In earlier comments I described how insurers segment books of business in order to subvert what looks like substantive insurance reform.
In that commentary I talked about how segmentation in the form of durational rating was used to render the promise of GUARANTEED RENEWABILITY of coverage worthless. The guarantee is that the insurer must continue to renew coverage only as long as that particular plan is being offered. Guaranteed renewable plans frequently are constructed in such a manner as to guarantee only that the premiums will escalate out of control and most policyholders will be forced to drop coverage.
Insurers use segmentation to undermine other forms of nominal reform. Yet the rationale the insurers offer seems to make sense -- until examined more closely.
For example, insurers offer a wide range of insurance products including minimal benefit barebones coverage. After all who wants one-size-fits-all coverage? But every additional product creates a geometrically more complex insurance system with greater administrative costs both for insurers and for health providers.
Nowhere has abuse by an overabundance of separate products been more clear than with Medicare supplemental plans. Insurers using scare tactics sold senior citizens multiple overlapping plans. Abuse became so common that in 1990 Congress had to step in and approve ten standardized plans from which consumers could choose. But insurers are a persistent lot. In the waning hours of the 103rd Congress, the 1990 law was amended to permit insurers to sell policies which pay out low rates of benefits for the premium paid.
And insurers continue to look for ways to use product diversity to undermine reform.
In 1994, an Insurance Expansion Task Force of the Maryland Health Care Access and Cost Commission explored expanding small group reforms to the non-group marketplace. Consumer interests fought to have the non-group coverages integrated with the small group market and having the same standardized benefit package. Integrating the markets both increases the spread of risk and makes portability of benefits much less complex.
Insurance and HMO interests, however, successfully resisted such integration and successfully pushed to continue segmentation of small group and non-group plans. But they were not satisfied with that blow to consumers. They further decided that self-employed individuals were a separate class and should be segmented from other individuals.
Moreover insurers argued that some consumers would want benefit packages which were less expensive. Rather than doing the logical by increasing deductibles and co-pays as had been done with the small group package, the insurers argued for separate packages IN ADDITION TO the standardized small group package.
Even during the development of the small group standardized plans (which permit supplemental benefits to be sold), the insurers worked their special brand of magic. Instead of establishing standard packages of supplemental benefits which would maximize the spreading of risk, they chose to permit ridering of specific additional benefits. The impact of this decision, of course, was to make many supplemental benefits unaffordable.
Insurers point to different behavior patterns in the selection and use health benefits among small groups, the self-employed, and other individuals. To some degree they are correct. The real issue is whether the advantages of integration of the sub-populations offsets the negative impact of segmentation.
Increasingly objective review is coming down on the side of population integration. A recent Special Report by the Intergovernmental Health Policy Project of the George Washington University came to that conclusion. Said they, in a report titled, Small Group Market Reform: A Snapshot of States' Experiences, "Reforms must consider both the individual and the small group market together, and integrate them as much as possible."
And the National Association of Insurance Commissioners on March 12, 1995 adopted language dealing with small group market reform which repeatedly stressed the importance of avoiding market segmentation. They noted, "...the NAIC believes the reform of the individual market is critical to achieving the purpose of this model, which is prevention of the segmentation of the market based on health risk."
Among the most frequently suggested insurance reforms in addition to guaranteed renewability are GUARANTEED ISSUE, PORTABILITY, AND COMMUNITY RATING.
Guaranteed issue, in many ways, is the most problematic reform. Insurers, with some justification believe that if they are required to offer insurance to a person or group upon application, that many consumers will simply wait until a serious health problems develop.
One way to avoid this problem is to establish a WAITING PERIOD for pre-existing medical conditions. A waiting period is the duration an individual must wait before health insurance benefits are paid. Waiting periods of between six and twelve months should be a satisfactory deterrent to consumer gaming of the sytstem.
Portability of coverage is another of the most frequently mentioned insurance reforms.
The idea is that once a person qualifies for insurance coverage, they should not have to requalify if he or she changes or loses a job. It sounds easy but it is not. Particularly if benefits are not the same in the small group and the non-group marketplaces.
For portability to work not only must there be standardization of benefits but there must be a mechanism for a person between jobs to pay for coverage. One of the conditions of portability is a lapse of coverage for no more than a fixed number of days. The NAIC recommends a lapse period no greater than 90 days. They further recommend that an individual apply for coverage no more than 30 days after becoming eligible for benefits with a new employer.
In a premium-based system (contrasted with a system in which the consumer's insurance costs are based on their income), many individuals may simply not be able to afford insurance. And if the consumer is forced to drop coverage for more than the allowable lapse period, portability becomes an academic reform. One of the many strong advantages of the single payer plan introduced by Representative Jim McDermott is that it is progressively financed based on a person's income.
One last reform insurers generously endorse is MODIFIED community rating.
"Modified" is the operational word. True community rating is the ultimate spreading of risk. Everyone is in the same pool and charged the same premium. It matters not whether a person is old or young or whether they are healthy or not.
Some modifiers are innocuous. For example, a single person should not pay the same as a married couple. And a married couple without children should not pay the same as a couple without children. But once allowing for different family constellations which generally have discounted costs for as the family size increases, the modifiers become barriers.
Age is almost always a modifier. A spokesperson for the Golden Rule Insurance Company did a verbal double backward somersault when testifying before the aforementioned Maryland Insurance Expansion Task Force.
According to Golden Rule, age is a reasonable and necessary factor in setting insurance rates. Older people have more health problems and higher incomes. Hence they should pay more. To do otherwise would require young people to subsidize their elders.
Golden Rule, however, also submitted with their testimony, a chart which demonstrates that when people cross the age 50 marker, their incomes drop rapidly and significantly. This can be no surprise to the many victims of corporate downsizing who have gone out to search for jobs. Somehow Golden Rule just forgot to match their statement with their statistics.
The beauty of true community rating is that younger policyholders would not have to worry about rapidly escalating insurance premiums or about subsidizing the underwriting costs of insurers.
The NAIC does endorse modifying community rates by geography, family composition, and by age. They, however, temper those modifications so that after five years from the enactment of their proposed reform, the highest premium can be no more than 200% of the lowest premium. For the first two years, however, the differential can be up to 400% and for the next two years 300%.

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Even a 200% increase is a huge burden for an individual or a family whose income is rapidly shrinking.
One of the key pieces of evidence given great credibility by the Maryland Insurance Expansion Task Force was the Milliman and Robertson study of the experience in New York when that state went to pure community rating. This study was described in last month's Comments.
Milliman and Robertson asserted that the result of pure community rating in New York was a serious increase of individuals who dropped health insurance. That study was challenged by Insurance Superintendent Salvatore Curiale. His studies showed that under community rating, a previously deteriorating rate of coverage was stabilized.
Golden Rule was a key player in group underwriting the Milliman and Robertson study.
In brief, the words "Insurance Reform" can be descriptive of meaningful efforts to improve the health care financing system in this country. It can also be descriptive of efforts by scoundrels who want to make the status quo look like reform or even make the situation worse.
Consumer advocates must work much harder to understand this difficult and sometimes arcane subject matter.