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Health Insurance Premiums

October 27, 2010 | Comments Off on Health Insurance Premiums
Posted by Frank Ciesla

An issue which confronts providers, employers and beneficiaries alike, and was a major driver in the federal health care legislation, is the affordability of small business and individual health care policies.  It is clear that a family making $50,000 to $75,000 a year finds it difficult, and in some instances impossible, to afford family coverage that may run between $12,000 and $15,000 for a non-luxury policy. 
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The Patient Protection and Affordable Care Act (“PPACA”) currently takes a traditional approach to influencing the cost of health care premiums.  This approach is set forth in the provision of PPACA requiring that either 80 cents or 85 cents of each premium dollar be used for the patient’s health care needs, thereby limiting those funds available to the insurer for profit and administrative overhead. 

The PPACA also limits the level of health care premiums to those which are reasonable.  Senator Diane Feinstein (with co-sponsors) believes that this language is too broad and has introduced a senate bill (Senate Bill S3078), which would amend PPACA to provide much greater governmental control as to the premiums that insurance companies can charge.  The effect of the legislation would be to impose a ceiling on premiums, not based on the costs incurred by the insurance company in providing the benefits, but based upon what people can afford to pay.  This approach is partially accomplished under the federal health care program with the various insurance subsidies that are being provided. 

However, if one were to look at for instance the State of Massachusetts which has attempted to establish “Universal Healthcare,” one sees a very disturbing situation.  In that State, the Executive Branch turned down all rate requests, which action was upheld by the Judicial Branch, and the matters have been submitted for administrative hearings.  Subsequently lower premiums were approved within the administrative process.  In addition, the Executive Branch commenced a process and the Legislature has introduced legislation consistent with the Executive Branch’s initiative, to have providers contribute to the insurance companies so that the insurance companies can subsidize the premiums charged to the individuals and small businesses. 

A determination as to how to judge the reasonableness of the premium, based upon affordability for the individuals or small businesses purchasing the insurance, has to some extent been adopted by the Insurance Commissioner in the State of Maine.  The difficulty with this approach is that if the premium is insufficient to cover the costs of health care paid by the insurance company, the insurance companies may become insolvent, which is a major problem for employers, providers and beneficiaries.  Indeed, our law firm has already encountered this problem even prior to the implementation of health care reform legislation through our representation of providers in both the HIP of New Jersey insolvency and the New Jersey Car insolvency.

To protect themselves, insurers are likely to attempt to seek reductions in the payments to be made to the providers.  At the same time, the costs of operating a medical practice or a health care facility keep growing, while the revenue from providing the services keeps diminishing.  A physician needs to pay for malpractice insurance, rent, employees, and supplies, pay loans incurred to obtain a medical education and other expenses, in addition to compensating himself or herself for the professional services rendered.  Without adequate coverage of practice expenses and with significant reductions in compensation, physicians may reduce their participation in particular insurance plans or drop out of them entirely, which creates (as it has in Massachusetts and is creating in New Jersey) an access to care problem.  Another alternative employed by the payors is to attempt to shift costs from policies being sold to individuals and small businesses over to larger businesses.


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