Group Medical
Many factors explain the increasing cost of health care in the U.S. By 2007, employer costs for group medical insurance is predicted to double. Why is this so?
According to the Heartland Institute in Why We Spend too Much on Health Care , “The market is heavily regulated, profoundly influenced by government spending and distorted by tax policies that cause an over-reliance on health insurance.” In large part the cause of overspending on health services lies at the doorstep of government policy. Blaming the private sector will not solve the problem.
The cost of prescription drugs is another factors driving the increase in the cost of health care services. Ellen McGrit writes in CNN Money , Insurance Costs on the Rise , November 1, 2002, according to the Health Insurance Association of America, prices are projected to rise at the rate of 11% per year through the year 2010. A recent study by PricewaterhouseCoopers provides more detail. Medical advances and new technology added as much as 22% in 2001-02. Government mandates added 15%. Another 7% can be attributed to malpractice litigation, jury awards and the added cost of defensive medicine. These factors do not take into account the increased cost of providing care for an aging baby-boom population.
These are some of the indirect causes to medical inflation. There are also causes that more directly affect the rates for any single group plan, particularly the small employer. . Both new business underwriting and changes in rates at renewal are affected by legislated restrictions on rating and portability at both the state and federal level.
Underwriting begins for the small employer of 2-50 employees upon receipt of an employer application along with enrollment forms that capture both the demographics and medical history of the plan participants. Evidence of full-time employment is required. A copy of the last quarterly wage and tax statement will suffice. To demonstrate continuity of coverage, a copy of the most recent billing statement from the prior carrier is also needed. Once the file is complete and a refundable deposit premium check collected, the underwriting process can begin. Underwriting takes into account these factors when reviewing an employer's application for group coverage:
- Demographics – The characteristics of the group's employees, including age, sex and dependent status.
- Diagnostics – A health condition may result in additional premium adjustment needed to offset the cost of a plan member(s) treatment regimen.
- Trend – The cost of delivering medical services differs from location to location.
The availability of costly, advanced technology is not consistent geographically.
Where does you health care dollar go? 80% is spent on benefits (claims), 17% on administrative expense (claims processing, sales/marketing, taxes), while the balance of 3% goes to insurance margins.
Government mandates also have to be considered. In Illinois, the Small Employer Health Insurance Rating Act (SEHIRA)(215 ILCS 93) signed into law in 1999 is applicable to new or renewal business as of July 1, 2000. A small employer is defined as employing an average of 2 to 50 employees during the preceding calendar year in accordance with the definition as found in the Illinois Health Insurance Portability and Accountability Act. The law is designed to improve both the efficiency and fairness of the small group health insurance marketplace. It does by reducing the magnitude of rating increases charged to a small employer group. It applies only to plans provided by Illinois group contracts.
The law is applicable to all plans provided to Illinois employers regardless of the State of origin of the contract. However, the law is not applicable where the situs of the master contract is that of a trust or an employer located in another state.
After December 31, 2002, compliance is mandatory. The rating provisions incorporate three key terms: class, index rate and rating period. The law's provisions restrict the amount by which premiums for similar groups with similar coverage or other objective characteristics can differ. Though there is not a cap on premium rates or increases, it does restrict the amount by which the carrier can raise rates based on the group's claim experience. In summary, the rate action taken can be no greater than the…
- change in rate charged by the insurer for new business
- a maximum 15% adjustment for claim experience, health status and duration,
- differences in rates due to a change in coverage or a change in the group's demographics.
For more information about SEHIRA, see Illinois Insurance Facts as revised October, 2002, at http://www.idfpr.com/DOI/HealthInsurance/small_employer_rating_act.asp.
The Illinois Health Insurance Portability and Accountability Act (HIPAA)(215 ILCS 97) affects the issuance of coverage and portability for group health insurance policies issued to the small employer in Illinois. Unlike for groups who employee more than 50 employees, the law requires insurers to guarantee issue coverage sold in Illinois to the small employer. Unlike the small employer, the large employer is subject to decline or rate loading outside of the restrictions of the Small Employer Health Insurance Rating Act (SEHIRA). The law does not apply to individual medical insurance.
HIPAA addresses portability by establishing that a replacing carrier must accept all eligible employees and reduce or eliminate any pre-existing condition limitation waiting period by the amount of time the employee or dependent was covered under the prior health insurance plan. However, a new employee with a gap in coverage of greater than 63 days is subject to the waiting period for pre-existing conditions.
The pre-existing condition, waiting period is defined as 12 months for a timely enrollment and 18 months for a late entrant. A pre-existing condition relates to a condition, regardless of cause, for which medical advice, diagnosis, care or treatment was recommended or received within six (6) months prior to the enrollment date. The pre-existing condition, waiting period will not apply in the following circumstances…
- pregnancy (regardless of prior coverage),
- a newborn or adopted child under age 18 or a child placed for adoption under age 18, if the child became covered within 31 days of the birth, adoption or adoptive placement and
- genetic information in the absence of a diagnosis of a specific condition.
For more information about HIPAA, see Illinois Insurance Facts…Facts about HIPAA – Pre-existing Conditions, Revised May 2004, http://www.idfpr.com/DOI/HealthInsurance/HIPAA_preexisting_cond.asp.
The purpose of insurance is to provide protection against the unpredictable, unbudgetable expense. Present first-dollar PPOs and HMOs, though well-intentioned, too heavily emphasize prepayment of routine or day-to-day health care expenses. The government is beginning to move in the right direction by enacting legislation that promotes greater personal responsibility for the consumption of health care services. Recent enabling legislation for Health Reimbursement Arrangements (HRAs) and as of January 1, 2004, Health Savings Accounts (HSAs) will help in returning health insurance to its proper role. The plan member needs budget relief for the predictable health maintenance expenditure. Treating frequency expenses as risk serves only to dilute the premium dollar's ability to function as insurance protection.
Managed care in the form of Preferred Provider Options (PPOs), Point Of Service plans (POS) and Health Maintenance Organizations (HMOs) have been the private sector's answer to controlling the cost of health care. This top-down approach worked well through the nineties. But it insulated the consumer from the true cost of the medical services being used. With the return of double-digit inflation, it is time to take another look at the model. Consumer discretion is exercised in every other commodity buying decision. Pre-paid medical plans have discouraged that value in the health care arena. Consumer-driven Health Care (CDHP) coupled with strong provider discounting through the managed care model is helping to control costs.
Though not every employer is ready to convert his entire benefit design to a consumer-driven plan, a productive alternative may be to offer a (CDHP) as a plan option. Using a multiple plan approach, a (CDHP) combined with a PPO and/or an HMO will contribute to the control of the plan's overall cost. As it grows in popularity, it may attract participants from the other plan options helping to bring further control to the cost of the benefit plan.
Replacement - When replacing in force coverage with that of another group carrier, it is important to exercise caution in terminating the existing contract before a written offer has been received, reviewed, approved and accepted by the replacement carrier. So as to protect yourself from a grace premium collection effort by the prior carrier, it is customary to forward to the prior carrier written notice identifying the date of the replacement, the name of the replacement carrier and the new carrier's policy number. Though not often enforced, it may be necessary to regard the protocol adhered to by some carriers which requires a 30 day notification of termination.
We represent the major insurance carriers for small and medium size employers. Please refer to our Company Link tab in the Menu at the top our Home Page for links to Assurant Health, Best Life, Blue Cross Blue Shield, Destiny Health, Humana, Unicare and United Healthcare.
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