The Broken Safety Net

If you live in California and have been denied insurance coverage because you have diabetes, you’ll probably have to wait to enroll in the state-run program that’s supposed to offer you health benefits. But California Republican Senator Sam Aanestad of Grass Valley hopes to change that with legislation he introduced January 20th. Aanestad says his bill, Senate Bill 57, would alter that program in ways that will allow more people access to coverage.

Unlike other state high-risk insurance programs (with the exception of Florida’s), the California Major Risk Medical Insurance Program (MRMIP) has had waiting lists consistently since its inception. The number of people in line to enroll rose to a high of 1,031 last July. “This indicates that California is not serving its vulnerable as well as it should,” says J.P. Wieske, director of state affairs for the Council for Affordable Health Insurance.

High-Risk Program Basics

Because diabetes and conditions such as heart disease, cancer, and hypertension are usually considered uninsurable in the individual (non-employer-based) insurance market, people who suffer from them and don’t have access to employer-provided health benefits must turn to various state-devised safety nets. The most popular are high-risk insurance programs administered as nonprofit organizations or state agencies. Thirty-five states operate such programs.

These programs offer options to the self-employed, college students, early retirees, those who recently lost jobs that provided insurance, and workers whose employers don’t offer group health coverage. They aren’t designed to cover the poor, who typically qualify for cheaper state-run programs. Most states set premiums for high-risk programs at about 150 percent of premium rates for comparable individual policies sold in the commercial market, according to a 2009 position paper from the National Association of State Comprehensive Health Insurance Plans.

Because there are no uniform regulations for how high-risk programs operate, enrollment qualifications and procedures, plan options, and benefits vary by state. In California, the enrollment cap has decreased several times, most recently from 8,100 to 7,100 in May 2008. By comparison, less-populated Minnesota provides coverage to 35,000 to 40,000 people through its high-risk program. 

“This program is in bad need of a fix,” says Linda Halderman, a senior policy adviser to Aanestad. The economic recession, which is putting more people at risk of losing employer-provided health insurance, and California’s recent budget woes make the need to reform the program even more urgent, she adds. 

Naomi Senkeeto, manager of health policy for the American Diabetes Association, wouldn’t discuss details of the California legislation because the organization hasn’t taken an official position on it. “If it looks like it’s moving, we may weigh in,” she says. The ADA believes that guaranteed-issue laws, which prohibit insurers from denying coverage on the basis of health and make high-risk programs unnecessary, are the best way to provide health insurance to all individuals, Senkeeto says. (See the sidebar for more about guaranteed-issue laws.) 

California’s Ailing Program

In addition to the waiting list problem, Aanestad says, MRMIP is the most expensive for the least benefits of any state high-risk program. It has the lowest annual benefit limit -$75,000 – of the seven programs that have an annual limit. Aanestad’s bill would raise the annual limit to $150,000 and the lifetime benefit limit from $750,000 (also low compared to other states) to $1 million.

Tobacco taxes and enrollees’ premiums exclusively fund the program. While this is a good use of tobacco tax dollars, healthy high-risk insurance programs pull funds from a variety of sources, Wieske says. Common funding mechanisms include fees paid by health insurers and appropriations from state general funds.

Under Aanestad’s bill, California would charge insurance companies a fee for every person they cover in the individual market. Halderman says the six largest insurance companies in the state agreed to such fees at a meeting last year, after Aanestad introduced similar legislation.

Wieske says the individual insurance market is too narrow a funding source. Twenty-eight states levy fees on insurance companies to fund their high-risk programs, and most of them charge fees for the individual market, small-group market, and even large-group market. 

Robust plan choice also is a hallmark of well-functioning programs, Wieske says. Being able to choose from at least three or four plans that offer different premiums and deductibles is vital to ensuring that people can afford coverage, he says. Currently, California offers four almost identical plans, with an average premium of $600 per month. The proposed legislation would create at least four significantly different plans, including a high-deductible one. 

Senate Bill 57 would also create a “rider pool” that would allow insurance companies to accept some people who currently qualify for the high-risk program by letting the companies permanently exclude coverage for up to two pre-existing conditions. The bill states that these conditions cannot be ones “likely to require chronic, ongoing care.” 

Halderman says this language means treatment for diabetes could not be excluded. Wieske says exclusion of diabetes is theoretically possible given the way the bill is written, but from a practical standpoint, wouldn’t happen. At least 30 states have similar rider pool provisions, and none of them excludes diabetes-related treatment, he says. 

Relatively minor but potentially expensive-to-treat conditions like allergies, acne, and toenail fungus typically qualify a person for the rider pool. Ridering diabetes wouldn’t make financial sense for insurers because they would still have to pay to treat complications of the disease, Wieske says. 

At least one aspect of the bill is not a step forward, Wieske says. Currently, Californians qualify for the high-risk program after one private insurer denies them coverage in the individual market. Under the legislation, three different health plans would have to reject an individual before he would become eligible. “That’s a significant burden, both on the individual and the carrier,” Wieske says. 

The bill offers a second route to eligibility that Wieske does like. It would authorize the board governing the high-risk program to compose a list of “uninsurable conditions.” A person who produces documentation from a physician and surgeon showing that he has one of the conditions would be eligible. 

The Bill’s Future

Senate Bill 57 must make its way through the Health; Business and Professions; Banking, Finance and Insurance; and Judiciary committees in sequence before the full Senate can cast votes. If any committee denies the bill a hearing or votes it down, the legislation will die.

Although Halderman is “optimistic” about the bill’s chances, Wieske says it’s unlikely to become law, given the two-thirds approval necessary in both houses of the Legislature. Many Democrats will not vote for it because they’d prefer a guaranteed-issue law or state-run healthcare system.

Overall, changes the bill would make to MRMIP would better the lives of those in the program, but only marginally, Wieske says. “I think the bill is a gentle improvement to the high-risk pool,” he says. “But they could probably do more than the bill does.”  

Guaranteed Issue: An Alternative to High-Risk Programs

Eight states, mainly in the Northeast, have guaranteed-issue laws. In these states, insurance companies can’t refuse coverage to people with pre-existing conditions, including diabetes. “Without such protections, people with diabetes continue to be denied health insurance coverage, thereby significantly limiting their ability to access needed health services,” says Naomi Senkeeto, manager of health policy for the American Diabetes Association.

But J.P Wieske, director of state affairs for the Council for Affordable Health Insurance, says rates for everyone in the individual health insurance market skyrocket under guaranteed-issue laws, prompting healthy people to drop insurance and making the entire individual market high risk. 

To counter these concerns, Senkeeto says, some groups advocate coupling guaranteed issue with “individual mandate,” which requires people to have health insurance. Massachusetts does this. “While this is not something the association would push for, we would not oppose it either,” Senkeeto says.

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