Stateline Story

U.S. insurance bill upsets states

A proposal before the U.S. Senate designed to help small businesses buy cheaper health insurance has many state officials up in arms because it could strip states of their power to regulate carriers and dictate what insurers must cover.

At least 39 state attorneys general, three governors and 16 state insurance regulators object to the legislation.

"This bill contains provisions that will erode state oversight of health insurance plans and eliminate consumer protections in the areas of mandated benefits and internal grievance procedures," 39 members of the National Association of Attorneys General said in a letter to U.S. senators.

The controversial measure would let trade associations buy coverage from insurance companies and offer it to members and their employees nationwide, even if the plans didn't comply with individual state laws.

The legislation would let existing small business plans avoid state regulations too, in order to make sure new plans don't have an unfair advantage.

Business leaders argue that insurance companies are loathe to offer nationwide products today, because products they offer must comply with at least 50 different sets of laws.

They point to the experience of the Associated Builders and Contractors , which shut down its 43-year-old health insurance plan after its insurance company quit and more than 50 others declined to take its place.

Carriers said they were unwilling to assume the business because state laws they would have to obey dictated how they could set rates, who must be eligible and what services they must provide.

"We were legislated out of business, effectively, by the states," Joseph E. Rossman, ABC's vice-president of fringe benefits, said.

The so-called Enzi Bill, named after U.S. Sen. Mike Enzi, a Wyoming Republican, grows out of an effort to help small-business groups such as ABC offer members the chance to buy health benefits.

Similar ideas have been floated for a decade, and the U.S. House has passed legislation clearing the way for the association health plans eight times. But Enzi's version is the first to pick up speed in the Senate, where it's expected to come up for a vote in early May.

Buying employee insurance is harder for smaller business than large companies because smaller shops don't bring in enough customers to be able to negotiate favorable deals. Secondly, smaller businesses contend with state regulations that many large companies don't have to deal with. Many large companies bypass state insurance laws by insuring themselves rather than buying insurance from an outside carrier. Self-insured companies are regulated by a 1974 federal law, the Employee Retirement Income Security Act .

The average employee might not notice the difference between a self-insured plan and a "fully insured" plan purchased through an outside carrier, because companies that insure themselves usually hire an insurance company to manage the program.

The Enzi Bill would lower barriers small businesses face in buying insurance by giving them some of the same advantages that large companies have.

That's provoked outcries from consumer advocates and interest groups who lobbied hard to put protections into state laws.

States themselves are mainly worried about how the legislation would affect their ability to require insurance companies to cover certain treatments, restrict the factors they can consider in setting rates and enforce consumer protection laws.

All 50 states require insurers to provide certain benefits. All mandate that policies of a new mother provide coverage for her child for the first 30 days of the child's life. Forty-six require insurance to cover diabetes treatment.

Beyond that, mandates vary greatly. Many New England states dictate that treatment for Lyme Disease be included. Other states require coverage for mammograms and prostate exams, birth control and mental health treatment. And types of treatments that must be covered vary from state to state.

Enzi's legislation would let carriers offer plans that skirt state requirements. An insurance company that wanted to offer one of the stripped-down plans also would have to offer an alternative with all the benefits given to state employees in one of the five largest states (California, New York, Florida, Texas and Illinois).

Critics say only sick people will opt for the more expensive full benefit packages. That, in turn, would make the higher-cost options even more expensive.

There is a check, though, that would prevent premiums from the high-end plans from spiraling out of control. Any spike in the cost of the robust plans would be spread across all of the insurers' policyholders, not just the ones in the expensive plans.

Still, the move is troubling for many state officials.

"Health care is delivered locally by local doctors and local health care providers… (Insurance companies) need to be held accountable to local entities, specifically the states," said Rhode Island state Rep. Brian Kennedy (D), secretary of the National Conference of Insurance Legislators.

Another controversial aspect would let national insurers consider gender, health, participation in wellness programs, group size and industry when setting prices, which is already allowed in 36 states.

Currently, 11 states prohibit insurance companies from using a person's health status when setting rates, according the National Association of Health Underwriters. The "community rating" approach generally limits the factors insurers can consider to age, geography and family size, but states use different versions of that model.

The approach spreads the risk more evenly throughout the state, meaning insurance is more affordable for sick people but more expensive for healthy people.

(Hawaii, Pennsylvania and Virginia impose neither approach).

Under Enzi's proposal, a customer with the most expensive in premiums could face prices 26 times greater than the person with the cheapest premiums. In states that use the more restrictive rating rules, the highest prices can be as little as two times the lowest prices.

"States are in the best position to determine whether what rating policies are best for their consumers - both healthy and sick - and we believe in its current form (the bill) will have a negative effect in many states," the National Association of Insurance Commissioners said in a letter to Enzi.

New Hampshire Gov. John Lynch (D) urged his congressional delegation to consider the Granite State's recent experience. It adopted standards in 2003 similar to the ones outlined in the Enzi Bill. According to Lynch's letter, that sent insurance rates "skyrocketing."

Lynch said small companies couldn't grow and many considered dropping coverage altogether, so the state reversed course. It dictated that the highest premiums could only be 3.5 times greater than the lowest premiums for the same plan. Now, he said, the insurance market has improved.

Two other governors - Mike Rounds (R) of South Dakota and Ted Kulongowski (D) of Oregon - also expressed concerns about states' ability to enforce their consumer protection laws if the Enzi Bill passes, echoing concerns from the attorneys general.

They're concerned that insurers could haul states into federal court if the states don't allow them to sell the newly authorized products, while states would lose many of their enforcement powers.