Insurer- and Corporate-Demanded Clauses and Omissions Degrade Health Coverage, Block Insurer Accountability, Cut Employer Coverage
Santa Monica, CA — The leading health reform proposal in the Senate contains numerous industry-demanded “time bombs” that will harm consumers in years to come, Consumer Watchdog said today. The measure, from the Senate Finance Committee, was heavily lobbied by insurance and pharmaceutical companies and large employers.
Consumer Watchdog said the proposal’s top 5 health time bombs are:
- Elimination of a public health insurance option;
- Evasion of state patient-rights laws;
- No effective “employer mandate;”
- Omission of price regulation of insurance;
- Lack of recourse to hold insurers accountable.
“If this bill becomes law, consumers will find themselves still at the absolute mercy of private insurance companies,” said Judy Dugan, research director of Consumer Watchdog. “Premiums and copays will be uncontrolled, even as patient rights are eliminated. Congress must stand up to the corporate lobbies and add better consumer protections, or pay the price in voter anger at being stuck with a bait-and-switch reform.”
Here are details on the Top 5 “Health Reform Time Bombs” in the Senate Finance Committee bill:
1. No public option. Stopping a public option is the No. 1 demand of the insurance lobby. So despite public support at 65% for a public option, and even higher support among doctors, there is no effective competitor to private insurance companies in the bill. The bill’s alternative–voluntary purchasing cooperatives formed by consumers–was dismissed as ineffective even by the Congressional Budget office.
The budget office’s financial report on the bill said of such co-ops:
“[A]s they are described in the specifications, they seem unlikely to establish a significant market presence in many areas of the country….” Yet the CBO report says the attempt to establish such destined-to-fail cooperatives would cost taxpayers $3 billion.
However, the bill does include a framework for states to do better, offering to waive certain rules to allow stronger experimentation, even single payer health care systems, by vote of a state’s citizens. States, under such a waiver plan, should be able to combine existing federal funding into a single pot to fund the larger-scale reforms. This state option must be strengthened in the final bill, with or without a national public option, said Consumer Watchdog. The Senate Finance bill should also be clarified to grant states automatic Medicare, Medicaid and ERISA waivers that are necessary to implement state single payer and state public option programs.
2. State regulations preempted. Currently, many states including New York, California and Massachusetts have robust requirements for what insurance must cover, including decent maternity care, hospital care for surgical patients, cancer treatment and chronic disease care. The Senate bill circumvents these patient rights by:
a. Allowing insurers to forming “interstate compacts” to sell across state lines, while being subject only to the laws of the state in which the insurance policy is “written or issued.” Insurers would certainly choose to be regulated by the weakest state.
b. Allowing insurers to sell so-called national plans in every state unless a state’s Legislature opts out. The bill says explicitly that such plans would “preempt state benefit mandates” and be governed only by new and undefined federal guidelines that are certain to be weaker than many states’.
The national policies would also degrade many employer-offered health plans. Patients would likely be unaware that their insurance was riddled with holes until they needed to use it, and would have no local enforcer to turn to. The cheaper premiums offered by such plans would be achieved by degrading coverage, raising patient costs and depriving consumers of state enforcement.
Both concepts are similar to a failed 2006 bill by Sen. Mike Enzi (R-Wyo.), who was a key figure in writing the new Senate bill. The unregulated policies are now being championed by Sen. Olympia Snowe, a critical swing Senate vote.
3. No employer mandate. Employers, even large employers, would not be required to offer any health insurance. The only offset would be a small fee to cover any government subsidies provided to lower-wage workers. The fee is capped at a maximum of $400 a year per employee, and only for companies with more than 50 employees. The amount is a fraction of employers’ share of actual insurance coverage.
This would encourage companies to drop employee coverage and pay the fee instead—saving the employers millions and because of the low cap would cost taxpayers billions, even if employers slightly raise salaries to compensate for the lack of insurance.
Other bills, particularly the House version of health reform, have more realistic employer penalties for failing to cover employees, based on a percentage of payroll. But business groups will demand the ineffectively small penalty in the final bill, unless the president and Congressional leaders stand firm.
4. Health premiums unregulated. With no public option to provide competition and no direct regulation of private insurance rates in the Senate bill, insurers will be free to charge what they choose. Health insurance premiums have risen 131% over the last decade, according to the Kaiser Family Foundation—far above general inflation, wages and even overall medical inflation. The premium increases do not include rising deductibles and co-pays.
The only effective curb on this price spiral is direct regulation of premiums and rates, which would be most effective if carried out by the states.
California’s 20-year-old law governing property and casualty insurance, including mandatory auto insurance, provides the best model. Insurers have to seek permission through an elected insurance commissioner prior to raising premiums. Members of the public can challenge unnecessary premium hikes, similar to systems in place in many public utility commissions, providing an effective check against any government collusion with insurance companies.
The Consumer Federation of America reported in 2008 that the regulation had saved Californians $61.8 billion on their auto insurance alone. That doesn’t mean auto insurers aren’t prospering. California is America’s fourth most competitive insurance market, while completely unregulated Illinois, home of Allstate, ranks 44th. Fewer California drivers are thrown into high-risk pool and insurers’ average profit of 13.9% in the state from 1989 to 2005 is double the national level of 6.5%. The law regulated all major lines of insurance, except for health and workers compensation, which are the only two consistently dysfunctional insurance markets in California.
Congress and the president must not just encourage state regulation of health insurance rates, but set a floor for such regulation. Otherwise, government is no more than a customer delivery system for private insurance companies.
5. No insurer accountability. A recently dismissed California case involving the death of a teenager after her insurers’ denial of liver transplant has highlighted the need for greater legal protections for consumers.
Seventeen-year-old Nataline Sarkisyan died in 2007 after Cigna’s denial of the transplant, but the law prevents her family from taking the insurer to court because of a legal loophole banning lawsuits if insurance is provided by a private employer. Thus 132 million Americans have no remedy if an insurer’s denial kills their loved one. This is due to an errant Supreme Court ruling on the Employee Retirement Income Security Act, or ERISA. The lack of accountability allows HMOs and insurance companies to deny access to care without fear of reprisal.
Wendell Potter, a former health insurance executive-turned whistleblower, has stated that insurers pay closer attention to grievances by people whose health insurance policies do allow patients to hold the insurer accountable in court—for instance government employees and people buying individual policies.
The Sarkisyan family was allowed to continue a lawsuit for emotional distress–but only because an insurance executive made an obscene gesture to the family at a rally outside of CIGNA’s headquarters. So currently a family can sue an insurance executive if he flips you the bird, but not if the insurer kills a loved one. Perhaps Cigna would prevail over doctors’ recommendations in the Sarkisyan case in a court of law, but without the ability to even go to court, the limits of insurers’ control over our health care goes untested.
In a system where Americans have no alternative to private insurers, the president and Congress should call explicitly for this change rather than trying to further limit patients’ access to the courts.
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Consumer Watchdog is a nonpartisan consumer advocacy organization with offices in Washington, D.C. and Santa Monica, CA. Find us on the web at: www.ConsumerWatchdog.org