HD27 - Study of Additional Reforms in the Individual Accident and Sickness Insurance Market Pursaunt to HB 1026 of 1996

Executive Summary:

House Bill (HB) 1026 of the 1996 Session of the General Assembly requires health insurers, health services plans and health maintenance organizations to guarantee the renewability of health insurance policies issued to individuals. This legislation continued the reforms begun in 1995 in the individual health insurance market when legislation was passed to reduce the maximum waiting periods for pre-existing conditions, and provide credit for waiting periods served in previous coverage.

The second enactment clause of HB 1026 directed the Joint Commission on Health Care, in cooperation with the Bureau of Insurance, to study additional reforms in the individual health insurance market, including, but not limited to, guaranteed issue and modified community rating for the Essential and Standard Health Benefits Plans. The bill also directed the Joint Commission to: (i) evaluate whether the Commonwealth has the authority to apply individual health insurance reforms to multiple employer welfare arrangements (MEWAs) and out-of-state group trusts and associations; and (ii) assess the impact of guaranteed issue reforms on the taxation of open enrollment carriers. In addition to the requirements of HB 1026, we also evaluated the results of the health insurance reforms previously enacted in the small group market.

Based on our research and analysis, we concluded the following:

• Thus far, the guaranteed issue and modified community rating reforms enacted in the primary small group (2-25 employees) market have had a minimal impact. Very few groups have purchased either the Essential or Standard Health Benefits Plans. A key reason for this is that the plans are difficult to market due primarily to the 21-day inpatient hospital benefit. To ensure that the plans are marketable today and in the future, a process for reviewing and updating the benefits and other features of the plans is needed.

• While Virginia has an open enrollment program for individuals to obtain coverage who may not be able to purchase coverage from other carriers, guaranteed issue and modified community rating of the Essential and Standard Plans in the individual market should expand access to coverage for some individuals.

• If guaranteed issue and modified community rating are required in the individual market, consideration should be given to extending these reforms to policies sold through out-of-state group trusts and associations. The provisions of the Employee Retirement Income Security Act (ERISA) precludes the Commonwealth from extending these reforms to all but one MEWA operating in Virginia.

• Open enrollment carriers (Trigon, BlueCross BlueShield and Blue Cross and Blue Shield of the National Capital Area (BCBSNCA) pay a reduced premium tax in return for providing coverage to all individuals regardless of their health status. If guaranteed issue products are required of all carriers, the principal reason for giving open enrollment carriers a tax advantage would be eliminated. Thus, if guaranteed issue is required of all carriers in the individual market, consideration should be given to requiring open enrollment carriers to pay the same premium tax as other carriers on premiums derived from individual contracts.

• There is a discrepancy in the tax status of the two open enrollment carriers with respect to tax payments on premiums derived from primary small groups (2-25 employees). Trigon pays the full 2.25% tax while BCBSNCA pays the reduced tax (.75%). Inasmuch as the tax treatment should be consistent for all open enrollment carriers, consideration should be given to applying the 2.25% premium tax on the primary small group premiums of BCBSNCA.

The recent passage of the federal Health Insurance Portability and Accountability Act (HIPAA) includes a number of insurance reforms that Virginia will need to enact to be in compliance with federal law. However, the federal legislation does not address the affordability of coverage at all. Despite the important changes that will occur as a result of the HIPAA, it is clear that the Commonwealth still must wrestle with the issues of accessibility and affordability of coverage for many Virginians.

Policy options were offered for consideration by the Joint Commission regarding four major issues: (i) establishing a process for reviewing and updating the Essential and Standard Health Benefits Plans; (in deciding whether to implement guaranteed issue and modified community rating in the individual health insurance market; (iii) addressing the tax status of open enrollment carriers as it relates to premium income derived from primary small groups; and (iv) addressing the tax status of open enrollment carriers should guaranteed issue be implemented in the individual market. These policy options are discussed on pages 37-39.

Our review process on this topic included an initial staff briefing which you will find in the body of this report followed by a public comment period during which time interested parties forwarded written comments to us on the report. In many cases, the public comments, which are provided at the end of this report, provided additional insight into the various topics covered in this study.