The Future of Individual Plan Underwriting vs. Guaranteed Issue

By Clive Riddle

United Health Group betting on continued patchwork of State Regulations

An ongoing conundrum central to health coverage reform is the chicken and egg issues of health plan acceptance of individual health care coverage, mandates and guaranteed issue.

If all plans were required to accept all individual applicants for all policies (full guaranteed issue), the argument goes that significant adverse selection would occur, as only those uninsured with funds that could reliably project their actual health expenses would exceed the insurance premium costs would purchase coverage. In order to correct for this, it is argues that a mandate is required (requiring all of an applicable population to obtain/receive coverage.)

For example, the health plan industry, through America’s Health Insurance Plans (AHIP) have just proposed guaranteed issue in exchange for a mandate, stating in a press release: “Health plans propose guaranteed coverage for people with pre-existing medical conditions in conjunction with an enforceable individual coverage mandate. To help working families afford coverage, advanceable and refundable tax credits should be available, phasing out as income approaches 400 percent of the federal poverty line. Right now, in most states, individuals can be turned down by insurance plans when they apply for individual health plan coverage, if they do not satisfy the plan’s underwriting criteria. The only sure way for an individual to get coverage is to live in one of the few states with guaranteed issue, or obtain employment where group health plan coverage is offered.” (Refer to AHIP December 3rd, 2008 Press Release: Health Plans Offer Comprehensive Reform Proposal.)

But will a health care reform package include such a mandate that extends to the individual, non-group market, particularly in the current economic climate? The Obama reform proposal had focused on employer mandates.

In the current group environment, employees and dependents whose group coverage is ending can self-purchase continuing coverage to maintain their group policy benefits, at 102% of the cost of their group policy under provisions originally set forth under COBRA continuation of benefits regulations, but this coverage is generally limited from 18 to 36 months, depending on the circumstances (refer to http://www.cms.hhs.gov/COBRAContinuationofCov/ for details on COBRA continuation of coverage provisions).

Also in the current environment, guaranteed issue for all individuals just in Maine, Massachusetts, New Jersey, New York and Vermont. Washington provides guaranteed issue for some classes of individuals, and of course many states have incremental provisions extending coverage provisions. (refer to Kaiser Family Foundation StateHealthFacts.org for a summary of Individual Market Guaranteed Issue.)

So the question is, assuming health care coverage reform isn’t so far-sweeping that the individual market is removed due to full universal non-group based coverage, will the future of individual health plan coverage involve:

A. Federal Guaranteed Issue With Some Type of Coverage Mandates
B. Federal Guaranteed Issue Without Mandates
C. Continued Patchwork of State Regulations

United Health Group is betting on the latter, and now selling the right to Guaranteed Issue to qualified prospects. They have announced in a December 4th press release and as reported in the New York Times (refer to the Times December 2nd, 2008 article, UnitedHealth to Insure the Right to Insurance ) that UnitedHealth has unveiled “a ‘first of its kind’ product: the right to buy an individual health policy at some point in the future even if you become sick. Called UnitedHealth Continuity, the product is not actual medical insurance, but is aimed at people who may have insurance now but are worried they may lose it — and may not be able to obtain replacement insurance on their own.”

United states that “with Continuity, consumers only need to go through the medical underwriting process once, at the time of application. Once they are approved, their coverage is guaranteed when they need it regardless of any medical conditions that may have developed in the meantime...With Continuity, consumers can choose from a wide range of health plans, deductibles and optional benefits including traditional health insurance plans, health savings account plans and lower-cost high deductible plans. Once the plan is approved and issued, the Continuity rider gives policyholders the option to leave the plan deactivated while covered by group insurance or activate the plan when they lose or voluntarily leave group health insurance coverage because of early retirement, job loss or simply because the employer no longer offers health benefits.”

The Times reports the cost for holding the Continuity Guarantee is 20% of a standard individual premium, and is subject to underwriting before the Guarantee is issued. On the surface, it is difficult to imagine a large market for United’s Continuity product at such a steep price, given that COBRA is available as an interim stopgap for those with group coverage. The Times quotes a broker who states “I think it’s got very, very limited application.”

However, United’s innovation does open the door to variations on this theme that could have more widespread appeal, if in fact, federal requirements for guaranteed issue do not materialize. Health Plan competition for group coverage could result in rider provisions for no-cost or low-cost individual coverage guarantees, as part of the group policy, so that the employer can advertise improved continuation of coverage or portability in the event employees lose their group eligibility for whatever reason. That type of product could have widespread interest in the group market.