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New Bill, Research Push Changes to Health Insurance Market

Buying health insurance in California can be a complicated process. Deductibles, copayments, out-of-pocket minimums and maximums, drug formularies, covered and uncovered clinical treatments, in-network providers vs. out-of-network providers — consumers face a long list of variables that make an already daunting task even more formidable.

Researchers involved in a recently released study by the Georgetown University Health Policy Institute verify that the California health insurance market can be a baffling place for even the most savvy health insurance buyers.

Assembly member Dave Jones (D-Sacramento) proposes to simplify the process by establishing a standardized system of tiers to help consumers compare similar policies.  

“The idea is to help people understand exactly what it is they’re buying,” said Jones, chair of the Assembly Health Committee.

“This is a way to help people wade through the thicket and morass of confusing information. The way it is now, it’s hard to compare one policy with another even from the same company, let alone comparing policies from competing insurers,” Jones said.

His bill — AB 786, which is working its way through Assembly committees — would require California’s two health insurance regulatory agencies — the Department of Managed Health Care and the Department of Insurance — to create five tiers, generally running from less coverage to more coverage, and to categorize all health plans offered to individuals in California.

Although the legislation is aimed at the “individual” market — as opposed to the group-policy market — the bill would have an industry-wide impact by establishing the first state-recognized yardstick for comparing health insurance plans.

Last fall, the Legislature rejected a similar bill (SB 1522) by Sen. Darrel Steinberg (D-Sacramento).

Industry Opposed

Insurance company officials declined comment while the bill is still in flux, but the California Association of Health Plans, which represents 39 public and private organizations that provide coverage for more than 21 million Californians, is on record as opposing the bill.

The bill “could negatively impact the ability of health plans and insurers to provide flexible products in the individual market at affordable prices,” said Charles Bacchi, interim president and CEO of the association, in a letter to the Assembly Health Committee.

“AB 786 enacts limitations on the design of health plans in the individual market by capping out-of-pocket expenses and deductibles. We are concerned this will reduce our ability to design the best plans possible for purchasers and in some cases will make premiums more expensive. Increasing the cost of health insurance will only lead to more uninsured,” Bacchi said.

In addition to establishing “apples-to-apples” comparisons, Jones’ bill also seeks to limit the sales of what he calls “junk” insurance. “Those are policies that cover only hospital expenses or only doctor visits — they’re not comprehensive coverage at all,” Jones said.

Bacchi contends eliminating flexibility of product design would force insurers to raise premiums.

Tough Climate for Legislation

Faced with unprecedented budget shortfalls, California legislators are looking very carefully at the fiscal impacts of all bills. Even though AB 786 includes fees and would not require money from the state’s general fund, it would have a fiscal impact on the state.

Legislative estimates put the price tag for running the program at about $500,000 a year. The money would come from fees levied on insurers.

“I’m hopeful this bill will be allowed to move forward even in our current budget situation,” Jones said. “It’s completely fee-supported and would have no impact on the general fund.”

Researchers Recommend Transparency

Karen Pollitz, a research professor and project director at the Georgetown University Health Policy Institute, has conducted two statewide surveys of health insurance offerings — one in Massachusetts after the state passed a law requiring all residents to have health insurance, and the other in California.

The California research was released last week in a report, titled “Coverage When It Counts: What Does Health Insurance in California Cover and How Can Consumers Know?”

The first survey was funded by the Robert Wood Johnson Foundation, the second by the California HealthCare Foundation, which publishes California Healthline.

“We definitely found a greater degree of variation in California policies,” Pollitz said. “They’re really all over the map. You’d think that there would be standard meanings for pretty common terms like ‘deductible’ and ‘out-of-pocket limits’ but what we found was a wide range of possibilities for terms like that.”

Pollitz and senior research associate Eliza Bangit examined 10 health insurance policies and three health conditions — breast cancer, heart attack and diabetes — and found that consumers enrolled in different individual and small-group policies had wide ranges of out-of-pocket costs as well as coverage.  The 10 policies were products of five companies:

  • Anthem Blue Cross, which is owned by Wellpoint;
  • Blue Shield of California;
  • HealthNet;
  • Kaiser Permanente; and
  • PacifiCare.

The researchers recommended a standardized approach to labeling insurance coverage, similar to nutrition labels required on food products. They also urged insurers to use clearer language and to offer fewer, simpler options.

The report concludes:

“Health insurance should be transparent so that consumers know what they are getting in a market filled with options that are not always equal. Many urge that consumers value this plan choice and that choice is vital to efficient competition in health insurance markets. Yet, economists teach that well-functioning markets require transparent information so that both buyers and sellers can understand and evaluate options.”

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