare and clearly legal.

However, politics intervened. Draft legislation DID INCLUDE a government-run insurer. They called it the “Public option”. It would operate on the same level field as private insurers and not be subsidized in any way. Private and government insurers would compete for business. Still, critics objected, and politicians stripped this provision from the final bill.

Why the objections?  Perhaps it was fear of competition.  To understand the public option, all one has to do is look at Medicare. Different in that it would cover people under 65 years old. In addition, women over 65 do not get pregnant, so there would be some differences in coverage.

What few know is government manages Medicare entirely through private health insurers. Insurers use a term Medical Loss Ratio (MLR) do describe how much of a premium dollar goes to pay health care costs. For Medicare, the MLR is over 95% meaning over 95 cents per premium dollar goes for health benefits. For private insurers, not so much. Their average MLR is in the low 80% range, and for individual insurance, which Medicare is, the MLR is even lower. How can private insurers compete with someone whose costs are less than one quarter of their own?

The honest answer is they cannot, at least not as currently structured. However, where does the constitution guarantee private enterprise continued profitability or even existence? “Destructive renewal” is a term used by business to explain competition that virtually by definition requires companies to fail as other more efficient companies market their goods and services for less; or whose new goods and services make prior ones obsolete (think cassette tapes).

It is worth noting that private health insurers used to have MLR’s in the mid 90%, but that was 30 years ago when nearly all insurers were non-profit.  Over time, for-profit insurers became more prevalent, and as they did, they had to show a profit for their investors. Some admin efforts were devoted to marketing. Some to reducing costs. Some to profits. The net effect, however, is that far fewer dollars went for health care costs and more went for overhead and profits. Yet some of these same companies administer Medicare contracts for less than 5 cents on the dollar. What is apparent is that insurers could cut back on what it now costs them to weed out people with pre-existing conditions, but more efficiency are needed to compete.

ALTERNATIVE TWO

Set the ground rules for individual insurance similar to that of group insurance obtained through work. If a person elects not to purchase insurance, and gets sick or injured, a person could still buy insurance but the law would allow pre-existing exclusions to extend for one year. Also like group insurance, if a person previously had health coverage, and not more than 60 days elapsed without coverage, then the person could buy health insurance with no waiting period.

This alternative needs to have a bit more teeth to be effective. This is because there is a law that hospitals have to treat EVERYONE, regardless of ability to pay, and a healthy person could delay for years purchase of health insurance. They would only buy insurance when they get sick.

The current Medicare drug program provides a template for solving this issue. If a senior fails to purchase drug insurance, the premium continues to rise for as long as one remained uninsured. One can apply a similar index to health insurance. But how does one provide assurance of payment? Since the person required services, it should be legal to require the person to purchase insurance to pay for those services, and if the person is unable or unwilling to pay, the government could advance a loan similar to student loans.

That loan would bear interest, need to be paid over time (though shorter than for student loans), and could not be discharged by bankruptcy. If not paid by retirement, payments would be deducted from that person’s social security, just like student loans.  Gone is the mandatory requirement. Replacing it is an automatic loan that the individual must repay in full with no exits.

Since the government would initially pay the hospital, it also could determine the ability to pay of the person getting treatment. If that person was indigent, they could be put on Medicaid, and no medical loan would be created.  If the person’s income were within the subsidized amount, they would have been eligible for had they carried insurance, the loan would be reduced by the amount of the subsidy. Since the hospital is paid in full, there would be no cost shifting to those who bought insurance.

ALTERNATIVE THREE

As noted above, a law requires hospitals to treat EVERYONE, regardless of ability to pay. One could rescind that law and force everyone to either have insurance, pay for service, or be denied service. But few would be willing to take that backward step. From a practical standpoint, this is not a viable option.

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Individual Healthcare Mandate Was a Republican Idea

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SUMMARY

There has been much controversy about the Patient Protection and Affordability Care Act (PPACA or ACA) that became law in 2010.  Some concern is over how it was passed, though that is more about form than substance.

Regarding substance, critics have claimed that this is a government takeover of healthcare and an over-reach into private affairs.  One item getting particular attention is a mandate that all people buy health insurance or pay a fine. Some, including judges, say this is unconstitutional, others say it is not.  Insurers are not happy either, not because there is a mandate, but because the mandate does not go far enough to deter potential abuse.

The purpose of this analysis is not to debate whether the ACA is unconstitutional or an over-reach into private affairs. Its purpose is to highlight that much of ACA was actually promoted and supported by Republicans in years past.  In some respects, Democrats “stole” Republican ideas, not once, but twice. Continue reading

Words Have Consequences

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Download ACA PDF file >>> Affordable Care Act

Download HIPAA PDF file >>> Public Health Service Act

Illinois appears to follow guidelines for enrolling individuals into the state’s Affordable Care Act’s (ACA) pre-existing condition insurance plan, but Illinois’ interpretation of  the  ACA’s wording may be questioned. In its interpretation, Illinois does not allow enrollment if a person has insurance coverage even though it excludes pre-existing conditions.

A virtually contradictory interpretation can be found on the federal government’s website HealthCare.gov.  The federal government sets conditions of who is eligible to apply to the government for pre-existing condition insurance plans in states that opted out of participation. To apply, you will need to provide a copy of one the following documents:

  • A denial letter from an insurance company licensed in your state for individual insurance coverage (not health insurance offered through a job) that is dated within the past 6 months.  Or, you may provide a letter dated in the past 6 months from an insurance agent or broker licensed in your state that shows you aren’t eligible for individual insurance coverage from one or more insurance companies because of your medical condition.
  • An offer of coverage from an insurance company licensed in your state for individual insurance coverage (not health insurance offered through a job) that is dated within the past 6 months. This offer of coverage has a rider that says your medical condition won’t be covered.
govt pre-existing condition insurance apply

It is not logical that if a state runs the program, it can exclude people, while if the federal government runs the program, those same people could be included in the plan.

This analysis explores in more detail how Illinois and by extension, other states may have come to the conclusion they did and why that may not be the correct interpretation.

Illinois Pre-existing Condition Insurance Plan (IPXP)

To qualify for insurance in IPXP, a person must meet three conditions that seem to mirror the text of the Affordable Care Act. The Affordable Care Act (ACA) established eligibility criteria for federally funded high risk pools like the IPXP.  The pertinent wording of the Affordable Care Act that states in section 1101 (d).  An individual shall be deemed to be eligible … if such individual:

  1. Is a citizen or national of the United States or is lawfully present in the United States
  2. has not been covered under creditable coverage (as defined in section 2701(c)(1) of the Public Health Service Act as in effect on the date of enactment of this Act) during the 6-month period prior to the date on which such individual is applying for coverage through the high risk pool; and
  3. Has a pre-existing condition

These same provisions in IPXP require that
To enroll, a person must:

  1. Be a U.S. citizen, national, or legal resident;
  2. Be uninsured for 6 months; and
  3. Have a preexisting condition.”

The IPXP application specifically notes regarding item 2, “that if you currently have insurance coverage that doesn’t cover your medical condition, you are not eligible for IPXP”.

This raises the question of how Illinois adopted their meaning of ACA’s wording. Words have consequences and so it is important to determine what the Public Health Service Act (HIPAA) actually said and meant by its use of the phrase “creditable coverage” and did Illinois misinterpret it?

Public Health Service Act (HIPAA)

HIPAA’s opening paragraph sets forth its purpose: “… to improve portability and continuity of health insurance coverage in the group and individual markets, to combat waste, fraud, and abuse in health insurance and health care delivery …”

HIPAA contains five main components or “Titles”, the first of which is “HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY”.  That title is divided again into two subtitles, “Group Market” and “Individual Market”.

In general, under Individual Market Section 2741(a)(1) health insurers may not decline coverage to or impose any pre-existing condition exclusion on “eligible individuals”.  However, Section 2741(a)(2) allows states to implement an “acceptable alternative mechanism”.  One acceptable alternative is a state managed high risk pool which Illinois has, so private health insurers in Illinois may deny coverage or include pre-existing exclusions in their policies since an alternative is available.

However, the act does not change the definition an “eligible individual” which is one who (a) has 18 or more months of “creditable coverage” and (b) whose most recent prior “creditable coverage” was under a group health plan.

CREDITABLE COVERAGE DEFINED

HIPAA defines “creditable coverage” in Section 2701(c)(1) to mean with respect to an individual, coverage of the individual under any of the following:  a group health plan; health insurance coverage; or… any of 8 other government health insurance plans.  “Such term does not include coverage consisting solely of coverage of excepted benefits (as defined in section 2791(c))”.

GROUP HEALTH PLAN DEFINED

Creditable coverage refers to coverage in a “group health plan” that also needs definition. A group health plan Sec. 701(a)(1) means an employee benefit plan that provides payment for medical care directly through insurance, reimbursement, or otherwise.  In short, what most people think of as basic group health insurance.

EXCEPTED BENEFITS DEFINED

Creditable coverage also introduces another concept – “excepted benefits”. Including this definition allows a contrast to group health plans that provide creditable coverage.  Given the number of excepted benefits, of which only a sample is shown below, it is clear that HIPAA intended only a few basic types of basic health benefits to be considered creditable coverage.

Excepted benefits as defined in Section 2791(c) includes but is not limited to:

  • Coverage only for accident, or disability income insurance, or any combination thereof.
  • Coverage issued as a supplement to liability insurance.
  • Liability insurance, including general liability insurance and automobile liability insurance.
  • Workers’ compensation or similar insurance.
  • Limited scope dental or vision benefits.
  • Benefits for long-term care, nursing home care, home health care, community-based care, or any combination thereof.
  • Coverage only for a specified disease or illness.
  • Medicare supplemental Insurance.

Combining references and definitions from HIPAA, to be eligible for ACA’s pre-existing condition insurance plan, prerequisite #2 requires an individual to:

  • have 18 or more months of a group health plan that provides payment for medical care, AND
  • have not been covered for 6 months under either a group health plan or a health insurance coverage

Now if an adult person is unemployed, has recently graduated or lost a job, that individual is not likely to be covered by a group health plan. Such individual, however, may be insured under individual health insurance coverage of which there are several types, of which one of the more common is “short-term limited duration insurance.”

INDIVIDUAL HEALTH INSURANCE COVERAGE

Section 2791 (b) (5) states: The term ‘individual health insurance coverage’ means health insurance coverage offered to individuals in the individual market, but does not include short-term limited duration insurance. Oops.  This means that HIPAA considers one of the more common forms of individual health insurance not to be insurance at all.

PULLING IT ALL TOGETHER IN ILLINOIS

Recall from the beginning of this essay, the IPXP application form specifically states “that if you currently have insurance coverage that doesn’t cover your medical condition, you are not eligible for IPXP”. This requirement is NOT one of the ACA requirements.  And ACA in turn, references HIPAA that pointedly declares “short-term limited duration insurance” does NOT constitute insurance coverage at all. Conclusion: Illinois may have incorrectly defined short-term limited duration insurance as health insurance which definition specifically contradicts HIPAA definition.

CONCLUSION

It is clear that both the intention as well as the wording of the ACA  and HIPAA acts allow persons who once had but were later denied health coverage or who have coverage but with pre-existing exclusions, to apply for and receive coverage under the ACA pre-existing condition insurance plans.

Allegedly, enrollment in state ACA pre-existing condition insurance plans has been running behind projections. Is it possible states are restricting enrollment in a manner similar to Illinois?  It is something worth investigating further.

Disclaimer: While having extensive years of legal experience demonstrated in this analysis, the author is not a licensed attorney. What has not been verified is whether later amendments to the HIPAA changed any of the provisions mentioned above.

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Affordable Care Act Revisited

Now that Republicans have introduced in Congress a law to repeal ACA, it is fair to ask what is in this legislation that is so objectionable.  Critics have complained that the 2,400 page Affordable Care Act (ACA) is too over-reaching and must be repealed. While the ACA is admittedly large, the sample page (standard 8.5 inch wide paper) is indicative of the 2,400 pages. The actual content is but a small fraction of a typical page of text. 

AHA legal text sample

One is encouraged to read the article Affordable Care Act – Contents that provides an outline of all the provisions of the AHA. Less than 20% of the act deals with health insurers and insurance coverage where most of the controversial issues exist. Over 80% of the act is relatively non-partisan, non-controversial that attempts to solve many less obvious though not less serious  issues facing America’s health care system.

A good review of the contents themselves was published by the Association of American Medical Colleges (AAMC).  As a note of caution, these articles are aimed at their members and may prove a bit technical to the general reader. A number of different reports that can be viewed Analysis of Health Care Reform Provisions or downloaded. Take politics out of the discussion and the provisions don’t seem nearly as objectionable.

Sure, the ACA has faults and can certainly be improved. But no legislation is ever perfect.  Finally, one can ask in light of pressing national issues of  jobs, whether Americans want to revisit the long drawn out process to carry out Republicans’ promise to “repeal and replace” the entire act.