Transition. We envision that most employees will enter NSPs by converting from group insurance and that the conversion will be through the actions of an employer. Specifically, an employer will choose an NSP for all his employees, much as employers choose group insurance today. Rules that apply to the group market today probably would still apply, including the requirement that (1) employers pay a substantial part of the premium, (2) a substantial percent of employees elect to insure, and (3) any new employees elect to insure on a date certain, not of their choosing. In return the group could avoid the administrative cost of individual underwriting (although this would not be a legislative requirement).
A typical transition period may involve a three-year contract. After the three-year period, employees will be free to switch to another NSP if they are dissatisfied with their plan. However, an individual's entry into another NSP is not guaranteed. During the three-year period, new employees who are not members of another NSP will be required to join the employer's selected NSP in order to qualify for an employer contribution.
Some employers may choose to have longer-term relations with an insurer. For example, a NSP may agree to take all of an employer's new employees without underwriting provided that eligible employees (not insured elsewhere) will not receive the employer's insurance contribution unless they join the NSP.
Some very larger employers may contract with an insurer to manage their own pool. However, once in the pool, former employees would have the right to continue membership.
Parallel Systems. No employer will be required to be a DCE. And no insurer will be required to offer a NSP. Therefore it is envisioned that for some time there will be parallel systems - with some employers and employees participating in the new system and others participating in conventional small group or large group markets.
Regulatory Status. Even though DCE employers pay premiums (to take advantage of the tax law), NSPs will be technically considered individual insurance. (Note: in most states individual insurance is not guaranteed issue).
Relation to HIPAA. Although federal law requires small group insurance to be guaranteed issue, states are free to choose their own mechanism to insure people who convert from group to individual insurance. Most states have chosen to make such individuals eligible for the state risk pool. Under this proposal most employers who become DCE employers will be assisting their employees in converting from group to individual insurance. Therefore, NSPs do not have to be guaranteed issue.
The Role of the Employer. Currently, employers cannot pay premiums for individual insurance for their employees. This proposal would allow them to do so. In return for this right, DCE employers will have certain obligations. One such obligation is to offer a fixed sum contribution toward premiums for every employee. This contribution could vary by age and other factors. But employers could not discriminate against employees based on health status. Another obligation is the requirement to make a full monthly premium payment to each employee's NSP.
For example, Exhibit IV illustrates the case of an employer who offers a $300 monthly contribution and who sends checks of varying amounts to cover the full premium to different NSPs. Exhibit V shows an employee whose NSP requires a $400 a month premium payment. The DCE deducts $100 from the employee's wages, adds the $300 employer contribution, and pays the $400 premium each month. In Exhibit VI, an employee is in an NSP costing only $200. This means that the employer pays the $200 premium each month and $100 of the employer's $300 contribution may go to the employee's IRA (or to some other designated account).
Note: employees must be in a NSP in order to qualify for their employer's contribution. Note also: that employers have certain administrative functions under this proposal that are comparable to those associated with administering 401(k) plans.
Avoiding Anti-Selection Problems. Under the current system employers play a valuable pooling role - encouraging healthy employees to join insurance pools along with the less healthy. A defined contribution system runs the risk of employers abandoning their traditional role and causing fewer healthy employees to insure. To avoid this outcome, we propose requiring employers to make a minimum contribution (say, 50 percent of the average premium for a standard plan) and requiring a minimum participation rate (say, 70 percent) among eligible employees. Failure to meet these requirements would cause the employer to lose DCE status (perhaps the Insurance Commissioner could waive this requirement where circumstances warrant).
Employee Choice. As noted above, employers will be expected to form contracts, (lasting three or more years) with insurers during the transition conversion from group to individual (NSP) insurance. During this period, the employees will have to belong to the employer's chosen plan in order to benefit from the employer's contribution - much as group insurance works today. However, after the transition is complete, employees will be able to switch to other NSPs - much as occurs in the individual market today.
We expect that there will be much less movement among plans than there is in the current small group market. This will contribute to stability in the market and assist insurers in better management of risk.
Note that because entry into an NSP is not guaranteed, a person with high expected costs may not be able to easily move from one NSP to another.
Managed Competition. This proposal explicitly rejects the managed competition model, under which individuals can switch health plans at open enrollment periods (typically every 12 months). Among other problems, under managed competition individuals cannot have long-term relationships with health plans. Therefore, they cannot have the continuity of care that a long-term relationship with a health plan makes possible. In addition, managed competition creates perverse incentives for employees and for health plans - ultimately inducing the plans to overprovide to the healthy underprovide to the sick.
Having said all of the above, however, we want to leave the market as free as possible to innovate, experiment and change. Therefore, we should permit "health marts," risk adjustment mechanisms and other devices associated with managed competition, so long as they are implemented through voluntary contract.
The Role of New System Plans. NSPs will acquire membership in one of two ways: (1) converting members of a group plan to NSP insurance and (2) enrolling members who choose to leave a rival NSP plan. In the former case, the insurer will be required to accept or reject the entire group. If it accepts the group, it can experience rate (with individual premiums based on the group's overall experience), although this experience rating occurs only at the point of entry into the pool and cannot be repeated again. In the latter case, the NSP can accept an individual applicant based on medical underwriting.
We are undecided about whether other individuals should be able to enter an NSP.
High Cost Enrollees. We propose several protections. First, NSPs who convert employees from group to individual (NSP) insurance must accept or reject the entire group. If all NSP's reject a group, the group can still go to the conventional small group market, where acceptance is guaranteed. Second, as an inducement to NSPs, we propose that if a NSP accepts a group below a minimum size without individual underwriting, there will be a six month look back period - during which time the NSP will have the opportunity to (a) move the enrollee to the risk pool, (b) qualify for reinsurance or (c) qualify for a direct subsidy.
It is important that all three subsidies (a thru c) be funded through from general revenues (tobacco settlement, etc.) and not from a tax on health insurance or health care. The reason is: we want to encourage people to purchase health insurance and we want people to obtain health care when they need it - undeterred by taxes.
High Cost Employees in a Mature System. In a mature system, most eligible employees will be members of NSPs, and their membership will be guaranteed renewable. Thus an individual who develops an expensive-to-treat illness need not fear losing coverage because he switches jobs or is laid off, or because his employer switches health plans or arbitrarily changes the benefits covered in the existing plan.
However, some high cost employees may fall through the cracks and become uninsured - because they failed to sign up for insurance when eligible, because they worked for an employer who did not provide insurance, because they previously had traditional insurance with another employer, etc. What happens to these individuals?
In some cases they will be able to enter an NSP without medical underwriting under the terms of a contract between an employer and an NSP that allows such entry. Moreover, anyone who is entitled to coverage under HIPAA will be able to obtain coverage from the state risk pool. If the individual works for a DCE employer, the DCE's premium contribution will be made to the risk pool - just like an ordinary insurance premium payment.
Specialty Health Plans. We would like to encourage health plans to specialize in the treatment of expensive-to-treat illnesses, such as cancer, heart disease etc. These specialty plans are "focused factories" that are very good and very efficient. It should be a goal of public policy to encourage arrangements whereby individuals can leave NSPs (and perhaps traditional health plans as well) and join a plan specializing in the treatment of their condition. Such movement will require the voluntary agreement of the patient and the two plans and will almost certainly involve a payment to the specialty plan from the original plan. But both plans should gain from the arrangement because of the substitution of more efficient for less efficient care. Patients should gain because they get better care.
