Senate Passes Health Care Reform

Tuesday, December 22, 2009

Over the past weekend, the Senate passed its version of health care reform. Now the two houses must work together to reconcile the two separate versions to iron out any differences. The goal is to have a reconciled version before the end of the year, some hope by Christmas. While many of the features in the two versions are the same or similar, as I am often fond of saying, “the devil is in the details”. Even what may seem like a small insignificant point to the casual reader, could present a stumbling block to our elected officials. Even a point that appears to be a minor issue could have far reaching and unintended consequences to millions of individuals and thousands of employers.

Both houses passed legislation that eliminates the pre-existing medical condition rules. The Health Insurance Portability and Accountability Act of 1996 or “HIPAA” currently limits how far back a carrier or plan sponsor may apply a pre-existing medical condition. Six months is the maximum amount of time that a plan may impose for a pre-existing medical condition and then only if actual medical advice, diagnosis, care or treatment was recommended/received during the 6 months prior to the member’s initial enrollment date. HIPPA also limits the amount of time coverage that a pre-existing medical condition may be excluded from coverage. A carrier or plan sponsor may, under HIPPA, exclude coverage for specific pre-existing medical conditions for up to 12 months, 18 months for late enrollees, i.e., after their initial enrollment date.

As with most things, there are exceptions to HIPPA’s 6/12/18 month rules. As long as the member can show proof, in the form of a Certificate of Creditable Coverage, and any break in coverage is less than 63 days; a carrier or plan sponsor cannot apply a pre-existing exclusionary rule. So, as long as prior medical coverage, including COBRA, did not lapse for more than 63 days and that coverage was “creditable”; the member is treated as if they had continuous coverage with no breaks.

Plan sponsors who self-insure their members have had the managerial capability to waive the pre-existing exclusionary rule. However, any claims incurred for the waived condition usually is excluded from the plan sponsor’s stop loss coverage. Should the member’s claims exceed the plan sponsor’s stop loss limit, claims above the limit become the responsibility of the plan sponsor and not the stop loss carrier. Plans that are fully insured, have not had the capability of waiving a pre-existing condition since the insurance carrier bears the sole risk associated with all claims.

The elimination of the pre-existing exclusionary rule. effectively means that a ”qualified health benefits plan” must accept all enrollees regardless of any gaps in coverage or the type of prior coverage, creditable or non-creditable. Even if a new member previously sought medical treatment and ignored the advice of their physician, they will be permitted to enroll in and be provided with treatment for that condition. Thus members may be entering plans in an advanced stage of medical need and therefore incurring higher medical costs than would otherwise be the case. All other things being equal, will this not drive the overall costs up for that specific plan and its members and plan sponsor? Does this create an incentive for plan sponsors to drop their health care plans and allow individuals to purchase their coverage through an Exchange? Wouldn’t Exchanges be practicing a kind of “community” style of rating and underwriting where the risk and costs are borne by a wide segment of the general population? Does this sound similar to HMO’s that are community rated rather that rated to a specific group?