Health Insurance Reform: God (Or The Devil) Is In The Details

The Senate Finance Committee's health insurance reform plan does propose some significant changes to the small group and individual health insurance markets. I say "changes" and not improvements because there still aren't a lot of details, and those details there are don't suggest a lot of hope that small business owners and self-employed people will experience much short- or long-term cost savings...in fact, the betting would be on higher costs and even more limited control over them.

The major elements of the insurance proposal fall into four categories: rate and underwriting regulations; the creation of insurance exchanges; the development of statewide, non-profit health insurance co-operatives; and the individual mandate.

Insurance Rating Reforms: beginning on January 1, 2013, insurance companies would no longer be able to deny coverage to any individual applicant for health reasons. And insurers would have limits on the variations they might impose on rates: in general, the highest price for any given health plan could not exceed 7.5 times the cost of the lowest-cost plan. And rates can be set using only the applicant's age and family size, plus variations for smoking and geography.

The same conditions would apply to small groups (with 1-50 employees) by 2019.

Who might win here?...Obviously, people who haven't been able to purchase coverage because they wouldn't pass through a health screen, and probably self-employed people, who would qualify for group coverage under the plan. The rating rules would theoretically benefit younger insureds, and more or less smack it to older folks.

The thing is, though, that we won't know till at least 2019 how any of these regulations might help or hurt the market, since there seems to be no oversight.

Insurance Exchanges:States will be required to set up insurance "exchanges," which will use standardized application forms, technology-assisted marketing and communications and customer support, to marketplaces for purchasing health plans. The timing would supposedly follow the insurance reform timetable, with exchange-based plans available to individuals by January 1, 2013, for small groups by 2018, and for larger groups five years after that.

It's a lot easier to pass a law that says, "Thou shalt set up insurance exchanges" than it is actually to build one. No one really has any idea how such a marketplace will be set up and operate. It's also not clear how plans available through an exchange might be different form those offered by insurers themselves, whether all insurers operating in a state will be required to participate, if that participation will be proportionate to their market share...or anything else.

And again, small businesspeople who are feeling the health insurance squeeze now shouldn't be rushing to the bank with all the money they're going to save on health insurance premiums. It'll be three to five years before the structures will even exist, and another three to five to determine whether this approach is working.

Tomorrow: Co-ops and Mandates