The Subcommittee on the Cost of Health Care and Health Insurance for Employees and Employers made five recommendations that could fundamentally alter the way that many North Carolinians get and pay for health insurance.
1. Tax Credit to Small Businesses
The Subcommittee on the Cost of Health Care and Health Insurance for Employees and Employers recommends that the House Select Committee on Health Care encourage the General Assembly to enact legislation to provide a tax credit to small businesses that provide health benefits to all eligible employees.
Between 2000 and 2003, the cost of insurance premiums per employee rose at a rate faster than the national average for small firms, while large firms saw increases smaller than the national average. This suggests that a disproportionate burden for health care falls on small businesses. Most small firm employees are not offered health insurance through their work, and the percentage of North Carolinians insured through their work has fallen more than six percent between 2000 and 2004. The subcommittee heard testimony from a representative of the NC Institute of Medicine that "the number one driver of increasing rates of uninsurance is premium cost."
The committee's recommendation is to give small businesses a tax break. A bill that accomplishes this has already cleared the House and is awaiting action in the Senate. It is the same bill that would raise NC's minimum wage to $6.00 per hour. (I was told by one of the bill's primary sponsors that House Republicans attached the tax credit to the minimum wage bill in an attempt to kill it. When that didn't happen, they doubled the amount of the tax credit to make it even less palatable to House Democrats, who are counting on their counterparts in the Senate to undo this move.)
In its current form, House Bill 20 provides a tax credit of $800 ($400 in the original bill) per employee to small businesses who pay 50% or more of the premiums of a qualifying insurance plan. A small business is defined as "a taxpayer that employs no more than 25 eligible employees throughout the taxable year." The tax credit portion of the bill would sunset in 2010.
2. High-Risk Pool
The Subcommittee on the Cost of Health Care and Health Insurance for Employees and Employers recommends that the House Select Committee on Health Care encourage the General Assembly to enact legislation to implement a health insurance high-risk pool.
The subcommittee took notice of the fact that in today's insurance environment, some people are simply screwed: "non-group health insurance coverage for a 35-year old man with a major health problem could cost more than $800 per month (with a $1,000 deductible, 30% coinsurance plan), or more than $1,800 per month for a 55-year old man." The numbers are probably even higher for women. The committee also heard that 33 other states have created high-risk pools.
What's a high-risk pool? In most states, it's a state created (but not state funded) insurance provider that offers one or more coverage plans at prices above the normal market price for similar plans. (In Virginia, the most recent state to create a high-risk pool, the offering price is restricted to between 125% and 150% of market rates.) Citizens who are not eligible for Medicare or Medicaid and who can't get cheaper insurance or who are uninsurable because of a health problem are eligible to join.
A bill in the legislature—House Bill 1535—would establish a high-risk pool.
3. Healthy North Carolina Program
The Subcommittee on the Cost of Health Care and Health Insurance for Employees and Employers recommends that the House Select Committee on Health Care encourage the General Assembly to enact legislation to create a program offering affordable health insurance to North Carolina small employers and working individuals, similar to the Healthy New York model.
This is one of the most interesting proposals, and it's likely to be one of the most controversial. It essentially uses subsidies to create a safety net for employees who might otherwise fall through the cracks of our current insurance environment. (You can see why the free marketeers and libertarians won't like this one.) Information (in PDF) on the New York program is here.
The specific plan proposed by the NC Institute of Medicine would create a low-cost (subsidized) insurance plan that would be available only to certain North Carolinians. There is a wage-based prong to eligibility and an income-based prong:
Wage-based eligibility: the focus here is on employers, who know how much they pay employees, but are unlikely to know the employee's family's income. There are four requirements an employer must meet for her employees to be eligible for the program: (i) her business must employ 25 or fewer people; (ii) 30% or more of the workforce must be low-income (that is, paid less than $12/hour); (iii) at least 75% of eligible employees who don't have other coverage must participate in the plan; and (iv) the employer must pay 50% of the employees' premium. The business would be eligible for an additional tax credit if more than 75% of eligible employees participate, if the business pays more than 50% of premiums, or if the employer contributes toward dependents' premiums.
Income-based eligibility: there are two ways for employees not eligible under the wage-based prong to get in on the plan. First, a worker is eligible if he is self employed and has a family income less than 2.5 times the federal poverty guideline (FPG). Second, a worker who doesn't have access to employer-sponsored healthcare is eligible if his family income is less than 2.5 times the FPG.
4. Statewide Stroke Care System
The Subcommittee on the Cost of Health Care and Health Insurance for Employees and Employers recommends that the House Select Committee on Health Care encourage the General Assembly to enact House Bill 1396 Statewide Stroke Care System, or similar legislation, to provide for the identification of primary stroke centers, to disseminate information to the general public and emergency care providers about the location of primary stroke centers, and to facilitate appropriate emergent stroke centers.
According to a neurology professor at Duke 27,000 North Carolinians have strokes each year; 14,000 are disabled by stroke each year; stroke is the 3rd leading cause of death in North Carolina.
House Bill 1396 would simply identify primary stroke centers (based on a national accreditation), let people know where these centers are, and encourage the development of new stroke centers.
5. Small Employer Group Health Coverage
The Subcommittee on the Cost of Health Care and Health Insurance for Employees and Employers recommends that the House Select Committee on Health Care encourage the General Assembly to enact legislation to allow small group insurers to offer self-employed individuals two popular plans instead of the Basic and Standard Plans; to replace demographic factor for geographic location with a factor for medical care system; to allow a rating factor for the industry, up to 10%; to expand the risk band from 20% to 25%; and to eliminate the Reinsurance Pool for small group carriers.
This recommendation is a little more difficult to understand; my impression is that it generally relaxes regulation of small group insurance carriers.
- North Carolina law requires small group insurers to offer two particular plans with statutorily-defined benefits. The recommendation would allow insurers to offer two plans of their own instead (two "popular" plans). The idea is to reduce administrative costs and hopefully save customers some cash. (My hunch is that most of the benefit of this recommendation would accrue to the insurers, who are, after all, in the business of making money.)
- Right now, insurers are required to set their rates by county. According to the Department of Insurance, this means that when a part of one county is covered by a higher-cost hospital, the whole county is charged the rate necessary to cover the high-cost insureds. The recommendation would allow insurers to set rates according to health care systems instead of county lines. This could result in a fluctuation in current rates of up to 20% in either direction (depending on where an employer's workers are likely to need care).
I'll be honest: this one doesn't make a whole lot of sense to me. For a statewide insurer, it seems like the price differences would come out in the wash. That is, it seems like pricing accuracy for the sake of pricing accuracy. If you're familiar with the health insurance business, please leave a comment explaining this provision.
- When setting rates, insurers are not allowed to use the employer's industry as a factor, even though some industries are higher risk than others. The Department of Insurance recommends a 10% cap for adjustments either way to protect from large rate swings. Here's more stuff I don't understand because I don't know enough about the industry: "Long-term, increasing the number of lower-risk groups covered should lower the community rate upon which all rates are based—a benefit to all small groups." Why would lower-risk groups make up more than half of all groups? I dunno.
- After adjusting rates for factors like age and gender, insurers adjust the rates of specific groups up or down according to that group's own medical risk. Right now that adjustment is capped at 20% in either direction. (That's called the "20% risk band.") That means that groups whose risks would merit 20%+ increase are being subsidized by groups that whose risks would merit a 20%+ decrease. The recommendation is to expand the risk band to 25%, meaning that higher risk groups pay more and lower risk groups pay less—essentially shifting more of the cost of risk on to individual groups and away from the population at large. According to the DOI, going to a 25% risk band "would allow for a 7.8% rate decrease for low-risk groups and a 2.5% increase for high-risk groups."
Taken together with the prior rate recommendations, insured groups could see rates decrease by as much as 33.6% or increase by as much as 35.5%.
- The last recommendation in this section is to scrap a statutorily-created reinsurance pool that most qualifying insurers don't use and that is considered to be not-particularly-useful by those who do. The plan is to turn small group health reinsurance entirely over to the market and save administrative expenses.