How Important is Medical Underwriting?

Recently I moved a small employer from the fully insured Obamacare plan that was written in 2014 into the Anthem MEWA here in Ohio. As a start up in 2014 the company knew they had to provide insurance benefits to attract the quality employees to make the business successful.

Unfortunately as a new company entering the world of employee benefits, they were forced into the high priced community rated pool created under Obamacare. At the time the idea of using alternative funding arrangements was just beginning to enter the equation and for many insurers they were still a work in progress. Many products were still being developed and few were approved by the Department of Insurance. 

My client did what they had to do and bit the bullet paying a steep price. All the while knowing that I would be coming back this year with high expectations that we would have a few extra arrows in the quiver. Which is exactly what we brought.

I have to say, there was pain in the process. Employees had to complete an online data collection program. FormFire is an encrypted portal for employees that streamlines them through a questionnaire enabling their personal and health information to be integrated into almost any health insurer's application. While time consuming and tedious it's become the only way to effectively receive underwritten rates from insurance companies.

In the end it's the results that matter. A couple of month's worth of headache has resulted in this healthy small employer finding savings. And, they can confirm that there is a significant cost for Obamacare.

In case you want to know how much savings... 

$55,475 to be exact. More than enough to help this growing start up hire an additional employee.

Risk Adjustment: It's only money

Almost two months ago, we noted that the "risk adjustment program was designed to dissuade insurers from targeting only healthy people ... The problem is that measuring metrics often encourage companies to optimize their score"

The point being: even when it works (for certain values of "works") it's a giant time bomb ticking away.

And now we learn, thanks to FoIB Allison Bell, that it's about to go off:

"For Congress, putting a health insurance risk-adjustment program in the legislation that created the Patient Protection and Affordable Care Act of 2010 was a no-brainer."

Which is quite apt, don't you think?

The result of mindless tinkering is that "[w]hen insurers are dealing with the ACA risk-adjustment program, the amount of cash they get may ultimately depend on whether competitors make good on risk-adjustment obligations."

That is, they're trusting ion the old adage about honor among thieves, and relying on not just the willingness, but the ability of other carriers to pony up their share. Which, given the current state of the market, is, well, problematic. For example, Meritus Health Partners, Arizona's Co-OP, owes almost $50 million.

The problem?

"Reminder: Meritus has been placed under supervision by the Arizona Department of Insurance."

And that's just the 10th place finisher. Top billing [ed: ISWYDT] goes to Molina Healthcare of Florida, with an estimated tab of almost $219 million. That's a substantial hit, no matter how big you are.

All told, those Top 10 account for some $5.6 billion in risk adjustment fees.

"Bending the cost curve down," indeed.

Are the LTC shoes starting to drop?

The Office of Personnel Management announced last week that premium rates for the Federal Long Term Care Insurance Program will increase by an average 83% effective November 1.   John Hancock is the present insurer, and was the only bidder for the new contract beginning November 1.   

Officials representing Federal Employees expressed shock and anger at the news.  The anger is understandable - the shock is much less understandable.  There has been plenty of information about national, rapid increases to LTC costs. And specific to the federal LTC program, last August OPM made a sudden, unprecedented decision to levy substantial premium increases for new enrollees.  It was then unmistakable – or should have been unmistakable – that the federal LTC house was on fire.  However, the officials who are shocked today, seem not to have thought it important enough last August to prepare their constituents.   As this most recent news confirms – the LTC house is still on fire.

Where the Federal program goes from here is anyone’s guess. In fact, where LTC Insurance in general goes from here is anyone’s guess.  The principle remains that the reason to buy LTC insurance is to insure one's assets. The point at which that is a break-even or better risk-management decision appears to be going up. 

ICYMI: MergerMania under the scope [UPDATED]

[Scroll down for update]

FoIB Holly R has the latest on the proposed mergers of Cigna with Anthem and Humana with Aetna:

"The Department of Justice announced Thursday that it would file lawsuits against the proposed merger[s] ... there are [currently] five major health insurers in the United States — and if these mergers went through, that would drop to three."

And the numbers are staggering: if both deals go through those three mega-carriers would account for something like half the under-65 population.

On the other hand, FoIB Brian D wonders:

"How can you pass restrictions and rules that push health insurers to the brink of bankruptcy then block insurers to merge to save costs? Could it be you look forward to government take over?"

I replied that this has been the plan all along.

And by the way, Aetna and Humana have announced their plan to fight this decision tooth-and-nail.

Fighting city hall? Hunh.

UPDATE [Related]: Co-blogger Bob also chimes in with this tip:

"[Humana] says it will sell individual health coverage in no more than 156 counties in 11 states in 2017, down from 1,351 counties in 19 states this year. That will reduce the number of counties in which it sells individual exchange plans by at least about 88 percent."

And, taking a nod from United Healthcare, it's not selling any off-Exchange plans next year.

But hey, if you like your plan...

Obamacare's New High Risk Pool

Anticipation of huge premium increases in the small employer market has been building since 2013. New rules were to take effect on January 1, 2014 that would eliminate medical underwriting and reduce the number of criteria insurers could use in developing premiums. Insurance professionals, insurers, and organizations such as the U.S. Chamber of Commerce were preparing businesses with less than 50 employees for significant increases to their medical insurance premiums and the potential of losing their plans.

Realizing the potential catastrophe of fully implementing this rule, President Obama had his leaders at HHS issue a letter to state insurance commissioners offering to extend plans that existed prior to October 1, 2013 through 2014. Less than four months later HHS followed up their prior letter with an additional extension lasting through 2017.

The delay has benefited employers and bought insurers time. This has resulted in a series of new plan designs featuring alternative funding arrangements that will help small employers avoid the costly rules associated with ACA compliant plans.

These products include self-funding with lower stop loss deductibles, level funded plans, and Multiple Employer Welfare Arrangements (MEWA). Most of these arrangements aren't new. They have simply been modified or adjusted to meet the needs and budgets that small employers need to retain a solid benefits offering at an affordable cost.

The biggest difference between ACA compliant fully insured plans and all of these options is medical underwriting. Under Obamacare, all fully insured plans for small employers must use adjusted community rating on their policies. The rules of adjusted community rating only allow for insurers to offer different rates for age, location, and tobacco use. Essentially taking the greatest risk factor - medical history - out of the process. The result is ACA regulated plans will increase the cost to employers with healthy employees while limiting the costs to employers with unhealthy employees.

On the other hand, alternative funding arrangements can continue to use medical underwriting to develop rates for employers allowing those with healthy employees to reap the benefits of a lower premium.

With Obamacare's rules on guaranteed issue and no pre-existing conditions, small employers will be able to shift from one arrangement to another based on their employees health risk. This will result in a separation of good and bad. Alternative funding arrangements will be filled with healthy risk and ACA fully insured plans will become a dumping ground full of bad health risk creating a costly high risk pool.

From an employer perspective this gives them the best of both worlds. At least until insurers pull out of the high risk market.

Cleveland-sized Health Wonk Review

Steve Anderson presents this month's round-up of fantastic health policy related posts, with almost Trumpian flair.

Not to be missed.

Midweek Spindle Clearing

■ As we noted last month, it looks like the Feds are getting serious about cutting Short Term Medical plans off at the knees. Thanks to a tip from Insurance Services of America, we have some new details:

The U.S. Department of Health and Human Services (HHS) has proposed major changes to short-term, limited duration insurance plans:

• Short-term health policies could be written for no longer than three months, instead of up to a year as is now allowed.

• Consumers would not be able to rewrite the policies.

Just more proof that the ACA was never about insuring people, just controlling them.

Consumers (and of course, agents) can comment on the new regs until early August.

■ Co-blogger Bob tips us that Palmetto State officials "warn the Obamacare health insurance marketplace is on the verge of collapse." Currently, most South Carolina counties have exactly one choice of insurers: Blue Cross. And it looks like they may be the only one left standing statewide for 2017.

■ Direct Primary Care continues to make inroads. In Cleveland, a local hospital network is offering their own take. Via co-blogger Patrick:

"On Wednesday, [MetroHealth] rolled out a program aimed in part at catering to people unhappy with the cost and complexities of their Obamacare plans. The program, called Select Direct, will allow patients to get primary care services by paying a fixed monthly fee ... You pay the amount and we'll take care of all of your preventive and health maintenance needs"

Which sounds great, since plans are available for as little as $40 a month. It's intended to supplement high deductible plans, or even as an ObamaPlan substitute. It's not clear from the article, but one presumes that it qualifies as an excepted benefit, and thus able to dodge the tax penalty fine.

As with all of these plans, of course, how one pays the oncologist and cardiac unit remains the big question.

Ted Cruz Lies

The lie:

The truth:



BusTED.

[Hat Tip: FoIB Holly R]

Interesting Industry Trend

Our friend Joe L at Issue Insurance tells us that (at least) 3 life insurers have introduced accelerated underwriting programs that promise to cut both the time it takes to get a policy issues and save wear-and-tear on clients' veins.

For example, Banner Life offers AppAssist, which is available for face amounts up to half a million dollars. It does away with medical exams, labs and doctor's notes. The carrier promises that qualifying applicants "can be approved by the next business day, or even faster."

I must admit, this feature has me scratching my head:

"One inch automatically added to client’s height to potentially boost the rate class"

I mean, I get where that could be helpful in assigning a rate, I just don't get how they accomplish the feat: elevator shoes?

So, what makes one a "qualifying applicant?" Well, that will vary from carrier to carrier, but generally speaking: ages 18 to 50, and the carrier will do a 'script check' (for various medications) and run an MVR (for major traffic violations, such as DUI). Assuming the client is on few (or no) meds and has a clean driving record, he or she should be good to go - quickly.

SBLI and Lincoln Financial offer similar programs, all with the goal of streamlining the underwriting process.

I think this is a good trend: for one thing, faster (but careful!) underwriting means less hassle for the client. Be interesting to see how far this spreads.

Major Food Pyramid Update

Well, it's been well over two years since our last Food Pyramid update. At that time, chocolate and red wine were the stars of the show, but that was then and this is now:

■ First up, great news for those of us who enjoy "a slice" now and again:

"Hallelujah! Eating pizza can actually help you stay healthy, awesome new study finds"

Turns out, it's more about the amount of sugar in a given food that drives its weight-gain potential. According to the study, "researchers concluded that a high-calorie diet with lower sugar actually improved the children’s cholesterol, insulin levels, liver function, blood pressure, and blood sugar."

Now about those anchovies...

■ In related news, Co-blogger Bob tips us that:

"Pasta may not be fattening after all ... By analyzing anthropometric data of the participants and their eating habits, we have seen that consumption of pasta, contrary to what many think, is not associated with an increase in body weight; rather the opposite"

Now loading it up with extra cheese, bacon and other treats is probably ill-advised, but at least we can enjoy a nice pasta salad (and maybe some of that yummy, healthy red wine).

Misguided LTCi "Reform"

Over at LifeHealthPro, FoIB Allison Bell has the story of a woman who doesn't understand the purpose of the product, who's never designed, priced, marketed or sold a plan, who may not even own one, yet is called upon to offer suggestions on how to "reform" Long Term Care insurance.

What could possibly go wrong?

Let's start with some basic facts:

First, the primary purpose of Long Term Care insurance (LTCi) is asset protection. That is, as homeowner's insurance protects one's home, LTCi protects one's retirement and other financial assets.

By definition, folks on Medicaid have no such assets to protect, hence no need for a plan. If one has no car or driver's license, why would one want (let alone need) to buy auto insurance?

Second, the primary reason that rates have continued to increase is that the industry made some (very) bad assumptions about retention. That is, they designed and priced the plans similar to disability insurance (close cousin), assuming a similar lapse rate. In hindsight, this turns out to have been a mistake, because insureds have been keeping their plans - even with rate increases - in droves. This drives up claims, and here we are.

Ms Burns offers 7 suggestions about how to "reform" Long Term Care insurance. There's a lot of bad advice (and assumptions) but we'll just look at three particularly egregious examples.

First, "(l)et Medicaid help low-income long-term care insurance policyholders hang on to their policies."

Why? If they're already on Medicaid, then they have no use for an LTCi plan (remember, it's primarily designed to protect assets). Now I could see where that might help Medicaid: after all, premiums are a lot less than benefits, and so the gummint would reap some major savings. But that's not the same thing as actually helping policyholders, who might have other uses for those dollars.

Second, "(l)et the government try to recover any long-term care insurance premium subsidies provided after the insured dies, from the insured's estate." There's a lot of stupid packed in here, but I'll try to help her out. To begin with, this is already the law as regards benefits. How's that turning out?  And comparing LTCi with reverse mortgages? Where's Fred Thompson when you need him?

Sigh.

Finally (at least for this post), "(b)uild in transportation and meal support benefits." Right, because adding even more benefits always drives down cost. If there was a market for such cover, rest assured that it would be offered as an option for those who wanted to spend the extra cash. It's called "the free market" and it works.

Next week, we interview an electrician about the best way to install a new toilet.

Thursday LinkFest

■ First up, FoIB Holly R tips us to this terrific news:

"As millions get covered, a POLITICO investigation finds that dozens of the insurers that the health care law depends on are losing money and even abandoning the system"

This is of course not news to anyone that's been paying attention, but that a left-leaning outlet like Politico is covering it is ... suggestive.

■ First, it was sky-miles. Now we learn, thanks to co-blogger Bob, that those highly touted wellness programs are now in IRS cross-hairs:

"Are wellness program incentives taxable? The IRS says ‘yes’ ... In each case, the incentives were deemed subject to income tax."

Thereby further diluting their cost-effectiveness.

Sweet.

■ Finally, long time readers may recall this story from last summer:

"Further investigating – including a review of a Fitbit activity tracker – showed the scene was staged and 43-year-old Jeannine Risley knowingly filed a false report"

The "victim" had staged a fake rape, and was foiled by the Fitbit widget on her wrist.

Now, workers comp claims adjusters, personal injury attorneys and others are using the same technique to catch out potential fraudsters:

"Make that Fitbit a lie detector. Using personal data tracking to investigate claims"

O brave new world...

DPC in Tennessee

As a longtime proponent of the Direct Primary Care (DPC) movement, I found this article quite disappointing.

First, let's start with the fact that a state legislature can't change Federal law. So the fact that The Volunteer State has passed the Healthcare Empowerment Act may well be a great thing, but doesn't change the fact that the ObamaTax is the law of the land, including Tennessee:

"The bill states that DPC arrangements are not health insurance, and are not regulated by the Department of Commerce and Insurance."

How a given state chooses to regulate its citizens and industries is, of course, entirely their choice, but the ACA has specific verbiage relating to DPC, and these aren't open to state by state interpretation.

In this case, the ACA explicitly states that the "Secretary of Health and Human Services shall permit a qualified health plan to provide coverage through a qualified direct primary care medical home plan that meets criteria established by the Secretary, so long as the qualified health plan meets all requirements that are otherwise applicable and the services covered by the medical home plan are coordinated with the entity offering the qualified health plan."

The next item with which I have issues is this:

"If you have primary care coverage through your insurance but also sign up for DPC, are you paying for coverage twice? Technically, yes."

Um, there's no "technically" about it: you're going to pay both the DPC fee and the insurance premium (if you want coverage for the oncologist, ER doc, cardiologist, etc). Now, I don't actually have a problem with this: it's the price one pays for accessing the DPC model. There are a lot of benefits to that model, to which the article alludes; I just don't understand why the author found the weasel wording necessary.

YMMV.

Coming Clean: Anti-Money Laundering

Recently, I was obliged to take my triennial anti-money laundering refresher course. As these things go, it's not exactly rocket surgery, but as I waded through the questions and scenarios, I became more and more incensed at the presumption on display by our Betters in DC©.

So of course I wrote a post on the subject but, upon reflection, decided it would be better suited for a more politically-oriented blog. Fortunately, I've come to know and respect the gentleman under The Political Hat, and he's graciously agreed to publish the post on his site.

Click here for the rest of the story...

Little Birdie Tells Me

An anonymous (but reliable) source let me know that Northwestern Mutual is contemplating its first Long Term Care insurance (LTCi) rate increase - ever - "sometime this year." Indications are that premiums on in-force plans will go up 15-22%.

The carrier's been writing LTCi for a while:

"QuietCare® was first introduced in 1998"

According to my source, they've historically had relatively higher rates than their competitors. On the other hand, their financials are among the best in the business.

Last time we looked, Northwestern held down 3rd place (out of the Top 10), with John Hancock and Genworth occupying the two top spots.

Oh, how times have changed:

That's from the 2014 survey (most recent I could find), courtesy of Highland Brokerage. I knew that the industry had changed in the past few years, but hadn't realized just how drastically.

And speaking of Long Term Care, "[o]nly 36% of Americans are saving for senior care:"

A properly structured LTC insurance policy can help fill (or eliminate) the gap.

Zombies never die . . . do they?

"There’s been a lot of talk about the 'public option' all of a sudden."

And it's still the same bad idea it's always been.  

[From July 11 Wall Street Journal via Instapundit - with thanks.]

Life Insurance in the Weeds

Over at LifeHealthPro, Ben Steverman has an interesting article about the challenges facing folks involved in the (medical?) marijuana trade, which is now legal in a handful of states. Even though these folks may have never even used their product, they're apparently having a hard time securing the coverage they need to protect their families in the event of the untimely demise.

Derek Peterson, for example, is "the chief executive officer of Terra Tech, a publicly traded pot company based in Irvine, CA." When he recently applied for life insurance coverage with Mutual of Omaha, the underwriter put the kibosh on his plans, stating that:

"We have discontinued the processing of your application for insurance due to company policy. We cannot accept premium from individuals or entities who are associated with the marijuana industry."

Okay, they're certainly within their rights to set underwriting guidelines, but this seems perhaps a bit heavy handed. It's not stated, but we can infer from the article that he wasn't actively using marijuana, merely involved in its production and distribution.

[ed: You'll notice that I didn't say "legal" production and distribution. We'll circle back to that momentarily]

The article quotes  Loretta Worters, spokesperson for the Insurance Information Institute, who observes that "[t]he problem from a life insurance underwriter’s point of view is that, unlike tobacco, there isn’t a lot of data available to assess the risks of coverage for marijuana users"

But this begs the question, since there's no indication that Mr Peterson used pot, either in the past or currently.

So I reached out to some of my own sources; one, a life insurance underwriter, told me that "I personally have not had to underwrite a client who was a pot store owner, but it would be a situation where it would be case by case review.  I think the article hit the nail on the head when she stated that there isn’t a lot of data available to assess the risks of coverage."

She pointed out that there are other industries that carriers tend to "underwrite a little more carefully- people who own bars, gun shops…..  and that again is just because of the statistics and mortality studies that we have that these people have increased incidents of alcoholism, bar fights, being robbed at gun point."

Which makes a lot of sense, but I still had my reservations.

Until I heard from a good friend who's also the field rep for one of our carriers, who I think really pegged it:

"While pot may be legal in certain states, it's still a Federal offense, and we tend to shy away from folks that are actively - and publicly - committing felonies."

Makes sense, no? Simple, straightforward, and cuts right to the chase.