REAL CHOICE: A Dynamic Action Plan for Health Insurance Coverage

Real Choice is NAHU’s roadmap for reform and expansion of health insurance coverage in America. With the ultimate goal of making affordable private health insurance available to all Americans, Real Choice sets forth a series of policy recommendations building on choice and the strengths of our private health care system.

Originally developed in 1993, Real Choice is a dynamic action plan that is continually updated to reflect progress made in, and the latest and most effective ways of achieving the ultimate goal. A number of Real Choice recommendations were enacted in 1996, thus assuring effective access to health care for more Americans.

Real Choice, 2000, recommends the essential steps necessary to continue this progression and achieve the availability of affordable coverage for all Americans.

Real Choice Components Already Enacted

Insurance Security

• Most Americans are now assured of guaranteed access to insurance coverage, as a result of the reforms enacted in 1996. No small employer (2-50) can be denied coverage by a carrier serving that market. No individual moving from group to individual coverage and meeting certain criteria, can be denied coverage based on his or medical history.
• Group insurance coverage is now portable and guaranteed renewable.
• Limits are now placed on pre-existing condition exclusions.
• Individual employees on employer based coverage cannot be charged higher premiums on the basis of health status.

Insurance Financing

• Preferred tax status for qualified long-term care insurance premiums and benefits is now in place.
• Federal tax incentives are now provided for Medical Savings Accounts, for groups under 50 employees as part of demonstration program. Many states now provide state tax deductions for MSAs.

Insurance Options

• Managed Care -Managed care plans such as HMOs, POS, PPOs, and EPOs have been expanding rapidly, and are permitted with varying restrictions, by all states.
• Self-Insurance - Self-insurance plans are permitted under ERISA, and are widespread. They must comply with solvency requirements under ERISA, and now must abide by guaranteed access, renewability, and portability requirements enacted in 1996.
• Indemnity Plans - Such plans continue to be available through employers or to individuals. They now operate, in various respects, under the federal guaranteed access, renewability, and portability requirements enacted in 1996.
• Medical Savings Accounts - Federal tax incentives now encourage MSAs under a limited demonstration program. Numerous states now also provide MSA tax incentives.
• Purchasing Pools - Many states have removed barriers to private, voluntary purchasing pools, and such pools have been created in a number of states.

Health Cost Containment

• Reducing paperwork and therefore costs, through greater use of electronic information flow is encouraged by the requirement enacted in 1996 that the Secretary of Health and Human Services establish standards for electronic transactions and transmission of information.
• Standardized application forms have been instituted in certain specialized areas of coverage.
• Referrals by providers to facilities in which they have an ownership interest are now substantially restricted.

Consumer Protection

All states protect consumers by requiring that insurance agents be licensed and regulated.

REAL CHOICE Components Requiring Further Action

Insurance Security

• Guaranteed access for individuals not eligible for group coverage must be provided. The preferable approach, with the least adverse impact, would be the establishment of high-risk pools, open to uninsurable individuals, at the state level.

• State risk pools should be limited solely to high-risk individuals not eligible for coverage in the private market. Risk pools should not be used to provide unfair government-subsidized competition in the private market, or to establish a framework for government-run health care.

Insurance Financing Options

Deductibility alone will not solve the challenge of access.

Health Credit - In order to pave the way to ensure that all Americans have the means to purchase health insurance, Real Choice provides a refundable tax credit (entitled the Health Credit) for low and middle income Americans as an addition to our current tax structure. The credit would be the same for all eligible individuals and families, regardless of the place of purchase. The Credit would be available to single individuals with incomes at or below $30,000, and families with incomes at or below $50,000.

The Health Credit represents a way to make current health insurance tax policy more equitable. The current tax structure favors high wage earners over low wage earners. The Health Credit provides a tax benefit for those who do not currently benefit from the tax exclusion on employer paid premiums due to their income status, as well as those individuals and families without access to employer based coverage. It creates a fair system which will assist eligible individuals (except those on Medicare or covered by the Military) in the purchase of private health insurance, either through their employer or through an individual plan. In essence, it encourages universal access, but through incentives rather than mandates. It retains the employer-based system, including the use of Section 125 Cafeteria plans, flexible spending accounts, and MSAs and, it retains full deductibility to the employer for employer paid health insurance premiums. It also gives people the opportunity and additional resources to purchase individual plans if employer-provided plans are not available.

Insurance Options

Managed Care - Real Choice supports managed care as a viable insurance option designed to help control costs and minimize cost shifting. It has, in fact, helped to bring costs generally under control in the commercial market. This being the case, Real Choice generally opposes governmental actions that have the effect of undermining the cost-saving features of managed care. At the same time, however, Real Choice supports a high level of quality care, and urges the industry to avoid actions that serve to undermine that level of care. It is the position of Real Choice that government action imposing restrictions on managed care in the name of consumer protection should be a last resort rather than a first resort.

Self-Insurance - Real Choice supports the concept of self-insurance, as long as such plans are subject to operating requirements of the law and excess loss insurance carriers are subject to established solvency standards.

Indemnity Plans - Real Choice preserves the framework for indemnity plans offered through employers or to individuals.

Medical Savings Accounts - Real Choice supports MSAs as offering great potential for giving Americans greater control over their health care choices and expenditures while at the same time assuring catastrophic insurance protection. Real Choice supports extension of the MSA federal tax deductions to all Americans as well as making those tax deductions permanent, at the state and federal levels.

Purchasing Pools - Real Choice supports private, voluntary purchasing pools as a way to make more affordable insurance available to small employers, and supports steps to remove federal barriers to such pools. However, Real Choice opposes Multiple Employer Welfare Arrangements (MEWAs) which, under the guise of removing barriers to purchasing pools, would actually establish a federal regulatory structure providing favorable treatment to association plans at the expense of other private pools or individual employers not part of an association plan. Real Choice also opposes government-run or government-sponsored pools as unnecessary and an inappropriate government intervention in the marketplace.

Flexible Spending Accounts – Real Choice supports a limited roll-over of funds deposited into flexible spending accounts.

Health Cost Containment

The current stabilization of health care costs in the private market shows that costs can be restrained through the competitive forces of the marketplace without the need for dictated pricing from the government. The battle to restrain costs is a continuing one, however, and Real Choice provides for the following steps to help achieve long-run cost containment:

• Malpractice reforms, at both the federal and state levels. Such reforms should include limits on pain and suffering awards, and, at the state level, should allow the full payment of punitive damages to be made directly to local service agencies, such as school or health care systems, in the community where the judgment is rendered. Defensive medicine resulting from the threat of malpractice lawsuits accounts for a significant portion of the high cost of health care.

• A standard, consumer-friendly application form to be created by the health insurance industry for use by all carriers. Standard billing and explanation of benefits forms should also be created.

• Encouragement of comparison fee schedules for all medical services. This will help the consumer cost-shop for lower cost health care, everything else being equal. The resulting marketplace pressure will also have the effect of keeping down provider prices.

Consumer Protection

• Consumers today have access to independent insurance agents and brokers who provide information on carriers and benefits, handle grievances, and answer consumer questions. Moreover, consumers can select, change, or fire their own agents at any time. No toll-free number or government agency can replace the hands on, personalized advice and independent advocacy that agents provide. Real Choice preserves the right of consumers to work with an agent of their choice. At the same time, Real Choice protects consumers by requiring that all those who sell or give advice concerning the purchase of health insurance be licensed and regulated professionals. This includes not only independent agents, but brokers, advisors, consultants, and employees of an entity marketing a health plan as well.

• Monopolization in the health care arena, whether by the government or in the private sector, is anti-competitive and therefore anti-consumer. An active, competitive health insurance marketplace with a large number of strong carriers competing on a level playing field is essential to protect the consumer, from both a cost and quality standpoint. In this regard, Real Choice calls for active anti-trust oversight in order to protect consumers from anti-competitive behavior and a shrinking number of choices.

Long Term Care Insurance

Real Choice provides for additional incentives for the purchase of LTC insurance in order to encourage more Americans to buy such insurance and take the burden off of Medicaid. These incentives include:

• Modification of the anti-consumer restrictive qualified policy definitions found in HIPAA, such as the inability to receive LTC benefits on the basis of medical necessity and the requirement that benefits cannot be provided unless the recipient is certified by a doctor as having a chronic illness expected to last at least 90 days.

• Tax credits to assist families in the purchase of LTC insurance.

• Expansion of long-term-care partnerships, which provide middle class Americans an incentive to purchase LTC insurance as a way to avoid Medicaid spend-down.

• Further equalization of the tax treatment of LTC insurance by allowing individuals to select either the standard long-term care deduction, or to use Section 125 plans to cover long-term care insurance policy premiums.

• Clarification of tax treatment of non-qualified plan benefits through (a) and/or (b):
  • (a) Ruling on tax status from Treasury that non-qualified plan benefits will not be taxed.
  • (b) Technical correction to HIPAA clarifying that no long-term care benefits will be subject to taxation.

Medicare Reform

Real Choice supports Medicare reforms to ensure seniors have the range of policy choices available to other Americans and sees these options as being essential to the financial integrity of the program. Reform must include the following essential components:

• In pricing HMO and other Medicare+Choice options, Medicare should act like a business. Rates should be based on the average actual cost of enrolling beneficiaries the year prior to their enrollment in to the Medicare+Choice program with a factor that adjusts for expected increases. Pricing accuracy is critical to ensure adequate participation by insurance carriers in the Medicare+Choice program. This participation ensures a healthy competitive environment that will improve availability to all Medicare beneficiaries. Special efforts must be made in areas that are rural and underserved to maintain appropriate quality and quantity of care.

• Continuation of the Medicare Supplement/Medigap Program in conjunction with the current Medicare fee for service program should continue to be available for those who wish to opt for Medicare Supplement coverage. We object to any provisions that would impose guaranteed issue and community rating requirements that would lead to drastic increases in Medicare supplement premiums. Adding unlimited guaranteed issue would only encourage consumers to jump in and out of policies at will, depending on their health. This would have the effect of destroying the risk-spreading base that helps to contain premium costs.

• The current Medicare supplement/Medigap regulations should be made more flexible to allow for the type of product innovation that will provide seniors with appropriate coverage for their individual needs, at a price they can afford. Guidelines should be expanded to allow for standardized riders, which could be attached to any of the standard A-J plans.

• Seniors’ right to choose to purchase health care services which are not covered by Medicare must be protected. Under no circumstances should any government official or entity ever have the power to dictate what health care services any senior citizens will or will not be allowed to receive or in what manner they may be purchased if they choose to work outside of the Medicare system. Private arrangements between our senior citizens and their physician and/or their health care facility must be considered as important a right as it is to the remainder of our American citizens.

• Medicare+Choice plans should not be marketed, distributed, and administered through a government run health alliance such as the Federal Employees Health Benefit Program. The senior population needs personalized assistance to comprehend the policy options available under Medicare+Choice. In addition, there are geographical problems inherent both in disseminating information on the complicated choices available in various locales, and in the establishment of a risk adjustment system to ensure fair and appropriate pricing.

• Full disclosure should be made of potential gaps in Medicare not addressed by the Balanced Budget Act, and other coverage limitations. These include items such as:
  • the skilled nursing benefit on original Medicare, which includes coverage only for short term, not long term care;
  • lack of coverage for prescription drugs;
  • restrictions on Medicare supplement/Medigap open enrollment rules, for example:
    • the one time 6 month Medicare supplement/Medigap open enrollment period which is triggered only when the Medicare beneficiary elects Part B, even though the beneficiary may have secondary coverage through his or her employer (employing less than 20 employees) at the time. When the beneficiary loses the employer coverage, a Medicare supplement/Medigap policy will no longer be available on a guaranteed issue basis.
    • The requirement that a Medicare Part A beneficiary who does not elect Part B when first eligible because of coverage by an employer plan (other than as an active employee) be required to wait for an extended period of time in addition to paying a premium surcharge before becoming eligible for Medicare Part B.

• In order to reduce costs, Medicare should be a secondary payer in all cases where coverage of skilled nursing home care and home health care in private long-term care insurance policies duplicates coverage provided under Medicare. (Pre-OBRA ’93 individual long-term care plans often duplicate Medicare in these areas.) In these cases, Medicare would become the secondary carrier.

Providing Agent Services to Seniors

• The inclusion of professional insurance agents and brokers in the educational and distribution process of Medicare+Choice is essential. Agents can provide services to seniors not available elsewhere, helping them decide which coverage is most suited to their needs, and assisting them in obtaining the desired benefits.

• The present directive of the Health Care Financing Administration "strongly discouraging" the use of independent agents in the Medicare HMO program is denying seniors the services such agents can provide. The government should impose no restrictions that prevent duly licensed insurance agents, brokers, or consultants from assisting Medicare eligible individuals in determining and obtaining the best possible policy., Furthermore, the government should not differentiate among types of agents, and should neither encourage nor discourage the use of non-employee marketing agents.

• The agent’s role in the marketing of the new Medicare+Choice program, including HMO options, should be clarified, subject to the following provisions:

• Commissions should be required to be level and paid monthly.

• There should be no finders’ fees or higher first year commissions.

• Marketers, whether agents, brokers, advisors, consultants, or employees of an entity marketing a health plan must be licensed to sell insurance in all states where they do business.

• Rules for agent participation should be similar to the Medicare Supplement marketing rules.

• Carriers should be required to continue commissions as long as the contract is in force, even if the agent’s contract with the new carrier is terminated.

• Marketers, whether agents, brokers, advisors, consultants, or employees of an entity marketing a health plan should be required to complete HCFA or appropriate state agency approved training or demonstrate knowledge of the Medicare+Choice program.

Medicare Financing Reform

• The feasibility of people financing their Medicare account through private sector savings and investment should be legislatively encouraged.

• Expansion of Medicare by allowing a buy-in for Americans between the ages of 55 and 64 would jeopardize the Medicare program, which is already in serious financial peril, by expanding it and exposing it to unknown further risk, particularly in light of the flood of baby boomers that will soon be entering the system. Since many Americans in this age bracket already pay far less for private health insurance coverage, it is questionable whether anyone other than those with serious health conditions would benefit from this new "opportunity." Because of this, any new program expansion would ultimately require additional subsidies funded by new taxes on business and individuals. And, with the advent of guaranteed issue provisions under HIPAA, and other state initiatives, like High Risk Pools, NAHU strongly feels the private sector is best suited to meet the needs of our uninsured population.

REAL CHOICE: Affordable, Accessible

The Real Choice strategy preserves the benefits of a free market system while advancing access to affordable health care. It recognizes that the cost of health care is ultimately paid by consumers. It is sensitive to the ability of consumers, both individually and in the aggregate, to pay for that care. It also permits the orderly development of workable changes to minimize disruption and maximize consumer choices.

Real Choice will result in comprehensive reform making health care coverage affordable and accessible to everyone without destroying a system that currently works extremely well for the vast majority of consumers.

Content copyright © 1998-2008 National Association of Health Underwriters. All rights reserved.
National Association of Health Underwriters · 2000 North 14th Street, Suite 450 · Arlington, VA 22201
703.276.0220 · fax 703.841.7797 · info@nahu.org