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Guaranteed Insurance Unaffordable Underwriters Thwarting Intent Of New Law Allowing Workers To Keep Insurance When They Change Jobs

Thu., March 12, 1998

A law intended to guarantee Americans won’t lose their health insurance when they change jobs isn’t working out the way it was planned.

Government auditors find that insurance companies are charging 140 percent to 600 percent of the standard premiums for people who try to use the Health Insurance Portability and Accountability Act to convert their group policies to individual coverage.

And some companies are discouraging their agents from writing the high-risk policies by reducing or eliminating agents’ commissions.

“Consumers attempting to exercise their right have been hindered by carrier practices and pricing,” the General Accounting Office, Congress’ investigative arm, said in a report released Wednesday. In addition, some consumers have misunderstood parts of the complex law, unwittingly losing their chances to take advantage of it, the report said.

Sen. Jim Jeffords, R-Vt., plans a hearing next week on implementation of the law in the Senate Labor and Human Resources Committee, which he chairs.

Reacting to the report, one consumer group called the law “an empty promise.”

“This news may be bitter medicine for official Washington policy-makers to swallow, but this report demonstrates that most consumers cannot afford the access Congress promised them,” said Gail Shearer, director of health policy analysis for Consumers Union, publisher of Consumer Reports magazine.

Overwhelmingly approved in both the House and Senate, the law was hailed as a bipartisan victory when President Clinton signed it in August 1996. Pushed by Republican Sen. Nancy Kassebaum of Kansas and Democratic Sen. Edward Kennedy of Massachusetts, it was touted as something everyone could agree on in the aftermath of Clinton’s failed attempt at comprehensive health care reform.

As he signed the law, the president hailed it as “a victory for millions of Americans and their families.”

“With this bill, we take a long step toward the kind of health care reform our nation needs,” he said. “It seals the cracks that swallow as many as 25 million Americans who can’t get insurance or who fear they’ll lose it. Now they’re going to be protected.”

But while the law required insurance companies to sell the policies, it didn’t guarantee the policies would be sold at reasonable prices.

The GAO said companies charge higher rates because they believe people who attempt to use the law’s guarantee to access to individual health insurance will, on average, be in poorer health than others in the individual market.

For insurance companies, covering sick people is a losing proposition because the chances are good the companies will end up paying more for their medical care than the customers pay in premiums.

The American Community Mutual Insurance Company of Livonia, Mich., wrote its agents a memo informing them they would no longer be paid commissions for high-risk policies guaranteed under the law.

The company was worried it would end up with too many of these sick people because other companies had cut off commissions for their agents, said Jack Martin, American Community’s vice president.

“We did that reluctantly,” he said. “We felt if we didn’t take some action … agents would have a strong financial incentive to sell these policies.”

Ultimately, he said, state regulators clamped down on all companies, pressuring them to drop their no-commission policies. Now, he said, the company pays agents the same commission they would get for selling a standard policy, making them forgo the extra commission that would usually come with a more expensive sale.

Nothing in the law stops companies from charging high prices for their plans.

American Medical Security in Green Bay, Wis., has charged as much as five times its standard premium, though usually the surcharges are not that high, said Amy McGee Polaski, a lobbyist for the company.

“We’ve taken every possible precaution to keep our rates low for our customers,” she said. “When the government mandates that we do things, it doesn’t give us a lot of room.”

American Community charges double for high-risk cases, Martin said. But he said he understands why some companies charge even more.

“They are trying to avoid having their rates for their regular policies increase because of the cost of insuring these high-risk individuals. I understand why they’re doing what they’re doing, and as long as it’s not illegal, they are taking full advantage of the law,” he said.


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