[Senate Hearing 111-344]
[From the U.S. Government Publishing Office]
S. Hrg. 111-344
CONSUMER CHOICES AND TRANSPARENCY
IN THE HEALTH INSURANCE INDUSTRY
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
JUNE 24, 2009
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii KAY BAILEY HUTCHISON, Texas,
JOHN F. KERRY, Massachusetts Ranking
BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California JOHN ENSIGN, Nevada
BILL NELSON, Florida JIM DeMINT, South Carolina
MARIA CANTWELL, Washington JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas JOHNNY ISAKSON, Georgia
CLAIRE McCASKILL, Missouri DAVID VITTER, Louisiana
AMY KLOBUCHAR, Minnesota SAM BROWNBACK, Kansas
TOM UDALL, New Mexico MEL MARTINEZ, Florida
MARK WARNER, Virginia MIKE JOHANNS, Nebraska
MARK BEGICH, Alaska
Ellen L. Doneski, Chief of Staff
James Reid, Deputy Chief of Staff
Bruce H. Andrews, General Counsel
Christine D. Kurth, Republican Staff Director and General Counsel
Brian M. Hendricks, Republican Chief Counsel
C O N T E N T S
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Page
Hearing held on June 24, 2009.................................... 1
Statement of Senator Rockefeller................................. 1
Statement of Senator Johanns..................................... 4
Statement of Senator Klobuchar................................... 38
Statement of Senator Udall....................................... 40
Witnesses
Wendell Potter, Former Health Insurance Executive, Philadelphia,
PA............................................................. 5
Prepared statement........................................... 7
Nancy Metcalf, Senior Program Editor, Consumer Reports........... 10
Prepared statement........................................... 12
Karen Pollitz, Research Professor, Georgetown University Health
Policy
Institute...................................................... 26
Prepared statement........................................... 28
Appendix
Response to written questions submitted by Hon. Tom Udall to
Karen Pollitz.................................................. 49
CONSUMER CHOICES AND TRANSPARENCY
IN THE HEALTH INSURANCE INDUSTRY
----------
WEDNESDAY, JUNE 24, 2009
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice at 2:31 p.m. in room
SR-253, Russell Senate Office Building, Hon. John D.
Rockefeller IV, Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
The Chairman. This hearing will come to order. Members will
soon be joining us. Today's hearing is about protecting
consumers.
So I want to start by talking about the consumer. Her name
is Jill Faddis. Back in 2001 she had problems with her health
insurance company. She and her husband were living in Seattle,
Washington at the time.
And the insurance company was the Aetna insurance company.
Their Aetna policy covered visits to doctors who were not part
of Aetna's network. Now understand when you say not part of her
network, you're talking up to about 100 million people in the
country. So don't think they're an exclusive little group. It's
a huge, huge, group.
The policy promised the Faddis' that if they went to see
out-of-network doctors Aetna would reimburse them at the
``usual and customary rate'' for the Seattle area. So relying
on Aetna's promise, Jill Faddis and her husband went to visit a
local periodontist. A periodontist is a dentist who specializes
in gum work. And it's sort of a hard thing to do.
The periodontist charged Mrs. Faddis $140 for the visit.
The charge was sent to Aetna which processed the claim and
reimbursed the Faddis' only $65 for the visit for which they
had been promised more. Aetna told Mrs. Faddis that the $65 was
the usual and customary charge for this service. And that she
and her husband would have to pay the $75 balance themselves to
make up the difference.
Mrs. Faddis did not take Aetna at their word. She's a
classic American. She took out her Yellow Pages and she called
every single periodontist in her area, Seattle and beyond.
There were about 11 or 12 folks that she reached. And I'd
like to pass out at this point a chart showing what she found.
She found that the actual usual and customary fee periodontists
in her area were charging for that service was somewhere
between $110 and $163 for that service.
[The information referred to follows:]
So then she shared her research with Aetna. She told them
they had made a mistake. Aetna told her that no, she was wrong.
She had made a mistake. Aetna told her that their calculation
of the reasonable and customary charge for the service was $65,
period.
Now this story does not have a happy ending. Mr. and Mrs.
Faddis paid the $75 out of their own pocket, I mean they had to
get well. She had to get well. And rather than going on to
fight a big insurance company where they would lose and figured
it out.
So this to me is a very disheartening story. And the thing
that's most disturbing about it is that it gets repeated
millions and millions of times a year, over and over again. I
repeat there are a hundred million Americans outside of network
systems.
Because some must turn to their health care insurance for
help and clarity. And they don't get it. They think they pay
for protection against the risk of high health care expenses.
But the insurance company has figured out a way to wiggle out
of providing the protection that they deserve. That's what they
are in it for.
So the Faddis' paid the $75 and moved on. But think about
the concern over the $100,000 in medical bills for breast
cancer treatment protocol or about the heart attack victim
whose bills total $80,000 or more, probably much more. When
insurance companies fail to meet their obligation to these
people and literally therefore, not invectively, but it
literally becomes a matter of life and death, financially or
otherwise.
Consumers cannot make real choices because the insurance
company doesn't use standard language or definitions, I would
say, on purpose. That's what the panel knows better than I do,
if they agree.
Consumers can't challenge insurance companies' decisions.
They just lose. People know that. Because the companies don't
explain the terms of coverage in clear language, I would say,
deliberately.
To me this is entirely unacceptable. People don't know what
they are buying, what they're getting, why they're getting
underpaid, while they're being forced to pay more of the
difference. So with this said, I'm very happy that we have two
health care experts today who can help us understand why
consumers get such a raw deal from their insurance companies.
And I'm hoping that they can give us some ideas about how
we can level the playing field between what we tend to value in
America. And that is a patient who is pain and needs care, and
an insurance company which is part of our free market system.
I'm also equally pleased to welcome Mr. Wendell Potter to
the Committee today. He's a former insurance executive, who is
going to tell us about some of the tactics insurance companies
use to keep insurance in the dark. I have a special respect for
him simply because he's doing something I think is very
courageous and very brave.
I want to really, sincerely thank you, Mr. Potter, for
coming forward at this very important juncture, not just in the
question of insurance companies. But because of that, the whole
question of what's going to happen in the health care debate.
And how are we going to divide up the responsibility of what
insurance companies do.
Can we depend upon their word? Should we side with
consumers? Make sure they get charged only what they should be
charged? And you spent most of your career in this. So I just
greatly admire you for doing this.
Before I close my remarks, I want to add a very important
point. A few months ago this Committee started looking at the
many problems consumers have with the health insurance
industry. And I think you know that. We've been working at this
very, very hard.
In March we had two hearings about the deceptive Ingenix
database hearings. That was a--that's a bad product which is
now on its way out. Not by their own will, but because they
were discovered to be defrauding consumers who were ill in the
State of New York, but not beyond that.
The New York Attorney General took action. They paid $350
million. And said well, they were happy to start something, you
know, they warmed up nicely. But we had them cold.
So we have pursued this matter. The Committee staff has
been continuing to investigate the issue. And recently sent me
a written report on what they have found so far.
I circulated this staff report to Members this morning. And
I now ask and give unanimous consent to insert this report and
its exhibits into the record of this hearing. And I have it in
front of me, but I can't throw that all over the room. But
please be sure to follow it.
[The information referred to is retained in Committee
files.]
The Chairman. So I look forward to our discussion today.
And to what we may learn about the parts of our health care
system that are so desperately in need of reform. I mean, we
are at the very precipice of doing something or doing nothing
or doing something poor or doing something really good in the
national debate on health care reform. We have to do it right.
I happen to be one of those people who favors a public
plan. I wish I had more people joining me in that. I think they
will join me in that as the debate goes along and as the groups
get smaller.
But I just have to tell you that when I hear about these
things this morning that I've talked about, this afternoon,
about the power of insurance company to withhold information.
And I have many more questions about that, to keep the
consumer, the patient, uninformed and unpaid. I'm very unhappy
about that.
So that concludes my opening remarks. My dear Governor, if
you wish to be Ranking Member and say something, I'd welcome
your comments.
STATEMENT OF HON. MIKE JOHANNS,
U.S. SENATOR FROM NEBRASKA
Senator Johanns. You know what, Mr. Chairman? It's amazing
how quickly you become the Ranking Member here.
[Laughter.]
Senator Johanns. I appreciate the Chairman putting this
hearing together because it's an enormously important topic.
And I'm not going to talk long because for one thing the clock
is running. For another thing I'm so anxious to hear from the
witnesses.
First thing I would say is that the Chairman's comments are
on the mark in so many ways. And the Chairman rightfully points
out that there is a national debate going on now about health
care reform. And there are so many difficult issues in that and
complex policy issues. One of them being the public plan verses
private plan and how that might work or not work.
But in order to make sure we don't lose sight of what we're
really about here today at the hearing, I do want to indicate
that even if there were no debate going on about national
health care or public plans, even if there were no debate
whatsoever, this would warrant a hearing. This would warrant us
looking into this and digging deep to see what's going on.
My sense is that there are a number of very distinct issues
at work. And I'm going to ask the witnesses if they would, to
try to help educate us on these distinct issues.
First, we do have Ingenix practices. The Chairman has now
made the report a part of the record, certainly replete with a
lot of errors, if not serious legal problems there. This
practice appears to have forced consumers to pay more.
And that's not right. It just simply is not. And the
unfortunate thing for consumers is this is such an enormously
complicated area for them that unless they're devoting full
time to understanding it, they never would have understood it
or stumbled onto what was going on here.
And then, if you factor into it some who might be out there
who might be doing something that is intentionally deceptive,
then the problems even get more acute. They get worse.
Second, we have an issue that I think relates to the whole
issue of transparency. Our policyholders, given the opportunity
to be aware of the features of the very policy that they think
they are buying to protect themselves investing their hard-
earned money. Or are we simply in a situation now where
literally this whole arena has become so impossibly
complicated, so difficult, that it's going to be nearly
impossible.
Again, unless you spend full time to understand your rights
under your policy, do these policies get explained to the
consumer? What's going on there?
And then we have finally, and most importantly--and that's
why I applaud the Chairman for holding this hearing--
irrespective of anything going on in the health care industry
these days, we have the whole issue of consumer's rights.
Health insurance is an item that we purchase in our lives
thinking that by investing our hard-earned money into it. And
like I said, it is not inexpensive. And by doing that, we
believe that an umbrella of protection now extends around us.
And that we can trust and rely upon that umbrella of protection
that is there.
And if in fact what we find out in today's hearing is that
in some respects that umbrella is not as thorough as we thought
it was or as protective as we thought it was, then I think it's
the obligation of this Committee to act. And to try to figure
out how we can solve that problem and be able at the end of the
day to assure our constituents, the consumers of the plan, that
in fact, their expectation is being met. That there are laws in
place to make sure that they will be protected and their rights
will be protected as will the rights of their family.
So, Mr. Chairman, again, thank you. And to the witnesses, I
look forward to your testimony. And I look forward to the
opportunity for some robust questioning of you. Thank you.
The Chairman. Thank you very much, Senator Johanns. And his
robust questioning will be exactly that. So be prepared.
I'd like to introduce our witnesses now.
And I'd like to start with Wendell Potter. As I mentioned,
he spent almost 20 years working in the health care industry. I
didn't mention that he was most recently the Vice President for
Corporate Communications and Chief Corporate Spokesperson for
the CIGNA insurance company. I call upon you, sir.
STATEMENT OF WENDELL POTTER, FORMER HEALTH INSURANCE EXECUTIVE,
PHILADELPHIA, PA
Mr. Potter. Mr. Chairman, thank you for the opportunity to
be here this afternoon. My name is Wendell Potter and for 20
years I worked as a senior executive at health insurance
companies. And I saw how they confused their customers and
dumped the sick all so they can satisfy their Wall Street
investors.
I know from personal experience that Members of Congress
and the public have good reason to question the honesty and
trustworthiness of insurance companies. When I left my job as
Head of Corporate Communications for one of the country's
largest insurers, I did not intend to go public as a former
insider. But recently it became abundantly clear to me that the
industry's charm offensive which is the most visible part of a
duplicitous and well-financed PR and lobbying campaign may well
shape reform in a way that benefits Wall Street far more than
average Americans.
A few months after I joined CIGNA in 1993 during the last
reform debate, the President of CIGNA's health insurance
division came here to assure Members of Congress that he and
other industry leaders would help lawmakers pass meaningful
reform. They enthusiastically supported covering all Americans,
eliminating underwriting practices that excluded pre-existing
conditions and that cherry-picked, healthy customers the use of
community rating and the creation of the standard benefit plan.
Today we are hearing industry executives saying the same things
and making the same assurances.
This time though, the industry is bigger, richer and
stronger. And it has a much tighter grip on our health care
system than ever. Average families don't understand how Wall
Street dictates whether they will be offered coverage or that
they can keep it and how much they'll be charged for it. But in
fact, Wall Street plays a powerful role.
Remember the top priority of for-profit companies is to
drive up the value of their stock. To win the favor of
influential analysts for-profit insurers must prove that they
made more money during the previous quarter than a year
earlier. And that a portion of premiums going to medical costs
is falling.
Even very profitable companies will see sharp declines in
stock prices moments after admitting they failed to trim
medical costs. I have seen an insurer's stock price fall 20
percent or more in a single day after executives disclosed that
the company's medical loss ratio went up. Insurers routinely
dump policyholders who are less profitable or when they get
sick.
Insurers have several ways to cull the sick. They look
carefully to see if a sick policyholder might not have
disclosed a pre-existing condition when applying for coverage.
And then they use that as justification to cancel the policy
even if the enrollee has always paid his or her premiums.
They also dump small businesses whose employees' medical
claims exceed what insurance underwriters expected. All it
takes is one illness or accident among employees at a small
business to prompt an insurance company to hike the next year's
premiums so high that the employer has to cut benefits, shop
for another carrier or stop offering coverage all together.
This practice is known in the industry as ``purging.''
The purging of less profitable accounts by hiking rates
helps explain why the number of small businesses offering
coverage to their employees has fallen from 61 percent to 38
percent since 1993. Once an insurer purges a business there are
often no other viable choices in the current health insurance
market because of rampant industry consolidation. Purging
happens all the time.
For instance, between 1996 and 1999, Aetna initiated a
series of company acquisitions and became the Nation's largest
insurer with 21 million members. Armed with a new computer
system, new management and a shift in strategy in 2000 Aetna
began sharply raising premiums on less profitable accounts.
Because of this and other factors Aetna shed eight million
members.
Insurers also protect their profits by being intentionally
vague or even purposely misleading them. An estimated 25
million Americans are now underinsured for two main reasons.
First, the high deductible plans many of them have been
forced to accept--like the one I was forced to accept at my
previous company--require them to pay more out of their own
pockets for medical care whether they can afford it or not.
Second, the number of underinsured people has increased as
more have fallen victim to deceptive marketing practices and
bought what essentially is fake insurance.
The big insurers have spent millions acquiring companies
that specialize in ``limited benefit plans.'' In one policy not
only are the benefits minimal, but the underwriting criteria
established by the insurer essentially guarantees big profits.
Pre-existing conditions are not covered during the first 6
months and an employer must have an annual employee turnover
rate of 70 percent or more. So most of the workers don't even
stay on the payroll long enough to use their benefits.
Thank you, Mr. Chairman for beginning this conversation on
transparency and for making this such a priority. The industry
and its backers are using fear tactics as they did in 1994 to
tar a transparent and accountable, publicly accountable health
care option as ``government run health care.'' But what we have
today, Mr. Chairman, is Wall Street-run health care that has
proven itself an untrustworthy partner to its customers, to the
doctors and hospitals who deliver care and to the state and
Federal Governments that attempt to regulate it.
Thank you.
[The prepared statement of Mr. Potter follows:]
Prepared Statement of Wendell Potter,
Former Health Insurance Executive, Philadelphia, PA
Mr. Chairman, thank you for the opportunity to be here this
afternoon.
My name is Wendell Potter and for 20 years, I worked as a senior
executive at health insurance companies, and I saw how they confuse
their customers and dump the sick--all so they can satisfy their Wall
Street investors.
I know from personal experience that Members of Congress and the
public have good reason to question the honesty and trustworthiness of
the insurance industry. Insurers make promises they have no intention
of keeping, they flout regulations designed to protect consumers, and
they make it nearly impossible to understand--or even to obtain--
information we need. As you hold hearings and discuss legislative
proposals over the coming weeks, I encourage you to look very closely
at the role for-profit insurance companies play in making our health
care system both the most expensive and one of the most dysfunctional
in the world. I hope you get a real sense of what life would be like
for most of us if the kind of so-called reform the insurers are
lobbying for is enacted.
When I left my job as head of corporate communications for one of
the country's largest insurers, I did not intend to go public as a
former insider. However, it recently became abundantly clear to me that
the industry's charm offensive--which is the most visible part of
duplicitous and well-financed PR and lobbying campaigns--may well shape
reform in a way that benefits Wall Street far more than average
Americans.
A few months after I joined the health insurer CIGNA Corp. in 1993,
just as the last national health care reform debate was underway, the
President of CIGNA's health care division was one of three industry
executives who came here to assure Members of Congress that they would
help lawmakers pass meaningful reform. While they expressed concerns
about some of President Clinton's proposals, they said they
enthusiastically supported several specific goals.
Those goals included covering all Americans; eliminating
underwriting practices like pre-existing condition exclusions and
cherry-picking; the use of community rating; and the creation of a
standard benefit plan. Had the industry followed through on its
commitment to those goals, I wouldn't be here today.
Today we are hearing industry executives saying the same things and
making the same assurances. This time, though, the industry is bigger,
richer and stronger, and it has a much tighter grip on our health care
system than ever before. In the 15 years since insurance companies
killed the Clinton plan, the industry has consolidated to the point
that it is now dominated by a cartel of large for-profit insurers.
The average family doesn't understand how Wall Street's dictates
determine whether they will be offered coverage, whether they can keep
it, and how much they'll be charged for it. But, in fact, Wall Street
plays a powerful role. The top priority of for-profit companies is to
drive up the value of their stock. Stocks fluctuate based on companies'
quarterly reports, which are discussed every 3 months in conference
calls with investors and analysts. On these calls, Wall Street looks
investors and analysts look for two key figures: earnings per share and
the medical-loss ratio, or medical ``benefit'' ratio, as the industry
now terms it. That is the ratio between what the company actually pays
out in claims and what it has left over to cover sales, marketing,
underwriting and other administrative expenses and, of course, profits.
To win the favor of powerful analysts, for-profit insurers must
prove that they made more money during the previous quarter than a year
earlier and that the portion of the premium going to medical costs is
falling. Even very profitable companies can see sharp declines in stock
prices moments after admitting they've failed to trim medical costs. I
have seen an insurer's stock price fall 20 percent or more in a single
day after executives disclosed that the company had to spend a slightly
higher percentage of premiums on medical claims during the quarter than
it did during a previous period. The smoking gun was the company's
first-quarter medical loss ratio, which had increased from 77.9 percent
to 79.4 percent a year later.
To help meet Wall Street's relentless profit expectations, insurers
routinely dump policyholders who are less profitable or who get sick.
Insurers have several ways to cull the sick from their rolls. One is
policy rescission. They look carefully to see if a sick policyholder
may have omitted a minor illness, a pre-existing condition, when
applying for coverage, and then they use that as justification to
cancel the policy, even if the enrollee has never missed a premium
payment. Asked directly about this practice just last week in the House
Energy and Commerce Committee, executives of three of the Nation's
largest health insurers refused to end the practice of canceling
policies for sick enrollees. Why? Because dumping a small number of
enrollees can have a big effect on the bottom line. Ten percent of the
population accounts for two-thirds of all health care spending.\1\ The
Energy and Commerce Committee's investigation into three insurers found
that they canceled the coverage of roughly 20,000 people in a five-year
period, allowing the companies to avoid paying $300 million in claims.
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\1\ Samuel Zuvekas and Joel Cohen, ``Prescription Drugs And The
Changing Concentration Of Health Care Expenditures,'' Health Affairs,
26 (1) (January/February 2007): 249-257.
---------------------------------------------------------------------------
They also dump small businesses whose employees' medical claims
exceed what insurance underwriters expected. All it takes is one
illness or accident among employees at a small business to prompt an
insurance company to hike the next year's premiums so high that the
employer has to cut benefits, shop for another carrier, or stop
offering coverage altogether--leaving workers uninsured. The practice
is known in the industry as ``purging.'' The purging of less profitable
accounts through intentionally unrealistic rate increases helps explain
why the number of small businesses offering coverage to their employees
has fallen from 61 percent to 38 percent since 1993, according to the
National Small Business Association. Once an insurer purges a business,
there are often no other viable choices in the health insurance market
because of rampant industry consolidation.
An account purge so eye-popping that it caught the attention of
reporters occurred in October 2006 when CIGNA notified the
Entertainment Industry Group Insurance Trust that many of the Trust's
members in California and New Jersey would have to pay more than some
of them earned in a year if they wanted to continue their coverage. The
rate increase CIGNA planned to implement, according to USA Today, would
have meant that some family-plan premiums would exceed $44,000 a year.
CIGNA gave the enrollees less than 3 months to pay the new premiums or
go elsewhere.
Purging through pricing games is not limited to letting go of an
isolated number of unprofitable accounts. It is endemic in the
industry. For instance, between 1996 and 1999, Aetna initiated a series
of company acquisitions and became the Nation's largest health insurer
with 21 million members. The company spent more than $20 million that
it received in fees and premiums from customers to revamp its computer
systems, enabling the company to ``identify and dump unprofitable
corporate accounts,'' as the Wall Street Journal reported in 2004.\2\
Armed with a stockpile of new information on policyholders, new
management and a shift in strategy, in 2000, Aetna sharply raised
premiums on less profitable accounts. Within a few years, Aetna lost 8
million covered lives due to strategic and other factors.
---------------------------------------------------------------------------
\2\ ``Behind Aetna's Turnaround: Small Steps to Pare Cost of
Care,'' Wall Street Journal, August 13, 2004.
---------------------------------------------------------------------------
While strategically initiating these cost hikes, insurers have
professed to be the victims of rising health costs while taking no
responsibility for their share of America's health care affordability
crisis. Yet, all the while, health-plan operating margins have
increased as sick people are forced to scramble for insurance.
Unless required by state law, insurers often refuse to tell
customers how much of their premiums are actually being paid out in
claims. A Houston employer could not get that information until the
Texas legislature passed a law a few years ago requiring insurers to
disclose it. That Houston employer discovered that its insurer was
demanding a 22 percent rate increase in 2006 even though it had paid
out only 9 percent of the employer's premium dollars for care the year
before.
It's little wonder that insurers try to hide information like that
from its customers. Many people fall victim to these industry tactics,
but the Houston employer might have known better--it was the Harris
County Medical Society, the county doctors' association.
A study conducted last year by PricewaterhouseCoopers revealed just
how successful the insurers' expense management and purging actions
have been over the last decade in meeting Wall Street's expectations.
The accounting firm found that the collective medical-loss ratios of
the seven largest for-profit insurers fell from an average of 85.3
percent in 1998 to 81.6 percent in 2008. That translates into a
difference of several billion dollars in favor of insurance company
shareholders and executives and at the expense of health care providers
and their patients.
There are many ways insurers keep their customers in the dark and
purposely mislead them--especially now that insurers have started to
aggressively market health plans that charge relatively low premiums
for a new brand of policies that often offer only the illusion of
comprehensive coverage.
An estimated 25 million Americans are now underinsured for two
principle reasons. First, the high deductible plans many of them have
been forced to accept--like I was forced to accept at CIGNA--require
them to pay more out of their own pockets for medical care, whether
they can afford it or not. The trend toward these high-deductible plans
alarms many health care experts and state insurance commissioners. As
California Lieutenant Governor John Garamendi told the Associated Press
in 2005 when he was serving as the state's insurance commissioner, the
movement toward consumer-driven coverage will eventually result in a
``death spiral'' for managed care plans. This will happen, he said, as
consumer-driven plans ``cherry-pick'' the youngest, healthiest and
richest customers while forcing managed care plans to charge more to
cover the sickest patients. The result, he predicted, will be more
uninsured people.
In selling consumer-driven plans, insurers often try to persuade
employers to go ``full replacement,'' which means forcing all of their
employees out of their current plans and into a consumer-driven plan.
At least two of the biggest insurers have done just that, to the dismay
of many employees who would have preferred to stay in their HMOs and
PPOs. Those options were abruptly taken away from them.
Second, the number of uninsured people has increased as more have
fallen victim to deceptive marketing practices and bought what
essentially is fake insurance. The industry is insistent on being able
to retain so-called ``benefit design flexibility'' so they can continue
to market these kinds of often worthless policies. The big insurers
have spent millions acquiring companies that specialize in what they
call ``limited-benefit'' plans. An example of such a plan is marketed
by one of the big insurers under the name of Starbridge Select. Not
only are the benefits extremely limited but the underwriting criteria
established by the insurer essentially guarantee big profits. Pre-
existing conditions are not covered during the first 6 months, and the
employer must have an annual employee turnover rate of 70 percent or
more, so most of the workers don't even stay on the payroll long enough
to use their benefits. The average age of employees must not be higher
than 40, and no more than 65 percent of the workforce can be female.
Employers don't pay any of the premiums--the employees pay for
everything. As Consumer Reports noted in May, many people who buy
limited-benefit policies, which often provide little or no
hospitalization, are misled by marketing materials and think they are
buying more comprehensive care. In many cases it is not until they
actually try to use the policies that they find out they will get
little help from the insurer in paying the bills.
The lack of candor and transparency is not limited to sales and
marketing. Notices that insurers are required to send to
policyholders--those explanation-of-benefit documents that are supposed
to explain how the insurance company calculated its payments to
providers and how much is left for the policyholder to pay--are
notoriously incomprehensible. Insurers know that policyholders are so
baffled by those notices they usually just ignore them or throw them
away. And that's exactly the point. If they were more understandable,
more consumers might realize that they are being ripped off.
Thank you, Mr. Chairman, for beginning this conversation on
transparency and for making this such a priority. S. 1050, your
legislation to require insurance companies to be more honest and
transparent in how they communicate with consumers, is essential. So,
too, is S. 1278, the Consumers Choice Health Plan, which would create a
strong public health insurance option as a benchmark in transparency
and quality. Americans need and overwhelmingly support the option of
obtaining coverage from a public plan. The industry and its backers are
using fear tactics, as they did in 1994, to tar a transparent,
publicly-accountable health care option as a ``government-run system.''
But what we have today, Mr. Chairman, is a Wall Street-run system that
has proven itself an untrustworthy partner to its customers, to the
doctors and hospitals who deliver care, and to the state and Federal
Governments that attempt to regulate it.
The Chairman. Thank you, Mr. Potter, very much. And we will
come back to you with questions.
Nancy Metcalf is our next witness, is the Senior Program
Editor for Consumer Reports. She has written a series of
articles on junk insurance for Consumer Reports. And we look
forward to your comments.
STATEMENT OF NANCY METCALF,
SENIOR PROGRAM EDITOR, CONSUMER REPORTS
Ms. Metcalf. Thank you, Mr. Chairman.
The Chairman. Pull that mic up nice and close.
Ms. Metcalf. Thank you for inviting me to testify on this
important topic.
As a health writer for Consumer Reports, I have talked to a
lot of consumers over the years who have bought insurance on
their own. And I can tell you they all bought the same, pretty
uncomplicated thing, a health plan that they can afford that
will not leave them destitute if they get really sick. They do
their best to buy this. But way too often what they end up with
is something completely inadequate.
Take Susan Kelly, a realtor from Houston. She told me I
just wanted something to cover me if something catastrophic
happened. Something catastrophic did.
She got breast cancer. And found out that her Mega Life
policy didn't cover her outpatient chemotherapy or radiation
therapy. She ended up $100,000 in debt.
Another Susan, Susan Braig, from California also wanted
catastrophic coverage. And she also got breast cancer. She had
a Blue Cross policy that said it covered outpatient treatment.
But buried deep in the tiniest print inside a very long policy
was an escape clause that they used to get out of paying it.
She's $40,000 in debt.
Some of the reform proposals on the table include subsidies
that will open the individual market to many millions of new
consumers through health insurance exchanges. These must
include strong consumer protection and transparency provisions
to protect consumers from buying inadequate junk polices like
these. Right now it's not a level playing field, not even
close.
Consumers have no idea how health insurance works. And
insurance companies know this and take advantage of it in how
they design and market their plans. Sadly state regulators have
not been much help. The only thing they seem to care about is
that a plan is actuarially sound.
Every trick and gotcha that I'm going to talk about today
is part of a legally approved and marketed plan. Here's how it
plays out. Consumers don't understand how health insurance
works.
A couple of years ago we ran some focus groups of people
who had bought their own insurance. We asked if their policies
had an annual out-of-pocket limit. They had absolutely no idea
what we were talking about even though buying a policy without
one is like buying a car without brakes.
They don't know the difference between co-pays and co-
insurance. They don't know that a limited benefit indemnity
plan might as well come with a warning label that says this
plan will leave you broke if you ever get cancer. They don't
understand that premiums are low for a reason.
As consumers we're trained to look for a bargain. People
think insurance works the same way. They have no idea that if
they're 55-years-old and have diabetes and heart disease, that
no insurer could possibly stay in business selling them a
policy for $150 a month. And if they do find a plan at that
price, it's going to be junk insurance.
They really can't find the booby traps in their policies.
I've seen a UnitedHealthcare policy that doesn't cover the
first day of hospitalization which is the most expensive day,
of course. I see many policies that only cover diagnostic tests
if they are done in a hospital.
Aetna's standard individual health plan only covers $5,000
worth of prescription drugs a year. Somebody who needs a
$2,000-a-month drug for rheumatoid arthritis would run that
benefit out by St. Patrick's Day.
And consumers don't realize how catastrophic a health
catastrophe can be. One of the most poignant cases I covered
was a middle-aged couple who bought a UnitedHealthcare policy
knowing that it had a $50,000-a-year maximum payout. It seemed
like a huge sum to them until the husband got colon cancer. And
his treatment cost more than $200,000. A lot of people
knowingly buy hospitalization-only policies because they don't
realize that some of the most expensive treatments are done on
an outpatient basis.
Consumers Union believes that policies that exclude or
limit major categories of care such as outpatient treatments or
prescription drugs should not be sold at all. We think that all
health insurance should be comprehensive and come in a few
standard flavors. Differentiated mainly by the degree of cost
sharing and presented in a format that makes it easy for
customers to stop--consumers to shop by price.
This is not rocket science. We already sell Medigap
policies this way. And it works just fine.
But absent these reforms at least insurers should be forced
to be honest about what they are selling, as you, Mr. Chairman,
have recognized by introducing the Informed Consumer Choices in
Health Care Act. In clear, standardized, user-tested formats
insurers should have to disclose what a policy covers and even
more important what it doesn't cover. If a policy excludes or
has low dollar limits on hospital or doctor or drug coverage,
it should say so.
Consumers need to be told in big letters what their
policy's out-of-pocket limit is, including if there are any
expenses that don't count toward that. They need, in other
words, a fighting chance not to be ripped off by junk
insurance. Thank you.
[The prepared statement of Ms. Metcalf follows:]
Prepared Statement of Nancy Metcalf,
Senior Program Editor, Consumer Reports
Mr. Chairman and Members of the Committee:
Thank you for inviting me to testify on this important topic.
As a health writer for Consumer Reports,\1\ I've talked to many
consumers over the years who have bought insurance on their own. And I
can tell you they all want the same, uncomplicated thing: a health plan
they can afford that won't leave them destitute if they get really
sick.
---------------------------------------------------------------------------
\1\ Consumer Reports is published by Consumers Union, an expert,
independent nonprofit organization whose mission is to work for a fair,
just, and safe marketplace for all consumers and to empower consumers
to protect themselves. To achieve this mission, we test, inform, and
protect. To maintain our independence and impartiality, Consumers Union
accepts no outside advertising, no free test samples, and has no agenda
other than the interests of consumers. Consumers Union supports itself
through the sale of our information products and services, individual
contributions, and a few noncommercial grants.
---------------------------------------------------------------------------
They do their best to buy decent insurance, but way too often, they
end up with something completely inadequate.
Take Susan Kelly, a realtor from Houston. She said, ``I just wanted
something to cover me if something catastrophic happened.'' It did. She
got breast cancer, and found out her Mega Life policy didn't cover
outpatient chemo or radiation therapy. She ended up $100,000 in debt.
Another Susan, Susan Braig from Altadena, California, said ``I
thought, at least I'll be covered if I have, God forbid, a catastrophic
illness.'' The SHE got breast cancer. Her Blue Cross policy said it
covered outpatient chemo or radiation therapy, but it had a tricky
clause in it that enabled the company to deny coverage in her case.
She's $40,000 in debt now.
Some of the reform proposals on the table include subsidies that
will open the individual market to many millions of new customers
through health insurance exchanges. These must include strong consumer
protection and transparency provisions to protect consumers from buying
inadequate junk policies.
Right now, it's not a level playing field, not even close.
Consumers have no idea how health insurance works. Insurance companies
know this and take advantage of it in how they design and market their
plans. Meanwhile, state regulators have been--with a few exceptions
such as New York and Massachusetts--asleep at the switch. The only
thing they seem to care about is that the plan is actuarially sound.
That's important, but insufficient to protect consumers. Every trick
and gotcha that I'm talking about today was part of a legally approved
and marketed plan.
Here is how it plays out.
1. Consumers don't understand the working parts of health
insurance. If people bought cars the way they buy health
insurance, they wouldn't be aware that a car has to have a
transmission or a battery. A couple of years ago, we ran some
focus groups of people who had bought their own health
insurance. We asked if their policies had an annual out-of-
pocket limit, and they had no idea what we were talking about,
even though--if I may stretch the automotive metaphor a bit--
buying a policy without one is like buying a car without
brakes. They don't know the difference between co-pays and
coinsurance. They don't know that a ``limited benefit indemnity
plan'' might as well come with a warning label that says:
``this plan will leave you broke if you ever get cancer.''
2. They don't understand that low premiums are low for a
reason. As consumers, we are trained to look for a bargain.
People think insurance works the same way. They have no idea
that if they are 55 years old, and have diabetes and heart
disease, that no insurer could possibly stay in business
selling them a policy for $150-a-month--and that if they do
find a plan at that price, it's going to be junk insurance.
3. They can't identify the booby traps. I've seen a United
Healthcare policy that doesn't cover the first day of
hospitalization, which is commonly the most expensive day
because of ER or surgery bills. I've seen many policies that
only cover diagnostic tests in connection with hospitalization.
Aetna's standard individual health plan only covers $5,000 of
prescription drugs a year. Sounds like plenty, but someone who
needs a $2,000-a-month drug for rheumatoid arthritis would
exhaust that benefit by St. Patrick's Day.
4. They don't realize how catastrophic a health catastrophe can
be. One of the most poignant cases I ever covered was a middle-
aged couple who bought a United Healthcare policy knowing it
had a $50,000-a-year maximum payout, which seemed like a huge
sum to them. Then the husband got colon cancer, and his
treatment cost more than $200,000.\2\ A lot of people knowingly
buy hospitalization-only policies because they don't realize
that some of the most expensive treatments are done on an
outpatient basis.
---------------------------------------------------------------------------
\2\ ``Hazardous Health Plans,'' Consumer Reports, May, 2009, pp.
24-29.
---------------------------------------------------------------------------
What Consumers Need
Consumers Union believes that policies that exclude or limit major
categories of care, such as outpatient treatments or prescription
drugs, should not be sold at all. We think that all health insurance
should be comprehensive and come in a few standard flavors,
differentiated mainly by the degree of cost-sharing, and presented in a
format that makes it easy for consumers to shop by price. This is not
rocket science. We already sell Medigap policies this way.
But absent those reforms, at least insurers should be forced to be
honest about what they're selling, as you, Mr. Chairman, have
recognized by introducing the Informed Consumer Choices in Health Care
Act of 2009. In clear, standardized, user-tested formats, insurers
should have to disclose what a policy covers--and even more important,
what it doesn't. If the policy excludes or has low dollar limits on
hospital or doctor or drug coverage, it needs to say so, clearly and
understandably.
Consumers need to be told, in big letters, what their policy's out-
of-pocket limit is, including if there are any expenses that don't
count toward that. They need to know approximately what their out-of-
pocket costs will be for expensive treatments such as cancer
chemotherapy or heart surgery.
They need, in other words, a fighting chance not to be ripped off
by junk insurance.
Thank you again for opportunity to testify.
For the record, I am submitting a recent article from Consumer
Reports on this subject entitled ``Hazardous Health Plans,'' as well as
a Consumers Union Health Policy Brief explaining our recommendations in
greater detail.
______
Attachment
Consumer Reports--May 2009
Hazardous Health Plans
Coverage Gaps Can Leave You In Big Trouble
Many people who believe they have adequate health insurance
actually have coverage so riddled with loopholes, limits, exclusions,
and gotchas that it won't come close to covering their expenses if they
fall seriously ill, a Consumer Reports investigation has found.
At issue are so-called individual plans that consumers get on their
own when, say, they've been laid off from a job but are too young for
Medicare or too ``affluent'' for Medicaid. An estimated 14,000
Americans a day lose their job-based coverage, and many might be
considering individual insurance for the first time in their lives.
But increasingly, individual insurance is a nightmare for
consumers: more costly than the equivalent job-based coverage, and for
those in less-than-perfect health, unaffordable at best and unavailable
at worst. Moreover, the lack of effective consumer protections in most
states allows insurers to sell plans with ``affordable'' premiums whose
skimpy coverage can leave people who get very sick with the added
burden of ruinous medical debt.
Just ask Janice and Gary Clausen of Audubon, Iowa. They told us
they purchased a United Healthcare limited benefit plan sold through
AARP that cost about $500 a month after Janice lost her accountant job
and her work-based coverage when the auto dealership that employed her
closed in 2004.
``I didn't think it sounded bad,'' Janice said. ``I knew it would
only cover $50,000-a-year, but I didn't realize how much everything
would cost.'' The plan proved hopelessly inadequate after Gary received
a diagnosis of colon cancer. His 14-month treatment, including surgery
and chemotherapy, cost well over $200,000. Janice, 64, and Gary, 65,
expect to be paying off medical debt for the rest of their lives.
For our investigation, we hired a national expert to help us
evaluate a range of real policies from many states and interviewed
Americans who bought those policies. We talked to insurance experts and
regulators to learn more. Here is what we found:
Health insurance policies with gaping holes are offered by
insurers ranging from small companies to brand-name carriers
such as Aetna and United Healthcare. And in most states,
regulators are not tasked with evaluating overall coverage.
Disclosure requirements about coverage gaps are weak or
nonexistent. So it's difficult for consumers to figure out in
advance what a policy does or doesn't cover, compare plans, or
estimate their out-of-pocket liability for a medical
catastrophe. It doesn't help that many people who have never
been seriously ill might have no idea how expensive medical
care can be.
People of modest means in many states might have no good
options for individual coverage. Plans with affordable premiums
can leave them with crushing medical debt if they fall
seriously ill, and plans with adequate coverage may have huge
premiums.
There are some clues to a bad policy that consumers can
spot. We tell you what they are, and how to avoid them if
possible.
Even as policymakers debate a major overhaul of the health-
care system, government officials can take steps now to improve
the current market.
Good Plans vs. Bad Plans
We think a good health-care plan should pay for necessary care
without leaving you with lots of debt or high out-of-pocket costs. That
includes hospital, ambulance, emergency-room, and physician fees;
prescription drugs; outpatient treatments; diagnostic and imaging
tests; chemotherapy, radiation, rehabilitation and physical therapy;
mental-health treatment; and durable medical equipment, such as
wheelchairs. Remember, health insurance is supposed to protect you in
case of a catastrophically expensive illness, not simply cover your
routine costs as a generally healthy person. And many individual plans
do nowhere near the job.
For decades, individual insurance has been what economists call a
``residual'' market--something to buy only when you have run out of
other options. The problem, according to insurance experts we
consulted, is that the high cost of treatment in the U.S., which has
the world's most expensive health-care system, puts truly affordable,
comprehensive coverage out of the reach of people who don't have either
deep pockets or a generous employer. Insurers tend to provide this
choice: comprehensive coverage with a high monthly premium or skimpy
coverage at a low monthly premium within the reach of middle- and low-
income consumers.
More consumers are having to choose the latter as they become
unemployed or their workplace drops coverage. (COBRA, the Federal
program that allows former employees to continue with the insurance
from their old job by paying the full monthly premium, often costs
$1,000 or more each month for family coverage. The Federal Government
is temporarily subsidizing 65 percent of those premiums for some, but
only for a maximum of 9 months.) Consumer Reports and others label as
``junk insurance'' those so-called affordable individual plans with
huge coverage gaps. Many such plans are sold throughout the Nation,
including policies from well-known companies.
7 Signs a Health Plan Might Be Junk
------------------------------------------------------------------------
------------------------------------------------------------------------
Do everything in your
power to avoid plans
with the following
features:
Limited benefits. Never
buy a product that is
labeled ``limited
benefit'' or ``not
major medical''
insurance. In most
states those phrases
might be your only
clue to an inadequate
policy.
Low overall coverage
limits. Health care is
more costly than you
might imagine if
you've never
experienced a serious
illness. The cost of
cancer or a heart
attack can easily hit
six figures. Policies
with coverage limits
of $25,000 or even
$100,000 are not
adequate.
No coverage for
``Affordable'' important things. If
premiums. There's no you don't see a
free lunch when it medical service
comes to insurance. To specifically mentioned
lower premiums, in the policy, assume
insurers trim benefits it's not covered. We
and do what they can reviewed policies that
to avoid insuring less didn't cover
healthy people. So if prescription drugs or
your insurance was a outpatient
bargain, chances are chemotherapy but
good it doesn't cover didn't say so anywhere
very much. To check in the policy
how much a document--not even in
comprehensive plan the section labeled
would cost you, go to ``What is not
ehealthinsurance.com, covered.''
enter your location,
gender, and age as
prompted, and look for
the most costly of the
plans that pop up. It
is probably the most
comprehensive.
Limitless out-of-
------------------------------------------------------------------------
Aetna's Affordable Health Choices plans, for example, offer limited
benefits to part-time and hourly workers. We found one such policy that
covered only $1,000 of hospital costs and $2,000 of outpatient expenses
annually.
The Clausens' AARP plan, underwritten by insurance giant United
Health Group, the parent company of United Healthcare, was advertised
as ``the essential benefits you deserve. Now in one affordable plan.''
AARP spokesman Adam Sohn said, ``AARP has been fighting for affordable,
quality health care for nearly a half-century, and while a fixed-
benefit indemnity plan is not perfect, it offers our members an option
to help cover some portion of their medical expenses without paying a
high premium.''
Nevertheless, AARP suspended sales of such policies last year after
Sen. Charles Grassley, R-Iowa, questioned the marketing practices. Some
53,400 AARP members still have policies similar to the Clausens' that
were sold under the names Medical Advantage Plan, Essential Health
Insurance Plan, and Essential Plus Health Insurance Plan. In addition,
at least 1 million members are enrolled in the AARP Hospital Indemnity
Insurance Plan, Sohn said, an even more bare-bones policy. Members who
have questions should first call 800-523-5800; for more help, call 888-
687-2277. (Consumers Union, the nonprofit publisher of Consumer
Reports, is working with AARP on a variety of health-care reforms.)
United American Insurance Co. promotes its supplemental health
insurance as ``an affordable solution to America's health-care
crisis!'' When Jeffrey E. Miller, 56, of Sarasota, Fla., received a
diagnosis of prostate cancer a few months after buying one of the
company's limited-benefit plans, he learned that it would not cover
tens of thousands of dollars' worth of drug and radiation treatments he
needed. As this article went to press, 5 months after his diagnosis,
Miller had just begun treatment after qualifying for Florida Medicaid.
A representative of United American declined to comment on its
products.
Even governments are getting into the act. In 2008, Florida created
the Cover Florida Health Care Access Program, which Gov. Charlie Crist
said would make ``affordable health coverage available to 3.8 million
uninsured Floridians.'' But many of the basic ``preventive'' policies
do not cover inpatient hospital treatments, emergency-room care, or
physical therapy, and they severely limit coverage of everything else.
Want better coverage? Try running for Congress
------------------------------------------------------------------------
------------------------------------------------------------------------
President Barack Obama says Americans should have access to the kind of
health benefits Congress gets. We detail them below. Members of
Congress and other U.S. Government employees can receive care through
the Federal Employees Health Benefits Program. Employees choose from
hundreds of plans, but the most popular is a national Blue Cross and
Blue Shield Preferred Provider Organization plan. Employee
contributions for that plan are $152 per person, or $357 per family,
per month.
Plan features Covered services
No annual or Inpatient and Family
lifetime limits for outpatient hospital planning
major services care Durable
Deductible of Inpatient and medical equipment,
$300 per person and outpatient doctor orthopedic devices,
$600 per family visits and artificial limbs
Out-of-pocket Prescription Organ and
limit of $5,000 per drugs tissue transplants
year with preferred Diagnostic Inpatient and
providers, which tests outpatient surgery
includes most Preventive Physical,
deductibles, co- care, including occupational, and
insurance, and co- routine immunizations speech therapy
payments Chemotherapy Outpatient
and radiation therapy and inpatient mental-
Maternity care health care
------------------------------------------------------------------------
The Wild West of Insurance
Compounding the problem of limited policies is the fact that
policyholders are often unaware of those limits--until it's too late.
``I think people don't understand insurance, period,'' said Stephen
Finan, associate director of policy at the American Cancer Society
Cancer Action Network. ``They know they need it. They look at the
price, and that's it. They don't understand the language, and insurance
companies go to great lengths to make it incomprehensible. Even lawyers
don't always understand what it means.''
Case in point: Jim Stacey of Fayetteville, N.C. In 2000, Stacey and
his wife, Imelda, were pleased to buy a plan at what they considered an
``incredible'' price from the Mid-West National Life Insurance Co. of
Tennessee. The policy's list of benefits included a lifetime maximum
payout of up to $1 million per person. But after Stacey learned he had
prostate cancer in 2005, the policy paid only $1,480 of the $17,453 it
cost for the implanted radioactive pellets he chose to treat the
disease.
``To this day, I don't know what went wrong,'' Stacey said about
the bill.
We sent the policy, along with the accompanying Explanation of
Benefit forms detailing what it did and didn't pay, to Karen Pollitz,
research professor at the Georgetown University Health Policy
Institute. We asked Pollitz, an expert on individual health insurance,
to see whether she could figure out why the policy covered so little.
``The short answer is, `Beats the heck out of me,' '' she e-mailed
back to us. The Explanation of Benefit forms were missing information
that she would expect to see, such as specific billing codes that
explain what treatments were given. And there didn't seem to be any
connection between the benefits listed in the policy and the actual
amounts paid.
Contacted for comment, a spokeswoman for HealthMarkets, the parent
company of Mid-West National, referred us to the company website. It
stated that the company ``pays claims according to the insurance
contract issued to each customer'' and that its policies ``satisfy a
need in the marketplace for a product that balances the cost with the
available benefit options.'' The spokeswoman declined to answer
specific questions about Stacey's case, citing patient privacy laws.
One reason confusion abounds, Pollitz said, is that health
insurance is regulated by the states, not by the Federal Government,
and most states (Massachusetts and New York are prominent exceptions)
do not have a standard definition of what constitutes health insurance.
``Rice is rice and gasoline is gasoline. When you buy it, you know
what it is,'' Pollitz said. ``Health insurance--who knows what it is?
It is some product that's sold by an insurance company. It could be a
little bit or a lot of protection. You don't know what is and isn't
covered. Nothing can be taken for granted.''
The real cost of illness can be staggering . . .
Few Americans realize how much care costs. Coverage gaps can leave you
in debt.
------------------------------------------------------------------------
Condition Treatment Total Cost
------------------------------------------------------------------------
Late-stage colon 124 weeks of treatment, including $285,946
cancer two surgeries, three types of
chemotherapy, imaging, prescription
drugs, hospice care.
------------------------------------------------------------------------
Heart attack 56 weeks of treatment, including $110,405
ambulance, ER work-up, angioplasty
with stent, bypass surgery, cardiac
rehabilitation, counseling for
depression, prescription drugs.
------------------------------------------------------------------------
Breast cancer 87 weeks of treatment, including $104,535
lumpectomy, drugs, lab and imaging
tests, chemotherapy and radiation
therapy, mental-health counseling,
and prosthesis.
------------------------------------------------------------------------
Type 2 diabetes One year of maintenance care, $5,949
including insulin and other
prescription drugs, glucose test
strips, syringes and other
supplies, quarterly physician
visits and lab, annual eye exam.
------------------------------------------------------------------------
. . . and out-of-pocket expenses can vary widely
------------------------------------------------------------------------
Massachusetts Plan California Plan
------------------------------------------------------------------------
With its lower premium Monthly premium for any Monthly premium for a
and deductible, the 55-year-old: $399 healthy
California plan at Annual deductible: 55-year-old: $246
right would seem the $2,200 Annual deductible:
better deal. But Co-pays: $25 office $1,000
because California, visit, $250 outpatient Co-pays: $25
unlike Massachusetts, surgery after preventive care
allows the sale of deductible, $10 for office visits
plans with large generic drugs, $25 for Co-insurance: 20% for
coverage gaps, a nonpreferred generic most covered services
patient there will pay and brand name, $45 Out-of-pocket maximum:
far more than a for nonpreferred brand $2,500, includes
Massachusetts patient name hospital and surgical
for the same breast Co-insurance: 20% for co-insurance only
cancer treatments, as some Exclusions and limits:
the breakdown below services Prescription drugs,
shows. Out-of-pocket maximum: most mental-health
$5,000, includes care, and wigs for
deductible, co- chemotherapy patients
insurance, and all co- not covered.
payments Outpatient care not
Exclusions and limits: covered until out-of-
Cap of 24 mental- pocket maximum
health visits, $3,000 satisfied from
cap on equipment hospital/surgical co-
Lifetime benefits: insurance
Unlimited Lifetime benefits: $5
million
------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Service and Total Cost Patient Pays Patient Pays
----------------------------------------------------------------------------------------------------------------
Hospital $0 $705
----------------------------------------------------------------------------------------------------------------
Surgery $981 $1,136
----------------------------------------------------------------------------------------------------------------
Office visits and procedures $1,833 $2,010
----------------------------------------------------------------------------------------------------------------
Prescription drugs $1,108 $5,985
----------------------------------------------------------------------------------------------------------------
Laboratory and imaging tests $808 $3,772
----------------------------------------------------------------------------------------------------------------
Chemotherapy and radiation $1,987 $21,113
therapy
----------------------------------------------------------------------------------------------------------------
Mental-health care $950 $2,700
----------------------------------------------------------------------------------------------------------------
Prosthesis $0 $350
----------------------------------------------------------------------------------------------------------------
TOTAL $104,535 $7,668 $37,767
----------------------------------------------------------------------------------------------------------------
Source: Karen Pollitz, Georgetown University Health Policy Institute, using real claims data and policies.
Columns of figures do not add up exactly because all numbers are rounded.
How to Protect Yourself
Seek out comprehensive coverage. A good plan will cover your
legitimate health care without burdening you with over-sized debt.
``The idea of `Cadillac' coverage vs. basic coverage isn't an
appropriate way to think about health insurance,'' said Mila Kofman,
Maine's superintendent of insurance. ``It has to give you the care you
need, when you need it, and some financial security so you don't end up
out on the street.'' What you want is a plan that has no caps on
specific coverages. But if you have to choose, pick a plan offering
unlimited coverage for hospital and outpatient treatment, doctor
visits, drugs, and diagnostic and imaging tests. When it comes to life-
time coverage maximums, unlimited is best and $2 million should be the
minimum. Ideally, there should be a single deductible for everything
or, at most, one deductible for drugs and one for everything else. And
the policy should pay for 100 percent of all expenses once your out-of-
pocket payments hit a certain amount, such as $5,000 or $10,000.
If you are healthy now, do not buy a plan based on the assumption
that you will stay that way. Don't think you can safely go without drug
coverage, for example, because you don't take any prescriptions
regularly today. ``You can't know in advance if you're going to be
among the . 01 percent of people who needs the $20,000-a-month biologic
drug,'' said Gary Claxton, a vice president of the nonprofit Kaiser
Family Foundation, a health-policy research organization. ``What's
important is if you get really sick, are you going to lose
everything?''
Consider trade-offs carefully. If you have to make a trade-off to
lower your premium, Claxton and Pollitz suggest opting for a higher
deductible and a higher out-of-pocket limit rather than fixed dollar
limits on services. Better to use up part of your retirement savings
paying $10,000 up front than to lose your whole nest egg paying a
$90,000 medical bill after your policy's limits are exhausted.
With such a high deductible, in years when you are relatively
healthy you might never collect anything from your health insurance. To
economize on routine care, take advantage of free community health
screenings, low-cost or free community health clinics, immediate-care
clinics offered in some drugstores, and low-priced generic
prescriptions sold at Target, Walmart, and elsewhere.
If your financial situation is such that you can afford neither the
higher premiums of a more comprehensive policy nor high deductibles,
you really have no good choices, Pollitz said, adding, ``It's why we
need to fix our health-care system.''
Check out the policy and company. You can, at least, take some
steps to choose the best plan you can afford. First, see ``7 Signs a
Health Plan Might Be Junk,'' on page 25, to learn to spot the most
dangerous pitfalls and the preferred alternatives.
Use the Web to research insurers you're considering. The National
Association of Insurance Commissioners posts complaint information
online at www.naic.org.
Entering the name of the company and policy in a search engine
can't hurt either. Consumers who did that recently would have
discovered that Mid-West National was a subsidiary of HealthMarkets,
whose disclosure and claims handling drew many customers' ire. Last
year, HealthMarkets was fined $20 million after a multistate
investigation of its sales practices and claims handling.
Don't rely on the salesperson's word. Jeffrey E. Miller, the
Florida man whose policy failed to cover much of his cancer treatment,
recalls being bombarded with e-mail and calls when he began shopping
for insurance. ``The salesman for the policy I bought told me it was
great, and I was going to be covered, and it paid up to $100,000 for a
hospital stay,'' he said. ``But the insurance has turned out to pay
very little.''
Pollitz advises anyone with questions about their policy to ask the
agent and get answers in writing. ``Then if it turns out not to be
true,'' she said, ``you can complain.''
What Lawmakers Need to Do Next
Consumers Union, the nonprofit publisher of Consumer Reports, has
long supported national health-care reform that makes affordable health
coverage available to all Americans. The coverage should include a
basic set of required, comprehensive health-care benefits, like those
in the Federal plan that Members of Congress enjoy. Insurers should
compete for customers based on price and the quality of their services,
not by limiting their risk through confusing options, incomplete
information, or greatly restricted benefits.
As reform is developed and debated, Consumers Union supports these
changes in the way health insurance is presented and sold:
Clear terms. All key terms in policies, such as ``out-of-pocket''
and ``annual deductible,'' should be defined by law and insurers should
be required to use them that way in their policies.
Standard benefits. Ideally, all plans should have a uniform set of
benefits covering all medically necessary care, but consumers should be
able to opt for varying levels of cost-sharing. Failing that, states
should establish a menu of standardized plans, as Medicare does for
Medigap plans. Consumers would then have a basis for comparing costs of
plans.
Transparency. Policies that insurers currently sell should be
posted in full online or available by mail upon request for anyone who
wants to examine them. They should be the full, legally binding policy
documents, not just a summary or marketing brochure. In many states
now, consumers can't see the policy document until after they have
joined the plan. At that point, they're legally entitled to a ``free
look'' period in which to examine the policy and ask for a refund if
they don't like what they see. But if they turn the policy back in,
they face the prospect of being uninsured until they can find another
plan.
Disclosure of costs. Every plan must provide a standard ``Plan
Coverage'' summary that clearly displays what is--and more important,
is not--covered. The summary should include independently verified
estimates of total out-of-pocket costs for a standard range of serious
problems, such as breast cancer treatment or heart bypass surgery.
Moreover, reliable information should be available to consumers
about the costs in their area of treating various medical conditions,
so that they have a better understanding of the bills they could face
without adequate health coverage.
______
Consumers Union Health Policy Brief--June 2009
Simplifying Health Insurance Choices
Written by Lynn Quincy and Steve Findlay
Summary
Today, consumers face a bewildering health insurance marketplace,
especially if they buy insurance on their own. Americans find it all
but impossible to compare health insurance policies on an ``apples-to-
apples'' basis because the policies are written in legalese and the
terms of coverage are so varied. As lawmakers consider comprehensive
health care reform, they have an opportunity to fix the way we shop for
health insurance. This brief recommends new, consumer-friendly rules
for the health insurance marketplace. These rules require clear and
consistent definitions of insurance terms, standardized health plan
provisions, new health plan disclosure forms, unbiased enrollment
assistance and rigorous enforcement at the state and national levels.
Today's Health Insurance Marketplace: Overwhelming Complexity
Health insurance is one of the most important purchases Americans
make, yet many consumers feel helpless when it comes to shopping for
coverage.
For one thing, unlike most things we buy, it's difficult to know
the full cost of our health coverage option. While most people
understand the amount of their monthly premium, it's far harder to
compare potential out-of-pocket costs for medical services. In fact, it
is almost impossible for them to assess the expenses they would face if
they get sick and need extensive care.\1\
---------------------------------------------------------------------------
\1\ Karen Pollitz, Eliza Bangit, Jennifer Libster, Stephanie Lewis,
and Nicole Johnston. Coverage When It Counts. How much protection does
health insurance offer and how can consumers know?, Center for American
Progress Action Fund, May 8, 2009.
---------------------------------------------------------------------------
There are important underlying reasons for this confusion. To start
with, policies are written in legalese or impenetrable ``health
insurance speak.'' Take, for example, this policy provision from a
Rhode Island insurer: \2\
---------------------------------------------------------------------------
\2\ Rhode Island Office of the Health Insurance Commissioner.
Notice Of Adoption Of Office Of The Health Insurance Commissioner
Regulation 5, ``Standards For Readability Of Health Insurance Forms,''
http://Www.Ohic.Ri.Gov/Documents/Insurers/Regulations/Regulation%205%
20Readability/
1_Notice%20of%20proposed%20adoption%20of%20Regulation%205.PDF
(accessed: 5/4/09).
Benefits are payable for Covered Medical Expenses (see
``Definitions'') less any Deductible incurred by or for a
Covered Person for loss due to Injury or Sickness subject to:
(a) the Maximum Benefit for all services; (b) the maximum
amount for specific services; both as set forth in the Schedule
of Benefits; and (c) any coinsurance amount set forth in the
Schedule of Benefits or any endorsement hereto. The total
payable for all Covered Medical Expenses shall never exceed the
Maximum Benefit stated in the Schedule of Benefits. Read the
``Definitions'' section and the ``Exclusions and Limitations''
---------------------------------------------------------------------------
section carefully.
Very few consumers can make sense of the above paragraph. The
average U.S. adult reads comfortably--especially about subjects they do
not understand well--at an 8th grade level. Yet the typical health plan
document is written at a first-year college reading level.\3\ As one
insurance official stated ``it will be difficult for many health system
reform ideas to get traction when people literally don't know what we
are talking about.'' \4\
---------------------------------------------------------------------------
\3\ Colleen Medill, Richard Wiener, Brian Bornstein, and E.
McGorty, ``How Readable Are Summary Plan Descriptions for Health Care
Plans,'' EBRI Notes, Vol. 27, No. 10, October 2006.
\4\ The Regence Group. ``Regence Study Shows Steep Health Plan
Learning Curve,'' http://www.regence.com/docs/pressReleases/2008/
092208-regence-survey-shows-steep-health-plan-learning-curve-press-
release.pdf (accessed: 5/4/09).
---------------------------------------------------------------------------
Navigating the health insurance marketplace takes more than just
reading skills. Health literacy is a broader concept that includes the
ability to process numbers (numeracy) and at least a basic
understanding of how to access care or coverage. Unfortunately, just 12
percent of adults are characterized as fully ``proficient'' in health
literacy, according to one analysis.\5\
---------------------------------------------------------------------------
\5\ Mark Kutner, Elizabeth Greenberg, Ying Jin, and Christine
Paulsen. The Health Literacy of America's Adults: Results from the 2003
National Assessment of Adult Literacy, U.S. Department of Education,
National Center for Education Statistics, September 6, 2006.
---------------------------------------------------------------------------
Lack of standardization adds greatly to the confusion. Terms like
``deductible'' or ``hospitalization'' can vary from plan to plan. A
recent Consumer Reports article, for example, described a health
insurance policy in which hospitalization coverage excluded the first
day of hospitalization (in the fine print)--usually the most expensive
day when lab and surgical suite costs are incurred.\6\ Similarly, a
detailed comparative study of health plans in Massachusetts and
California found that plans with seemingly similar provisions would
have left policyholders with out-of-pocket obligations that differed by
thousands of dollars.\7\ For example, a typical course of breast cancer
treatment would cost the patient nearly $4,000 in one plan but $38,000
in the other plan--despite the fact the plans contained similar
deductibles, co-pays and out-of-pocket limits. In the case of the
second plan, the policy's out-of-pocket limit included many
``exceptions'' that increased costs for the consumer.
---------------------------------------------------------------------------
\6\ ``Hazardous Health Plans,'' Consumer Reports, May 2009.
\7\ Pollitz et al., op cit.
---------------------------------------------------------------------------
The bottom line is that consumers end up with coverage they don't
understand. One study sponsored by the insurance industry asked adults
to define insurance terms and calculate their bill. Most respondents
were able to answer the questions correctly just half the time.\8\
Another industry-sponsored survey found that less than a quarter of
respondents understood the terminology used in their health policy.\9\
Unfortunately, when consumers don't understand their coverage, they may
end up with unexpected costs if they need a lot of medical care.\10\
---------------------------------------------------------------------------
\8\ The Regence Group, op cit.
\9\ 2008 Survey sponsored by eHealth Inc., parent company of
ehealthinsurance. http://phx.corporate-ir.net/
phoenix.zhtml?c=201232&p=irol-newsArticle&ID=1090963&highlight
=(accessed: 6/1/09).
\10\ ``Hazardous Health Plans,'' op cit.
---------------------------------------------------------------------------
Surprisingly, consumers have little in the way of national
standards that help them buy health insurance.\11\ This near absence of
consumer protections means that consumers often purchase coverage that
doesn't suit their needs, that costs them too much, and ultimately
drives up our Nation's health care bill.
---------------------------------------------------------------------------
\11\ The few standards that do exist are not rigorously enforced.
See, for example, Medill et al., op cit.
---------------------------------------------------------------------------
How Consumers Choose
Consumers value ``choice'' when purchasing almost anything. In
health care, the choice they value most is a choice of doctors and
places to get care. However, at least one study indicates that
consumers would actually prefer fewer choices of insurance policies in
exchange for meaningful distinctions between plans and lower
prices.\12\
---------------------------------------------------------------------------
\12\ Jonathan Gruber. Choosing a Medicare Part D Plan: Are Medicare
Beneficiaries Choosing Low-Cost Plans?, Henry J. Kaiser Foundation,
March 2009.
---------------------------------------------------------------------------
Indeed, a large body of research concludes that too many choices
often paralyze consumer decision-making.\13\ When choices are
overwhelming, decision-making becomes stressful for consumers. To
reduce this stress, people take ``cognitive short-cuts.'' One common
short-cut is ``sticking with what we know.'' In the world of health
insurance, this often translates to sticking with the plan or policy
you have, even if doesn't cover needed care or more attractive health
plans are available.
---------------------------------------------------------------------------
\13\ Dale Shaller. Consumers in Health Care: The Burden of Choice,
California HealthCare Foundation, October 2004.
---------------------------------------------------------------------------
Another ``short cut'' is to enroll in a highly advertised plan or
one with a familiar brand name, rather than researching the best and
most cost-effective plan. Consumers' distaste for evaluating large
amounts of information, or complex information, is one reason companies
put so much effort into branding. In 2008 health insurance companies
spent over $645 million on advertising.\14\
---------------------------------------------------------------------------
\14\ Personal communication from TNS Media Intelligence, May 20,
2009.
---------------------------------------------------------------------------
Consumers are also prone to dismiss information they don't
understand.\15\ As a result, people often don't use the information
provided by insurance companies, instead turning to family, colleagues
and friends for help navigating the health plan selection process.\16\
---------------------------------------------------------------------------
\15\ Judith Hibbard and Jacquelyn Jewett. ``Will Quality Report
Cards Help Consumers?,'' Health Affairs, 1997.
\16\ Michael Wroblewski. ``Uniform Health Insurance Information Can
Help Consumers Make Informed Purchase Decisions,'' Journal of Insurance
Regulation, 26(2):21-37, 2007.
---------------------------------------------------------------------------
The experience of seniors purchasing Medicare Part D (prescription
drug benefit) plans illustrates the ``choice'' problem. On average,
Medicare beneficiaries have a choice of 48 Part D plans--and some have
a choice of around 70. One study found that, based on individuals'
previous year drug use, only 6 percent of enrollees picked the plan
that would save them the most money. Most enrollees were spending $360
to $520 more per year than the optimal plan for them.\17\ Yet,
relatively few enrollees switch into other, more cost-effective plans.
Of 17 million Medicare Part D enrollees in 2008, only 1 million
switched plans.\18\ Surveys show that seniors are aware of the problem.
Nearly three-quarters felt that their Part D choices were too
complicated. And a majority of seniors agreed with this statement:
``Medicare should select a handful of plans that meet certain standards
so seniors have an easier time choosing.'' \19\
---------------------------------------------------------------------------
\17\ Gruber, op. cit. The author was careful to note that plan
selection based on current use of health care services is not
necessarily predictive of the protection offered against future health
care needs.
\18\ U.S. Government Accountability Office. ``Medicare Part D:
Opportunities Exist for Improving Information Sent to Enrollees and
Scheduling the Annual Election Period,'' GAO-09-4, December 2008.
\19\ Gruber, op cit.
---------------------------------------------------------------------------
This ``paradox of choice'' is not restricted to seniors. The
``Consumers' Checkbook Guide'' to health plans for Federal employees
reports that ``hundreds of thousands of employees and annuitants are
still enrolled in plans that are much more expensive than average, and
that give them no needed extra benefits.'' \20\ Federal employees, who
face a lot of health plan choices, also like to ``stick with what they
know.'' In one recent two-year period, fewer than 5 percent of
enrollees switched health plans.\21\
---------------------------------------------------------------------------
\20\ Washington Consumers' Checkbook. 2009 Guide to Health Plans
for Federal Employees, published 2008.
\21\ U.S. Government Accountability Office, Federal Employees'
Health Plans: Premium Growth and OPM's Role in Negotiating Benefits,
Report to the Subcommittee on International Security, Proliferation,
and Federal Services, Committee on Governmental Affairs, U.S. Senate,
GAO-03-236, December 2002.
---------------------------------------------------------------------------
Checklist for a Better Health Insurance Marketplace
A manageable number of meaningful health plan choices.
Standardized health plan benefits allowing ``apples-to-
apples'' comparisons.
Health plan materials written in ``plain English,'' using
clear, consistently defined terms, and highlighting the
information of most interest to consumers (such as whether
their doctor participates in the plan and likely out-of-pocket
costs).
``Plan chooser'' decision aids, including a user-friendly
Web-based decision tool, access to local one-on-one counseling
services, and a 24-hour toll-free phone number. Proactive
outreach to low-income and minority populations should be
required.
A strong oversight body that conducts consumer education,
aggregates and reports on customer complaints, monitors and
enforces plan quality reporting, and monitors compliance with
new insurer regulations.
A Better Health Insurance Marketplace
There is a better way. We need a health insurance marketplace which
has consumer protections commensurate with the importance of the
purchase; new rules for insurance plan disclosure that take into
account real consumer decision-making behavior; and less variation in
health plan design so that consumers can easily compare benefits and
costs.
To create this new marketplace, Consumers Union proposes five
specific changes.
1. A Manageable Number of Plan Choices
Consumers should have a manageable number of ``good'' health plan
options. Building on current state rules for insurer financial
solvency, all health plans should also be required to meet national,
minimum standards for coverage, network adequacy, and claims payment
and appeal procedures.
If these national standards, in combination with the reforms below,
produce an excessive number of coverage plans, then health plans should
be required to bid to participate in the market in order to reduce the
number of health plan options to a manageable level. This approach
would promote competition on price, improved patient satisfaction and
quality of care. It would also avoid the problems of an excessive
number of confusing, look-alike plans, such as now confronts Medicare
beneficiaries in their choice of Part D and managed care (Medicare
Advantage) plans. In addition to an excessive number of Part D choices,
beneficiaries face 44 Medicare Advantage plans on average and some
beneficiaries have 87 choices.\22\ Many plans feature only minor
differences from each other. Moreover, in 2008 approximately 27 percent
of these plans had fewer than 10 enrollees.\23\ Listing such options
leads enormously to the ``clutter'' in the market and provides little
benefit to the consumer.
---------------------------------------------------------------------------
\22\ Marsha Gold. ``Medicare's Private Plans: A Report Card on
Medicare Advantage,'' Health Affairs 28, No. 1, w41-w54 (published
online November 24, 2008).
\23\ CMS Office of Public Affairs, CMS Issues Guidance For Medicare
Advantage And Prescription Drug Plans For 2010 (press release), March
30, 2009.
---------------------------------------------------------------------------
2. Standardized Benefit Designs
What a health plan covers and how cost is shared between the plan
and the patient is referred to as the ``benefit design.'' To engage
consumers and facilitate informed choice, benefit designs should be
standardized and vary around only a few features.\24\ In other words,
health plan choices should feature clear, meaningful differences.
---------------------------------------------------------------------------
\24\ Requiring that health plans meet a standard of actuarial
equivalence--that is pay the same percent of charges on average--but be
allowed to vary the benefit design is not a workable substitute. Such a
policy would leave consumers unable to meaningfully compare health
plans. See Pollitz, op cit.
---------------------------------------------------------------------------
Excess benefit variation was the reason that Congress ordered
Medigap policies standardized into 10 standard designs in 1992. Studies
have found these reforms reduced beneficiary confusion, marketing
abuses, and consumer complaints, and have improved benefits.\25\
---------------------------------------------------------------------------
\25\ Jim Hahn. Standardized Choices: Medigap Lessons for Medicare
Part D, CRS Report for Congress, March 8, 2006.
---------------------------------------------------------------------------
To facilitate consumers' ability to compare health plans, we
recommend that all health plans cover exactly the same comprehensive
set of medical services, and vary only by their cost-sharing features
and networks of doctors, hospitals, and other providers.\26\
---------------------------------------------------------------------------
\26\ This approach is similar to the one used in Massachusetts for
plans offered through the Connector. Connector plans differ from this
proposal in that the cost-sharing design must adhere to prescribed
levels of ``actuarial value'' rather than set benefit designs (as is
done in Medigap). In addition, these plans must conform to the state's
standard for minimum credible coverage.
---------------------------------------------------------------------------
Cost-sharing variation should be limited. To start, we recommend
that annual benefit limits and life-time benefit limits be eliminated.
Cost-sharing terms like ``deductible'' should be defined using
standard, industry wide definitions. Furthermore, the plan's out-of-
pocket limit should be a ``hard'' out-of-pocket. In other words, it
must not feature exceptions that can drive the policyholder's cost
beyond the stated limit.\27\ If remaining cost-sharing variation is
limited to a small number of designs, consumers can more reliably gauge
their out-of-pocket cost exposure and better compare plans.
---------------------------------------------------------------------------
\27\ Pollitz (op cit.) describes real health plans whose provisions
lead to costs for covered services that vastly exceed the plan's stated
out-of-pocket maximum.
---------------------------------------------------------------------------
Exhibit 1 is an illustration of how this might work. In the
example, four levels of cost-sharing are permitted (designated as
``basic,'' ``bronze,'' ``silver'' and ``gold''). Within these cost-
sharing ``tiers,'' there is additional variation reflecting the
comprehensiveness of the plan's provider network--that is, the number
of local hospitals and doctors participating as in-network providers.
Taking both dimensions into account, a total of 10 variations is
permitted.
In the context of a broader health reform effort, the ``basic''
cost-sharing level might be the minimum (least generous) coverage
allowed. On the other hand, the most generous tier might be set at
cost-sharing levels that lower-income Americans can afford. Since lower
levels of cost-sharing are associated with higher premiums (all other
things being equal), premium subsidies would be available to help
lower-income families purchase coverage that contains adequate
financial protection.
Exhibit 1--Illustration of Health Plan Designs That Vary Around Few Features*
----------------------------------------------------------------------------------------------------------------
COST SHARING (Illustrative only)
--------------------------------------------------
Standard Plans Premium Level Provider Maximum Out-
Plan Tier Network Deductible (one Office copay; of-Pocket
person) Coinsurance (for expense (one
other services) person)
----------------------------------------------------------------------------------------------------------------
Basic AA Lowest May be limited $1,150 $35; 20% $3,500
----------------------------------------------------------------------------------------------------------------
Bronze BB Low May be limited $750 $30; 20% $2,500
--------------------------------------------------
CC Low Fairly
Comprehensive
--------------------------------------------------
DD Low Comprehensive
----------------------------------------------------------------------------------------------------------------
Silver EE Medium May be limited $300 $25; 10% $1,500
--------------------------------------------------
FF Medium Fairly
Comprehensive
--------------------------------------------------
GG Medium Comprehensive
----------------------------------------------------------------------------------------------------------------
Gold HH High May be limited $0 $15; 5% $500
--------------------------------------------------
II High Fairly
Comprehensive
--------------------------------------------------
JJ High Comprehensive
----------------------------------------------------------------------------------------------------------------
* This table is for illustrative purposes only and does not constitute a recommendation for cost-sharing levels.
All plans, AA to JJ, cover the same comprehensive set of services and vary only by their cost-sharing
provisions and provider networks. Within a plan ``tier'' cost-sharing is identical.
3. Standardized, Consumer-friendly Health Plan Materials
Making it easier for consumers to choose a health insurance plan
means making the information about those health plans understandable,
relevant, and ``evaluable''--a fancy word meaning you can readily rank
your choices from best to worst.
To ensure that the materials are understandable, insurers should be
required to describe their plans in simple, straightforward language,
and use consistent, industry-wide definitions for common policy terms
like ``deductible,'' ``out-of- pocket limit,'' and ``hospitalization.''
Health plan materials should also emphasize the information of most
interest to consumers, such as out-of-pocket costs and access to
doctors and specialists.\28\ For example, surveys show that most
people's primary interest when switching health plans is whether their
current doctor is ``in the plan.'' Further, they like to know if they
have the right to see doctors outside the plan's network, and at what
cost. While health plans today make this information available, it is
often difficult and time consuming for consumers to compare provider
networks and access rules for dozens of plans.
---------------------------------------------------------------------------
\28\ Alison Rein. Consumer Choice in the Health Insurance and
Provider Markets: A Look at the Evidence Thus Far, Robert Wood Johnson
Foundation, October 25, 2007.
---------------------------------------------------------------------------
If consumers are to choose from among health plan options, they
must be able to rank them. Information that makes this task easier is
said to be ``evaluable.'' Evaluable information is presented so that it
is easy to find the ``best'' option(s). Evaluable displays of
information anticipate the difficulty of weighing two dissimilar pieces
of information (like health plan cost and quality), and provide short-
cuts for the consumer--similar to the ``Best Buy'' designations in
Consumer Reports ratings of cars or TVs.
Consumers also deserve to know how well a plan serves its
enrollees. Currently, formal measures of plan quality are rarely
consulted, in part because people distrust information they think comes
from the insurers themselves.\29\ Consumers have expressed a preference
for an independent entity that rates health insurers--similar to the
easy-to-use financial ratings that are readily available when
purchasing life insurance.\30\
---------------------------------------------------------------------------
\29\ A. Monroe. ``Consumer Involvement--A Vital Piece of the
Quality Quilt: the California HealthCare Foundation's Strategy for
Engaging California Consumers'', Quality and Safety in Health Care,
Vol. 11, No. 2 (2002).
\30\ Dale Shaller, Shoshanna Sofaer, Steven D. Findlay, Judith H.
Hibbard, David Lansky and Suzanne Delbanco. ``Consumers And Quality-
Driven Health Care: A Call To Action,'' Health Affairs, 22, No. 2
(2003).
---------------------------------------------------------------------------
To help consumers choose, government should require insurers to use
a standard, consumer-friendly disclosure format to describe their
health plan. Standard disclosure forms reduce consumer confusion and
increase the likelihood that consumers will choose a plan that meets
their needs.\31\ While more detailed information should be available,
at a minimum this form would: (1) identify whether or not a given
provider participates in the plan, (2) disclose potential out-of-pocket
costs under several common medical scenarios and (3) provide premium
cost.
---------------------------------------------------------------------------
\31\ Wroblewski, op cit.
---------------------------------------------------------------------------
Consumers also need information that compares health plans ``side-
by-side.'' \32\ Exhibit 2 presents an example of how comparative health
plan information could be displayed in ways that help consumers. The
example assumes that some basic information about the applicant and
their plan preferences has been provided (top of the table).
---------------------------------------------------------------------------
\32\ EHealth Inc. 2008 survey, op cit.
---------------------------------------------------------------------------
Consumers Union recommends that actual health insurance disclosure
requirements be developed in consultation with consumers, insurers,
literacy experts and educators, and tested on representative
populations, with special attention to hard-to-reach populations and
minorities.\33\
---------------------------------------------------------------------------
\33\ For an example, see the ``Coverage Facts'' prototype included
in: Katherine B. Wilson. Check the Label: Helping Consumers Shop for
Individual Health Coverage, California Health Care Foundation, June
2008.
---------------------------------------------------------------------------
4. ``Plan Chooser'' Decision Aids
Even with the simplification of insurance choices envisioned above,
many consumers may still be confused by the choices confronting them. A
variety of decision aids should be available to consumers accommodating
their language preferences, health literacy levels, Internet-access
levels and cultural backgrounds.
Studies show that one-on-one assistance can be critical for getting
people enrolled in health plans.\34\ Consumers Union recommends new
Federal support for a nationwide network of locally-based, non-profit
health insurance counseling services, including in-person counseling
and phone support. The counselors should be tasked with employing
creative, targeted efforts to inform and assist our Nation's most
vulnerable populations with their health insurance options.
---------------------------------------------------------------------------
\34\ Lynn Quincy, Patricia Collins, Kristin Andrews and Christal
Stone. Designing Subsidized Health Coverage Programs to Attract
Enrollment: A Review of the Literature and a Synthesis of Stakeholder
Views, Mathematica Policy Research, December 31, 2008.
Exhibit 2--Illustration of a Standard Plan Comparison Form
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
You Asked for Health Plans For:
----------------------------------------------------------------------------------------------------------------
a healthy, 45 year old woman,
living in the 20016 ZIP Code (Washington, D.C.),
listing Dr. Smith (202-555-1212) as an in-network provider,
and featuring the least expensive premiums.
----------------------------------------------------------------------------------------------------------------
Here Are the Choices for the 2009 Plan Year (Jan 1-Dec 31):
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
ANNUAL COSTS
-------------------------------------------
The most you
Expected will pay How did last
Expected Total Cost (for covered year's
Plan Tier Health Plans Provider Monthly costs for (premiums services enrollees
Network Premium Cost medical plus using in- rate this
services for expected network plan?
people like cost of providers
you services) plus
premiums)
----------------------------------------------------------------------------------------------------------------
Bronze Downtown Limited $125 $280 $1,780 $4,000
HMO
-----------------------------------------------------------------------------------------------------
Uptown Limited $200 $280 $2,680 $4,900
HMO
-----------------------------------------------------------------------------------------------------
Premier Fairly $225 $280 $2,980 $5,200
Insurance Comprehensive
-----------------------------------------------------------------------------------------------------
Health Fairly $235 $280 $3,100 $5,320
Plans R Us Comprehensive
-----------------------------------------------------------------------------------------------------
Humongous Comprehensive $245 $280 $3,220 $5,440
Insurance
-----------------------------------------------------------------------------------------------------
Best Comprehensive $275 $280 $3,580 $5,800
Practice IPA
----------------------------------------------------------------------------------------------------------------
Note: This list excludes plans that a) may be cheaper but don't include your doctor in their network or b) have
higher premiums (but may feature less expensive cost-sharing for medical services).
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
What ``Bronze'' Plans Pay For:
----------------------------------------------------------------------------------------------------------------
The Bronze Plans all feature the same cost-sharing provisions. Subject to these cost-sharing provisions, Bronze
plans cover most medical services such as inpatient and outpatient hospitals services, prescription drugs, lab,
X-ray, maternity, and physician office visits. These plans do not cover cosmetic surgery, dental or vision
care.
----------------------------------------------------------------------------------------------------------------
EXAMPLE: Based on the experience of prior enrollees, a healthy, 45-year-old woman might use these services
during the year and expect to pay:
----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
Cost of Your share
Service Service Explanation
------------------------------------------------------------------------
Annual Physical, $500 $35 Plan copay for an office
including GYN visit (not subject to
deductible)
------------------------------------------------------------------------
Mammogram $200 $200 Subject to the plan's $800
deductible
------------------------------------------------------------------------
Doctor visit for $120 $35 Plan copay for an office
Illness visit
------------------------------------------------------------------------
Generic Antibiotic $10 $10 Plan copay for generic
drug
------------------------------------------------------------------------
TOTAL $280
------------------------------------------------------------------------
Your experience may be different. However, even if you need a lot of
medical care, your share of the cost for covered services using in-
network providers will not exceed $2,500.
------------------------------------------------------------------------
For help with your enrollment decision, call 1-800-PLN-HELP or visit
www.planhelp.org.
------------------------------------------------------------------------
The Part D Drug Finder Tool--Not Easy or Efficient
A recent article in an AARP Bulletin billed itself as the ``Quick
Route Through the Medicare Drug Plan Finder 2009.'' These instructions
contained 15 steps and 2,500 words. Four instructions were to ignore or
overcome a feature of the plan chooser tool in order to complete the
process.
These counselors must also provide ongoing feedback to regulators
and policymakers with respect to consumers' experiences--providing a
key pathway for improved services over time.
Web-based tools can also facilitate health plan comparisons.
However, such tools must not introduce their own level of complexity
(see side bar on the Medicare Part D tool). Web-based plan chooser
tools must have at least one default set of steps that is simple to
complete based on the most common consumer preferences. As noted above,
consumers have a strong preference for information on which doctors
participate in the plan. The web-based tools should allow consumers to
enter the name or phone number of their desired doctor(s) and
hospital(s) and view only those plans that have the indicated providers
in their network.
5. A Strong Federal Oversight Body
Given the complexity of the health insurance marketplace and the
fact that state regulatory offices are often understaffed, Consumers
Union recommends a new level of Federal/state cooperation in the
enforcement of insurer regulations and consumer protections. We
recommend that a new Federal entity, in cooperation with states,
perform the following functions:
Monitor insurer compliance with new Federal standards. Work
with state insurance departments, U.S. Department of Labor (for
employer plans), and other entities as needed to ensure that
Federal health insurance standards are implemented and
enforced. Agency should provide for regular collection and
analysis of data from insurers to monitor compliance/
effectiveness of Federal reforms.
Monitor state enforcement and provide Federal fallback
enforcement if needed. If states fail to enforce Federal
standards for health insurance consumer protection, Federal
fallback enforcement is appropriate. Agency should also conduct
some independent audits and/or market conduct exams to verify
compliance directly.
Collect, audit and publish health plan quality information.
We recommend a Federal/state partnership be charged with
collecting and verifying quality information and aggregating it
into measures that consumers can understand. The underlying
detail should also be available to interested consumers,
enrollment counselors and outside watchdog groups. The measures
should use a five star-type system, graded on a curve to ensure
distinctions between plans. An insurance plan that fails to
provide the necessary quality data on time would not be
included among plan choices. Among other things, these quality
measures should include enrollee satisfaction, provider
satisfaction, claims resolution records and a history of
premium increases.
Consumer education. The new agency should educate consumers
on their rights to register complaints about health plan
service, coverage denials, balance-billing and co-pay problems.
It should also serve as the first stop (in lieu of courts) for
appeals of coverage denials. The grievance and appeals
processes should be standardized and simplified so that it is
easy for consumers to get what they are paying for.
Maintain a complaint hotline, and compile Federal and state
data on insurance complaints and report this data publicly.
Ensure consumer co-payments for out-of-network care are
based on honest, audited data. Consumers Union supports the
recommendation of the New York Attorney General, who has called
for an independent, verifiable system of determining usual and
customary charges so that consumers and doctors are not cheated
out of millions of dollars a year in insurance payments for
out-of-network care.\35\
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\35\ New York Office of the Attorney General, ``Health Care Report:
The Consumer Reimbursement System is Code Blue,'' January 13, 2009.
---------------------------------------------------------------------------
In Conclusion
The impact of a simplified, consumer-friendly, health insurance
marketplace should not be underestimated. One study, for example, found
that making it easier to get information about insurance products, and
simplifying the application process, could increase purchase rates as
much as modest premium subsidies would.\36\
---------------------------------------------------------------------------
\36\ M. Marquis, M. Buntin, J. Escarce, K. Kapur, T. Louis, and J.
Yegian. ``Consumer Decision Making in the Individual Health Insurance
Market,'' Health Affairs, May 2006.
---------------------------------------------------------------------------
The current health reform debate provides policymakers with a
unique opportunity to establish new rules that require clear and
consistent definitions of insurance terms, standardize health plan
provisions, and provide for rigorous enforcement at the state and
national levels. We caution, however, that these new consumer
protections, by themselves, will not accomplish our Nation's larger
goals of lowering health care cost trends, expanding coverage and
removing poor quality care from the system.
The Chairman. Thank you very, very much, Ms. Metcalf. And
now we have Ms. Karen Pollitz, who I have had the honor of
knowing for a long time. And she's a Research Professor at the
Georgetown University Health Policy Institute. I thought you
ran the place. You don't.
Ms. Pollitz. Nobody runs the place.
The Chairman. I'll wait another year.
[Laughter.]
The Chairman. She studies regulation of private health
insurance in her spare time and her professional time. Karen
Pollitz?
STATEMENT OF KAREN POLLITZ, RESEARCH PROFESSOR,
GEORGETOWN UNIVERSITY HEALTH POLICY INSTITUTE
Ms. Pollitz. Thank you, Mr. Chairman. It is a honor to be
here. I usually--I'm used to sitting at your elbow. So it's
very nice to see you face to face at a hearing.
I don't need to tell you, of all people, that health
insurance is all about spreading risk. But that's a very
difficult thing to do. A small proportion of the population
accounts for the vast majority of health care spending, about 1
percent, the sickest 1 percent of us account for a quarter of
all medical care spending.
And so there's a powerful, powerful financial incentive, as
you've heard from Mr. Potter, for insurers to try to avoid the
sickest people or to avoid paying their claims. And that
incentive isn't going to go away after health care reform. It
will be important certainly to make rules, to say to insurers
that they can't turn people down anymore, charge them more,
offer poorer benefits. But in order for coverage to be secure
you are going to need greater transparency and accountability
in private health insurance than you have today.
Transparency in health insurance is going to involve three
key elements.
The first is reporting of data by health insurers to
regulators about what they sell, what they--who they enroll,
who they dis-enroll. You're going to need to be able to really
get into the operations of health insurance companies, make
them tell you how they work. And not just in general and not
just on average, but in very specific ways so that you can
track what's happening to people when they are sick. That small
number of people is who you need to be able to keep an eye on
throughout the health insurance system. And insurers need to be
able to--or need to be required to report that data to
regulators on an ongoing basis.
Disclosure to consumers is the second element. As Nancy has
said, consumers don't understand their health insurance.
Industry studies show that overwhelmingly people don't
understand their health insurance.
They find it confusing. They don't know the terms. The
majority of people asked said that they would prefer to work on
their income taxes than try to read their insurance policy.
It's a very, very complicated document. So disclosure to
consumers means telling them in meaningful ways what it is that
their coverage does. And how it will work for them and what it
will pay and what it won't pay.
We recently completed a study of health insurance policies
sold in the State of California looking at the one that Nancy
mentioned that covered Ms. Braig. And also even in the State of
Massachusetts which is now highly regulated and has a lot of
rules. And what we found is that there is still a lot of moving
parts in health insurance policies, a lot of different ways in
which they can move.
And as Nancy mentioned, the terms of health insurance don't
mean the same. So even in Massachusetts policies that had an
out-of-pocket limit, mostly didn't cover all of your out-of-
pocket costs. They just covered some of your out-of-pocket
costs. But other policies did cover all of your out-of-pocket
costs, but they used the same term. They all said there's an
out-of-pocket limit.
So we found that under one--two bronze policies in
Massachusetts. These are supposed to be actuarial equivalent
policies. A breast cancer patient might pay about $7,600 of her
total treatment costs, out-of-pocket. And under another bronze
policy actuarial equivalent, same out-of-pocket limit, she
would pay $13,000, out-of-pocket. So we need more
standardization in terms of these terms.
And we also need to show people what it is that their
coverage would do for them. We have recommended the development
of something called Coverage Facts labels modeled on the
Nutrition Facts labels that you see on your cereal box that
would lay out a set of standardized claim scenarios for some
recognizable conditions: breast cancer, pregnancy, heart
attack. And then ask insurers to take those standardized claim
scenarios and process them under the policies that they sell.
And then show people in a very detailed way, here's what
the policy would cover. Here's what the policy wouldn't cover
and you would have to pay and give them a bottom line. So that
when they are shopping and comparing the price of policies they
can actually see what it would cover.
Transparency is going to be important. But accountability
is also going to be very, very important because again of the
strong financial incentives we just can't run the health
insurance system on the honor system. There's going to need to
be strong oversight and strong enforcement of the rules that
are there to protect consumers.
In particular it's going to be very important for there to
be resources to monitor the health insurance industry and to
enforce the rules, resources that are sadly lacking today. At a
hearing last summer, over on the House side, the Committee on
Oversight and Government Reform, a Representative of the
Administration testified that at HHS there were four part-time
people whose job it was to monitor all of the HIPAA protections
for private health insurance in Federal law. Four, part-time
people, that's it.
And despite, this was a hearing on rescissions, despite
press reports about abusive rescission practices, no one at HHS
had looked into it. No one had asked any questions. No one had
even checked to see if the state laws were up to speed and were
protecting people in these ways.
Over at the Department of Labor which has oversight over
employer sponsored health plans, where most of us get our
coverage, testimony has been given that there are resources for
that department to review each employer sponsored health plan
under its jurisdiction once every 300 years.
And at the state level, regulatory resources are also very
limited. I think the states are trying very hard. But state
insurance departments have to oversee all lines of insurance,
not just health insurance. They have seen staffing cuts,
significant staffing cuts in recent years.
And most of them also oversee other things, banking,
insurance, commerce, real estate. In four states the Insurance
Commissioner is also the Fire Marshall. And they do not have
the resources to have, in most states, a dedicated team that
just keeps an eye on health insurance all the time doing
regular monitoring, regular audits, to make sure that consumers
are protected. They have to operate in response to complaints.
So in conclusion, Mr. Chairman, I want to congratulate you
for introducing the Informed Consumer Choices in Health Care
Act. That bill would provide for the transparency and
accountability that we need and the resources to make that
happen. I hope that will be part of health reform. And I'm very
happy to take your questions.
[The prepared statement of Ms. Pollitz follows:]
Prepared Statement of Karen Pollitz, Research Professor,
Georgetown University Health Policy Institute
Good afternoon, Mr. Chairman and Members of the Committee.
My name is Karen Pollitz. I am a Research Professor at the
Georgetown University Health Policy Institute where I study the
regulation of private health insurance.
Thank you for holding this hearing today on transparency and
accountability in health insurance. These characteristics are lacking
in private health insurance today and must be strengthened as part of
health care reform.
The Paradox of Risk Spreading
It has long been true that a small proportion of the population
accounts for the majority of medical care spending. (See Figure 1) Most
of us are healthy most of the time, but when serious or chronic illness
or injury strikes, our medical care needs quickly become extensive and
expensive.
Figure 1. Concentration of Health Spending in the U.S. Population
Source: Agency for Healthcare Research and Quality, Medical
Expenditure Panel Survey, 2003. Population includes those without any
health care spending. Health spending defined as total payments, or the
sum of spending by all payer sources.
Because of this distribution, we buy health insurance to spread
risks and protect our access to health care in case we get sick.
However, the same distribution creates a powerful financial incentive
for insurers to avoid risk. In a competitive market, if an insurer can
manage to avoid enrolling or paying claims for even a small share of
the sickest patients, it can offer coverage at lower premiums and earn
higher profits.
Today, insurance companies employ many methods to discriminate
against consumers when they are sick. Medical underwriting may be the
best known--a process used to assess the risk of applicants. People who
have health problems may be denied health insurance when they apply. Or
they may be offered a policy with a surcharged premium and/or limits on
covered benefits including pre-existing condition exclusions.
However, underwriting is not confined just to the application
process. New policyholders (both individuals and small groups) who make
large claims during the first year or two of coverage will likely be
subject to post-claims underwriting. During this process insurers will
re-investigate the applicant's health status and history prior to the
coverage effective date. Any discrepancy or omission, even if
unintentional and unrelated to the current claim, can result in
coverage being rescinded or canceled. At a hearing of the House Energy
and Commerce Committee last week, patients testified about having their
health insurance policies rescinded soon after making claims for
serious health conditions. One woman who is currently battling breast
cancer testified that her coverage was revoked for failure to disclose
a visit to a dermatologist for acne. At this hearing, when asked
whether they would cease the practice of rescission except in cases of
fraud, executives of leading private health insurance companies
testified that they would not.\1\
---------------------------------------------------------------------------
\1\ Lisa Girion, ``Health insurers refuse to limit rescission of
coverage,'' Los Angeles Times, June 17, 2009.
---------------------------------------------------------------------------
Health care reform legislation will likely include rules to
prohibit these practices--guaranteed issue, modified community rating,
and prohibition on rescissions and preexisting condition exclusions.
These rules are important, but alone, will not put an end to
competition based on risk selection. The incentive to compete based on
risk selection will not go away.
Insurers can use other formal and informal methods to discriminate
based on health status. For example, they can make strategic decisions
about where and to whom to market coverage, avoiding areas and
populations associated with higher costs and risk. So-called ``street
underwriting'' can be used to size up the health status of applicants
before deciding whether to continue with the sales pitch. Insurers can
also design covered benefits and provider networks to effectively
attract healthy consumers and deter sicker patients from enrolling or
remaining enrolled. Claims payment practices and care authorization
protocols can also create hassles for patients that discourage coverage
retention. Fine print in policy contracts may limit coverage or
reimbursement for covered services, leaving consumers to pay out-of-
pocket for medical bills they thought would be covered.
Therefore, rules will not be enough. To ensure health coverage is
meaningful and secure, greater transparency and accountability must
also be required of private health insurance.
Transparency in Health Insurance
Transparency in health insurance will involve three key elements:
reporting to regulators of data on health insurance company
products and practices;
greater disclosure to consumers of how their coverage works
and what it will pay; and
standardization of health insurance terms, definitions, and
practices so that consumers can have a choice of good coverage
options without having to worry about falling into traps.
Data--Insurers should report information to health insurance
regulators on an ongoing basis about their marketing practices. Data on
the number of applications received and new enrollments, as well as
data on enrollment retention, renewals, non-renewals, cancellations,
and rescissions will be needed. In addition, data must be reported on
health insurance rating practices at issue and at renewal. Regulators
should know what policies are being sold, what they cover, and who is
covered by them. Measures of coverage effectiveness will also be needed
to track what medical bills insured consumers are left to pay on their
own. Tracking of provider participation, fees, and insurer
reimbursement levels is essential. Health insurance policy loss ratios
(the share of premium that pays claims, vs. administrative costs) must
be monitored. So must be insurer practices regarding claims payment and
utilization review. If regulators have access to this kind of
information, patterns of problems that affect the sickest consumers
won't be easy to hide.
Disclosure--Consumers need much more information about their
coverage and health plan choices. Adequate disclosure to consumers
begins by ensuring that complete information about how coverage works
is readily available. Policy contract language should be posted on
insurance company websites so that it can always be inspected by
consumers and their advocates. Current provider network directories and
prescription drug formularies should also be open to public inspection
at all times.
In addition, for each policy marketed, insurers should be required
to provide ``Coverage facts labels that illustrate how the policy will
work to cover standard illustrative patient care scenarios. Recently we
issued two reports on the adequacy and transparency of coverage sold in
Massachusetts and California. Our reports found substantial differences
in coverage protection provided by policies that might otherwise appear
similar to consumers. Even in Massachusetts, with its extensive health
care reforms and market regulation, significant variation in policy
features persists and could leave patients to pay medical bills they
did not expect and cannot afford. For example, under two so-called
``bronze'' policies that have the same actuarial value and cover the
same benefits, we found a breast cancer patient might pay $7,600 out-
of-pocket for her treatment under one policy, but $13,000 out-of-pocket
for the same treatment under the other policy.\2\
---------------------------------------------------------------------------
\2\ Karen Pollitz, et. al., ``Coverage When It Counts: What Does
Health Insurance in Massachusetts Cover and How Can Consumers Know?''
May 2009. Available at http://www.rwjf.org/pr/product.jsp?id=42248.
---------------------------------------------------------------------------
To make coverage differences more obvious to consumers, a series of
``Coverage Facts'' labels could be developed that simulate the medical
care claims patients might have under several expensive conditions,
such as breast cancer, heart attack, diabetes, or pregnancy. Insurers
would be required to take these standardized scenarios, ``process'' the
simulated claims under policies they sell, and then, for each policy,
present a detailed summary of what would be covered and would be left
for patients to pay. The format for these labels could be patterned
after the Nutrition Facts label that help consumers understand the
ingredients and nutritional value of packaged foods. See Figure 2.
Figure 2. Sample ``Coverage Facts'' Label for Health Insurance
Consumers will need to know other information about how health
insurers operate, including rates of prompt payment of claims and
claims denials, loss ratios, and the number and nature of complaints
and enforcement actions taken against an insurer. Health plan report
cards should be developed to provide this information. As people shop
for coverage, they must be able to compare differences in efficiency
and the level of customer service that insurers provide.
Standardization--People clearly value choice in health coverage,
but so many dimensions of coverage vary in so many ways that choices
can become overwhelming and even sometimes hide features that will
later limit or prevent coverage for needed care. An important goal of
health care reform must be to adopt a minimum benefit standard so
consumers can be confident that all health plan choices will deliver at
least a basic level of protection. Key health insurance terms and
definitions must also be standardized. For example, the ``out-of-pocket
limit'' on cost sharing should be defined to limit all patient cost
sharing, not just some of it. If a plan says it covers hospital care,
that should mean the entire hospitalization is covered, not all but the
first day.\3\ Further, when consumer choice of plans includes low-,
medium- and high-option plans, standardized tiers should be developed
so people can be confident they are comparing like policies.
---------------------------------------------------------------------------
\3\ A discussion of plans that include these kinds of features is
available in ``Hazardous health plans: Coverage gaps can leave you in
big trouble,'' Consumer Reports, May 2009.
---------------------------------------------------------------------------
Accountability in Health Insurance
Finally, Mr. Chairman, accountability in health insurance requires
strong rules and the capacity to monitor and enforce compliance.
Strong rules must be clear, with few exceptions, so they are harder
to evade. Weaker rules and exceptions create opportunities for current
problems to persist. For example, health care reform legislation
pending in the Senate will prohibit discrimination based on health
status in premium rates, covered benefits, and eligibility. At the same
time, however, Senate Committees are considering an exception to this
rule that would allow premiums to vary based on health status in the
context of so-called wellness programs. Some employers today offer
wellness programs with pointed financial incentives for employees to
not only participate, but actually change their health status. Under
one popular program, all employee costs are increased by $2,000 at the
outset. Workers then have the opportunity to reduce costs by $2,000,
but only if they enroll in the incentive program and pass four health
status tests, including normal readings for blood pressure, blood
cholesterol, body mass index, and tobacco use. On the website for this
wellness program, under ``Frequently Asked Questions for Employers'' it
is acknowledged that employer savings are achieved when some employees
``choose other health care options.'' \4\
---------------------------------------------------------------------------
\4\ See http://www.benicompadvantage.com/products/
faq_employers.htm.
---------------------------------------------------------------------------
Because this program discourages some sicker employees from taking
coverage, it operates very similarly to other insurer practices of
charging higher premiums to people with high blood pressure or high
cholesterol in order to deter their enrollment. If discrimination like
this is prohibited in one context but allowed in another, holding
private health insurance to a nondiscrimination standard will be a
challenge.
Regulatory resources--Finally, accountability in health insurance
requires resources. Private health insurance regulatory resources at
the Federal level are particularly lacking and must be increased. At a
hearing last summer of the House Committee on Oversight and Government
Reform, a representative of the Bush Administration testified that the
Centers for Medicare and Medicaid Services (CMS), which is responsible
for oversight of HIPAA private health insurance protections, then
dedicated only four part-time staff to HIPAA health insurance issues.
Further, despite press reports alleging abusive rescission practices,
the agency did not investigate or even make inquiries as to whether
Federal law guaranteed renewability protections were being adequately
enforced.\5\
---------------------------------------------------------------------------
\5\ Testimony of Abby Block, Hearing on Business Practices in the
Individual Health Insurance Market: Termination of Coverage, Committee
on Oversight and Government Reform, U.S. House of Representatives, July
17, 2008.
---------------------------------------------------------------------------
Additional resources will also be needed at the U.S. Department of
Labor (DOL). After the enactment of HIPAA, a witness for DOL testified
the Department had resources to review each employer-sponsored health
plan under its jurisdiction once every 300 years.\6\
---------------------------------------------------------------------------
\6\ Testimony of Olena Berg, Assistant Secretary of Labor, Pension
and Welfare Benefits Administration, Senate Labor and Human Resources
Committee, October 1, 1997.
---------------------------------------------------------------------------
At the state level, limited regulatory resources are also an issue.
In addition to health coverage, state commissioners oversee all other
lines of insurance. In several states the Insurance Commissioner also
regulates banking, commerce, securities, or real estate. In four
states, the Insurance Commissioner is also the fire marshal. State
insurance departments collectively experienced an 11 percent staffing
reduction in 2007 while the premium volume they oversaw increased 12
percent.\7\ State regulators necessarily focus primarily on licensing
and solvency. Dedicated staff to oversee health insurance--and in
particular, insurer compliance with HIPAA rules--are limited.
---------------------------------------------------------------------------
\7\ National Association of Insurance Commissioners, 2007 Insurance
Department Resources Report, 2008.
---------------------------------------------------------------------------
Informed Consumer Choices in Health Care Act of 2009
Mr. Chairman, I want to congratulate you for introducing S. 1050,
The Informed Consumer Choices in Health Care Act of 2009. And I commend
Congresswoman Rosa DeLauro for authoring companion legislation in the
House of Representatives, H.R. 2427. This bill would create a framework
to assure greater transparency and accountability in health insurance.
It would establish a new Federal agency within HHS tasked specifically
with private health insurance oversight. This agency would develop new
consumer information and disclosure tools, including a Coverage Facts
label for health insurance. It would require regular reporting by
insurers on industry products and practices. The bill provides
resources for HHS to hire expert staff to carry out these functions and
coordinate with state regulators. And it creates a grant program for
state insurance departments so they, too, can have resources to better
enforce market rules and protect consumers. This legislation and it
deserves to be included in health care reform.
In conclusion, starting with the financial industry bailout this
year and continuing with the economic stimulus package, transparency
and accountability have become the watchwords of this Congress, as
taxpayers demand to know how their money is spent and whether stated
goals have been achieved. As Congress prepares to make another
significant and critically important investment, this time in our
health care system, transparency and accountability must also guide
your way.
The Chairman. Thank you very much, Karen Pollitz. I will
lead with the questions, will be followed by Senator Johanns
and then Senator Klobuchar.
The focus of today's hearing and there are several focuses.
But why is it so hard for consumers to get clear, reliable
information? I don't always think so much in terms of insurance
policies.
But if I get a prescription for something if I'm not well
and then you take that little thing out of the bottom of the
bag, and I have to get out magnifying glasses and things that
Galileo invented in order to find out, you know, what's
actually written there. And there's a reason for that, that I
won't read it, which of course, I never do. Therefore whatever
they want to have happen, can happen.
I'd like to start this discussion on this document which
I'm holding up and which will be to some degree passed out,
called Examples of Benefits Documents. And it's not very pretty
either in appearance or in substance. It's called an
Explanation of Benefits or Explanation of Benefits statement.
Every time a consumer goes to see a doctor or receives
medical service he or she receives one of these Explanation of
Benefits statements. And the health insurance companies send
tens of millions of these statements to their policyholders
every year. Now the Explanation of Benefits is supposed to
``explain to the consumer how much the doctor charged for the
service and how much the insurance company pays as a
reimbursement for the service.'' And it sounds pretty simple,
pretty straight forward, I would guess.
But it's not, when you start trying to read these
statements. Each insurance company has its own specific
terminology. And I want to emphasize that each one has its own
specific terminology.
So if you are dealing at various levels or inter family
this or cousins or aunts, uncles, mothers, fathers, whatever,
who knows what you've got trying to figure out. Each insurance
company uses its own coding statement. I'm not, as Chairman of
the Committee, quite sure myself of what a coding statement is
as I speak.
And I'm embarrassed by that. But that is the fact. And
therefore, I think it reflects something, if only about me. And
each insurance company has its own set of indecipherable
instructions.
Now, Mr. Potter, you worked as an executive for the CIGNA
insurance company for many years. Do you think the average
CIGNA policyholder could understand the Explanation of Benefits
statements that CIGNA sent them?
Mr. Potter. Mr. Chairman, I couldn't understand them when I
got them. And I'd been in the industry for many years, as you
noted. Absolutely not.
And it has become more problematic as the insurance
industry has begun focusing more on what it refers to as
consumer driven care. But these are the high deductible plans
that are becoming so prevalent now. The EOB or Explanations of
Benefit statements that are sent to people who have enrolled in
these plans are far more complex than people used to get when
they were in HMOs and PPOs.
The insurers don't have significant incentive to make them
clearer or more understandable. I was serving as Co-Chair of
the industry's Task Force on Health Literacy when I left. And
we had a meeting in Chicago. And I had----
The Chairman. So you were central to trying to make it
work?
Mr. Potter. That's correct. And we were--I suggested and
some of the other members of the Committee agreed that
something to tackle, that would be good for the industry to
tackle would be the EOBs.
The Chairman. What happened?
Mr. Potter. I was told that it wasn't a priority. That they
would take the idea to the leadership, but not to expect that
this would be something that the industry would want to focus
on. And maybe they have.
But there has been no evidence of it because the EOBs I've
been getting are no more clear than they ever have been. In
fact, they're getting worse.
The Chairman. Alright. Do you think that CIGNA and other
health insurance companies are sending out these benefits
because it's in their interest to keep as much information as
possible from the policyholders?
Mr. Potter. I think that's the--I think they know that
that's the case. These companies make more than a billion
dollars a year. The for-profit companies do.
So they certainly could have the resources to devote
something to make them clearer. But it's not a priority. And I
think they realize that most people are baffled by these EOBs.
And don't know how--what to do with them.
The Chairman. Explanation of benefits.
Mr. Potter. Yes, explanation of benefits. And I also think
that, you know, they realize that people will just simply give
up. And not pursue it.
The Chairman. And that's the secret, isn't it, knowing that
people are going to give up?
Mr. Potter. I think so, sir.
The Chairman. You win every time that way.
Mr. Potter. Senator, I think you're exactly right.
The Chairman. Now one of the things that Ms. Pollitz and
other health care experts have proposed is standardizing all of
the language. Now that to me doesn't sound like a very radical
idea and in fact like a very sensible idea. And I'd love to see
you do that, Karen.
So that all companies use all terms that are equal and mean
the same thing to anybody who ever receives them for any
reason. And that would be in their written materials and
whatever else. That would give consumers at least a fighting
chance at understanding what kind of deal they're going to get
for their health care dollars.
Mr. Potter, again, during your time and I apologize for
extending a little bit here. During your working experience in
the insurance industry, did anyone ever discuss standardizing
the language of these Explanation of Benefits statements?
Mr. Potter. Not that I'm aware of, Mr. Chairman. And I
think there's also an awareness that most people don't even
understand the simple terms that are in there. I read a story
recently based on a survey of the American population. More
than half of the people in this country don't even understand
what the word co-payment is or co-insurance is.
The Chairman. That's important to say. That's important to
say. I thank you, sir, very much.
And I now call upon all of you, but I call upon--when I
said earlier, my dear Governor. And now it's Senator Johanns.
Senator Johanns. Thank you very much. Just because you're
on this side, Mr. Potter, I'll start my questioning with you.
And I do want to thank you for being here. I appreciate that
immensely.
Mr. Potter, you've had an opportunity in your life, I
suspect, to buy a number of pieces of real estate.
Mr. Potter. I have.
Senator Johanns. You sit through the closing and you've got
your closing agent there. Sometimes you have your own lawyer
there.
It's complicated, isn't it?
Mr. Potter. Very complicated.
Senator Johanns. And you peel document after document. And
you're signing document after document. And did you ever stop
the closing and say, well, whoa, wait a second. I want to read
every one of these documents.
Mr. Potter. I did once, but not after that. It's
overwhelming.
Senator Johanns. It is overwhelming. Most of those
documents, if you noticed, are required by Federal law.
Mr. Potter. Yes.
Senator Johanns. In our effort to try to simplify this, I
think we've made it hopelessly complicated. Have you ever
bought an automobile and financed that automobile?
Mr. Potter. I have, sir, yes.
Senator Johanns. Same sort of situation, isn't it?
Mr. Potter. It is.
Senator Johanns. Now when you were sitting there with your
real estate transaction and your car transaction and spending
very substantial amounts of money--typically the house is the
biggest investment most people make in their life--did it occur
to you or did you think to yourself, you know, I bet that
closing agent is doing something fraudulent to me?
Mr. Potter. Senator, that really didn't occur to me as much
as I have faith that I'm going to be treated fairly.
Senator Johanns. Yes.
Mr. Potter. And that's my experience and how I felt. Maybe,
I think the best of people and think that. That that's been
what I've hoped for.
Senator Johanns. Normally, I have that assumption too. I
usually assume people are going to treat me fairly. Now zeroing
in on what you've talked about--I've been here long enough to
know--that on the spectrum of the downright fraudulent and
criminal and people stealing, and that I've seen.
I sat through a hearing involving Bernie Madoff where he
made off with $60 billion. Then I've seen the other end of the
spectrum where quite honestly we just didn't regulate very
well. I sat through a hearing on derivatives recently. Talk
about complicated.
Where are we at on the spectrum in terms of your testimony
and your claim about the insurance companies? Is it criminal or
are we just not regulating very well, or some point in between?
Mr. Potter. I--it's probably somewhere in between. I think
that regulation is not adequate. I think that insurance
companies realize, as Ms. Pollitz has mentioned, that
regulatory agencies are not adequately resourced and certainly
not at the Federal level, but not even at the state level.
Senator Johanns. The Chairman knows me well enough to know
that I was a Governor once in my life. And Governors have the
responsibility of balancing state budgets. In fact, I come from
a state where we had a little bit different twist to it.
We not only had to balance it, we also had to make sure we
never borrowed any money. The State of Nebraska doesn't owe
anybody any money. I think that's kind of unique these days.
But what I'm getting to here is there has been discussion,
and there's kind of a raging debate about a government plan or
public option or whatever terminology you want to put to it.
The label doesn't really matter to me; it's something else.
Let me ask you, you know if you look at Medicare. That's
not a balanced budget situation. Every thoughtful analysis of
Medicare tells us that pretty quickly here, 7, 8 years out,
it's insolvent. If it were a private company, it would be
broke. You wouldn't be buying that stock today.
You're familiar with that?
Mr. Potter. I am.
Senator Johanns. Now that's not very good either is it?
Mr. Potter. In health care reform I think a lot of things
need to be addressed. And I think that is one element.
Senator Johanns. We should pay for the health care we have
already, right?
Mr. Potter. We should. I think, Senator, as the Members of
Congress approach this, we need to look at this certainly as a
cost to taxpayers, but also as an investment in our country and
our people. Yes, it will be expensive. There's no doubt.
But what does it say about us when 50 million of us that
don't have insurance?
Senator Johanns. OK. Let's talk about this 50 million. My
understanding is that about 10 million aren't here as American
citizens. Is that something we should do in health care reform?
Mr. Potter. Senator, that's interesting. One of the things
I did when I was at CIGNA. I was helping to craft some
documents that tried to segment who was uninsured and what, you
know, the components of the uninsured.
I think that as lawmakers look at reform that probably and
possibly should be crafted so that people who are here
illegally should not be covered. If you were to travel to
England or Canada, I think possibly if you had an accident or
were taken ill, you more than likely would be cared for there
and you wouldn't be a legal citizen of those countries.
Senator Johanns. Well, the reality here in this country
too, as you know, if you end up at an emergency ward, they
treat you.
Mr. Potter. They do. Well, usually they do.
Senator Johanns. Yes. They're going to deal with the
emergency. We could go all through that number.
But I don't want to get us off track here. Because as you
know, there's also about 20 percent of that number that do
qualify for a plan, Medicaid or whatever. And they just, for
whatever reason, we haven't gotten them signed up.
Mr. Potter. That's right.
Senator Johanns. But anyway, let me get to what we're
trying to do here. You've got 50 states that regulate in this
area. You've got a Federal Government that regulates in this
area. Big debate about what's going on.
In a very succinct answer, if you were to really address
the issue of consumers buying the policy and not knowing what
they're getting, how best would you address that? So that when
that consumer walked out of that agent's office or wherever,
policy in hand and you said, Madam Consumer or Mister Consumer,
tell me what you have in there? You could assure me as a
legislator that they could answer that question thoughtfully
and carefully and intelligently.
How do I get there?
Mr. Potter. I think the work of this Committee is possibly
helping the country to get there. I think there should be
standardized language. I think that there should be clear and
understandable information provided to people about the
insurance policies that is available to them so that they
understand what the limits are or the limitations are and
what's covered and what's not.
I think that more information is vital. And that should be
something that's addressed as part of reform.
Senator Johanns. Thank you for your answer. Mr. Chairman,
you're always patient with me. I'm hoping there will be another
round of questions. I don't know if there will, but thank you.
The Chairman. I will be here as long as the good Senator is
here.
[Laughter.]
The Chairman. Senator Klobuchar?
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Thank you very much, Mr. Chairman. And
thank you for holding this important hearing. Thank you to our
distinguished panelists.
You know what's happening with the cost of health care.
Families are going under. They can't bear the cost anymore.
My own home State of Minnesota has some of the highest
quality, lowest cost care in the country. And part of that, I
believe, is because we have been focused for a long time on
transparency, and a number of other things, as well as a more
organized health care system and a team approach and some of
the work that Mayo Clinic is doing.
But in terms of transparency we have been doing a lot. And
there's a law in Minnesota that requires health plans and
providers to, upon request, to provide consumers with
information on the cost of a specific procedure. And to provide
information as to what their out-of-pocket cost will be based
on their contract.
Would this be a useful model, do you believe, Ms. Pollitz?
Maybe you want to go in terms of allowing people to understand
or do you think it's still going to be too complicated?
Ms. Pollitz. No, I think the more information that you can
require to be made available to people, the better. It is very
helpful to know. It's one thing to be told right before you
need to get the procedure if your doctor has already said you
need this. At that point the cost is a little bit less
important because your doctor has already said you need it.
So--and, but if you step back and try to anticipate what
your health care needs might be that's also difficult because
we don't really always know what will happen to us tomorrow or
next year. So our notion of a coverage facts label was to try
to anticipate some common scenarios where people would need
health care. And to provide information about all of the care
they would need, all of the charges that would be involved.
In part to educate them about how much protection they
really are buying or how much they're trying to protect
against. But also to let them see in advance, you know, when
they are calm and aren't, sort of, in a medical crisis, how
well a policy might cover and might pay for the services that
they might need down the road.
Senator Klobuchar. Ucare.com is a website in Minnesota that
allows consumers to compare prices and offerings of health
providers in the Twin cities. And it actually allows them to
book services kind of like Expedia or Travelocity.com. So they
can see how much it costs and then book services.
Do you think this is another model that could be helpful as
we go forward, as we're trying to figure out how to bring costs
down and get that transparency out there?
Ms. Pollitz. I don't know anything about that. It sounds
fascinating. I'm--it's really quite innovative.
Senator Klobuchar. The women are strong and the men are
good looking.
Ms. Pollitz. Good looking. I remember, yes.
[Laughter.]
Senator Klobuchar. And all the recounts are above average.
Ms. Pollitz. Yes.
[Laughter.]
Senator Klobuchar. OK. So now the--you, I know that Senator
Rockefeller has been doing some ground breaking work here with
this idea of a coverage facts label. And your research studied
conditions like breast cancer or heart attack and this
information. Do you think we could do this with other
conditions as well to try to show on the label how much this
would cost?
Ms. Pollitz. Oh, you absolutely could. We did a study that
preceded this one looking at maternity care. If I can figure it
out with my limited medical knowledge, I'm quite sure that
other conditions could be developed and spec'ed out that way.
Senator Klobuchar. You know, as we look at this issue of
transparency and trying to show how much things cost, and maybe
this is for you, Ms. Metcalf, Mr. Potter, the issue is also
quality.
And one of the things we're trying to do with health care
reform based on some of the work done in Minnesota is put a
quality index in there. So we're not just measuring costs that
we're also looking at quality. And how would that be integrated
with this label?
Ms. Metcalf. You're talking about quality of care?
Senator Klobuchar. That's right.
Ms. Metcalf. By health plans?
Senator Klobuchar. Well, that's right.
Ms. Metcalf. There is, of course, some of that today with
Hedis measures and the NCQA. There are a number of agencies
that already make quality information available to health
plans. But to me that's health insurance 300. And we're still
on health insurance 100 which is if you can't buy proper health
insurance it could be--the health system around you could be
the highest possible quality. But you can't access it because
you can't afford to pay for it.
But I do think it would be wonderful. And coming from a
magazine that is in business to give little blobs, as we call
them, to rate things, I think it would be great to be able to
rate health insurance plans on all dimensions including quality
and service and----
Senator Klobuchar. And one of the things that I was
surprised by was, I think in your testimony, where you talked
about how sometimes people don't even find out what's excluded.
I have here a list of exclusions. They don't even find out
what's excluded from their policies, from their insurance
policies until they actually buy it. How can that happen?
Ms. Metcalf. Because in most states you can't see your
insurance policy until you've bought it.
Senator Klobuchar. You mean the states don't even allow
you? There's no----
Ms. Metcalf. No, what you see before you buy is a
promotional material of some kind. And some states are stricter
about that than others. But you'll see a list or a description
of some kind talking about the health plan that's often
extremely unclear.
An example that comes up a lot is you'll see a plan that
says, we have a $1,500 deductible. But it won't say what goes
into that deductible or not. We have a $5,000 out-of-pocket
limit. You can't tell from the promotional material what goes
into that out-of-pocket limit or not.
They'll often have a thick line. And then below that
they'll have the drug benefit. And they won't explain that the
drug benefit is a completely separate thing that has no limit
on out-of-pocket payments.
There are all kinds of things that you don't know when
you're shopping for a health insurance plan that you only find
out after you get a document that's half-an-inch thick and is
densely written.
Senator Klobuchar. And also, I think you notice sometimes
they have exclusions but they don't include all the exclusions.
Ms. Metcalf. They don't include all the exclusions. They'll
often not say this policy doesn't cover drugs, even though it
doesn't. They'll tell you it doesn't cover a nose job.
But I don't think that most people expect a health
insurance policy to cover a nose job. That's not a helpful
exclusion to tell people about.
Senator Klobuchar. Very good. On the nose job, I will end.
[Laughter.]
Senator Klobuchar. But thank you very much. This has been
incredibly helpful. And I think it shows the reasons to have
some kind of a label or some way for people to better
understand what these policies are about. Thank you.
The Chairman. Senator Udall?
STATEMENT OF HON. TOM UDALL,
U.S. SENATOR FROM NEW MEXICO
Senator Udall. Thank you very much, Chairman Rockefeller.
Good to be here with you. From the just short exchange I heard
since I arrived here, it's clear that greater transparency in
health insurance policies is needed for consumers to better
understand what's available and to compare policies.
And in your report you recommend developing standardized
health care comparison tools for health insurance similar to
the USDA nutrition labels, Ms. Pollitz. And that could help
consumers understand what and how much is covered across
different health insurance policies. What would you suggest
specifically be included in such a tool or chart?
Ms. Pollitz. I think actually there should be a series of
charts. What we found in studying health insurance policies is
that within a single policy there are different levels of
coverage. Inpatient care may be covered at one level,
outpatient services at another, mental health care at yet
another, prescription at yet another, rehab services at yet
another.
So I think coverage facts labels should demonstrate the
care that people might need under different scenarios that in
some cases rely heavily on inpatient care.
The heart attack scenario that we developed, 75 percent of
the medical costs incurred there were in the hospital.
But in our breast cancer patient over 90 percent of her
costs were incurred outside of the hospital in outpatient
settings.
And then we did a third scenario with diabetes where
overwhelmingly the costs were spent at CVS on pharmaceutical
supplies and insulin and other drugs to manage the diabetes.
So I think you would want a series of labels that would
demonstrate for people and test out all of the different types
of coverage that they might need from their policy. And then
let them see how the policy would work. And if they were
standardized scenarios you could then compare two different
policies and see them compared on the same situation so that
you would get a fairer idea of what the differences might be.
Senator Udall. But even with that kind of comparison it's
still a very difficult choice in many situations, isn't it
because you're looking down? If you don't have an immediate
situation as you describe, you don't have cancer, breast cancer
or diabetes or whatever it is, then you don't know really what
to choose to protect yourself in the future?
Ms. Pollitz. Exactly.
Senator Udall. And with all these exclusions and the way
the policies are put together. They are in many cases trying to
make sure that they don't have to get into those situations, is
what I assume is happening here.
Ms. Pollitz. Right. But in the labels that we developed,
the exclusions became apparent. Because the scenario was laid
out if you had breast cancer you'd need this surgery and these
many chemos and these many drugs and a wig.
And then you could look across and see how much would the
policy cover of each of those things. And any time there's a
zero, chances are that was an exclusion.
Senator Udall. Do you, Ms. Metcalf or Mr. Potter, have any
comment on that?
Ms. Metcalf. Well, I was interested in what you said,
Senator, about people not knowing--not being able to choose
based on their anticipation of a health condition. And it's the
reason that we think at Consumer's Union that policies should
cover all medical treatment that people need because you can't
foresee. It's a mistake that we have found a lot of people make
when they buy insurance.
I'll give you a classic example as many companies market
special policies to young adults. They are very inexpensive.
And one of the reasons--well, they're inexpensive for one thing
because young adults are cheap to insure cause they are pretty
healthy.
Another one is that they often don't cover prescription
drugs. And the young person who doesn't take a prescription
drug says, I don't need drug coverage. I don't take any pills.
So they don't have that coverage. They don't realize what
can happen. And what can happen is next year they can get
multiple sclerosis. And suddenly they need a drug that costs
$10,000 a month. And they're shocked when their insurance
company won't cover it.
So it's partly a matter, I think, of--I think that one of
the good points of one of these coverage facts plan is that it
brings home to people the different possibilities of financial
disaster if you don't buy a comprehensive plan.
Senator Udall. And isn't the issue you just brought up of
where you have MS for example. And it's diagnosed. And they
won't cover it.
Doesn't that also bring up the precondition issue of that?
For them, they then have an outstanding condition. And then if
they try to go get insurance for it. Many times it's rejected
or they just say we're not going to allow you to do that.
Ms. Metcalf. Exactly. If they're in the individual market
and they develop a condition and discover that their insurance
isn't adequate to pay for it, they're really stuck because they
can't change to another policy at that point.
Senator Udall. Yes, yes.
Mr. Potter. Senator, I agree with Ms. Metcalf. I think it's
especially important as insurers start pushing more of these
high deductible plans. And there's a term in the industry that
executives and financial analysts use. It's called benefit
bygones. And we're seeing more and more of that.
And what that means is that increasingly as policies come
up for renewal employers will look, well how can I either shift
more cost to my employees or what benefits can I cut to be able
to continue to offer coverage at all? So you're seeing that all
the time. And all the time you hear it, you're on an analyst
call. You'll hear about benefit bygones. And as what is
happening in the marketplace.
The other point about the pre-existing conditions is let's
just step back a minute. Where is the logic and the humanity of
having pre-existing conditions not covered in our society? I
mean, my children have asthma. They didn't--it wasn't anything
that they had any control over.
But their policies won't cover any pulmonary problems they
might have had. Where is the logic in that?
Senator Udall. Yes. I couldn't agree more. Thank you,
Chairman Rockefeller, for your courtesies. I went a little over
here I think on the time.
The Chairman. You are welcome to do that because you always
have sensible things to say.
You know, I'm still--I want to go back to this business of
how confusing all of this is to the consumer. Because I think
it's--you know what we're really talking about here is we've
got just so many people to--people say we've got 45 uninsured
Americans. Well, we have 25 million--45 million uninsured
Americans.
We have 25 underinsured Americans. And we have people who
have insurance for 6 months and then they lose it so they lose
it for much longer. And then you have people who are too rural
or too poor in some ways. So that people come and collect them
and whisk them off to getting insurance coverage.
But what comes through to me in this whole argument so
strongly is that you have so many vulnerable, now here we're
talking about out of network. And people say, oh, well that
must be a couple thousand people. Yes, it's a hundred million
people. It's a hundred million people.
And they're vulnerable. And therefore they deserve to be
treated with respect and with care and with a system that
works. But what you're looking at is a whole lot of for-profit
insurance companies that are not only not giving them coverage
through duplicitous methods which have now been, you know, done
in in New York State and soon will be.
Ingenix, which I mentioned, is going to cease to exist in
about 5 or 6 months. Somebody will take its place, I'm sure.
But we'll find them too.
They're making so much money. They're making so much money.
But they're spending so much of their time having so much
money, trying to find ways to get rid of people through purging
and other things which we can talk about, through getting
people who are risks who they think are too poor or not likely
to pay them, to get them off their lists all together. So they
don't have to fool with them.
I mean, this is not like two equally powerful groups facing
each other. This is this mammothly powerful group and this very
small, fragile group in need, in pain, sick. And it's an
unequal fight.
And the insurance company enjoys that because they know
they can take advantage of it. And they know they can win every
single time. And that is entirely wrong.
And that's what a lot of this whole health care debate is
about which is why I have an argument with some of my friends,
who are my dear friends, who say that a public option which
would simply put, you know, Medicare dollars in competition
with very, very wealthy insurance companies is unfair, somehow.
It's un-American. It's against the free enterprise system.
It is the free enterprise system. It is the free enterprise
system. It just happens that sometimes you have to trigger the
free enterprise system to see how good they really are.
Now I've already used more than half my time. You know,
people I've got a little pamphlet here which we'll pass out. I
keep saying that. I don't know if we do. Called, ``How Aetna
pays claims for out-of-network benefits.''
[The information referred to follows:]
It's not very glossy. I think that's deliberate. It's the
kind of thing that you sort of don't want to read because it
looks kind of boring.
And so you probably don't read it. And maybe that's the
purpose of it. But they don't disclose what they're doing.
They do it in language that consumers cannot possibly
understand. And let me give you some of their language because
I care about this language. It says in there at one place,
``you,'' that is the consumer. ``You pay the co-insurance
percentage of the prevailing allowance (usual and customary at
the 75th percentile) for covered services. You will be
responsible for the difference between the plan payment and the
amount billed by the dentist.''
Well, how many consumers know what a co-insurance
percentage is? How many know what a prevailing allowance is?
How many of them, I mean, how many of them know what usual and
customary is?
I mean we know that in the health care industry. But they
don't. How are they going to look it up? In a dictionary? It's
three words.
I mean, they're going to know the word. But everything else
is just a fog to them. And that's wrong.
And they've been doing this for years and years and years.
And they've been getting away with it. Then they get hit with
some lawsuits.
So maybe they're going to back off from it a little bit.
Maybe they're not because they're very clever and they've got
lots of people, lots of floors, lots of tall buildings to
figure out how to get around these things. And big corporations
can usually do that.
So anyway, Aetna sent out that little group of words. And
Mr. Potter, can you explain please, to me why you have to sue,
not you personally, but the American has to sue or has to
subpoena or investigate the insurance industry before they'll
tell consumers how their policies work in plain, comprehensible
English?
We've been talking about this a bit. But I want to drive it
home. Why can't we do that? Why aren't we forcing our
industries to do that?
Mr. Potter. I do not know why we're not forcing the
industries to do that. We should. Again it's not a priority in
the industry to do that.
It's not in their best interest to make it clearer. I was
part of the Legal and Public Affairs department at CIGNA. My
boss was one of the top lawyers.
I mention that just because these kinds of materials are
reviewed. They're a combination of medical, legal, marketing
jargon usually. And buzz words and terms that the industry uses
that have little meaning to the rest of the American public.
I would have a hard time understanding a lot of what's
being written here. Much of it is written to satisfy a lawyer's
expectation that it be explicit from the lawyer's point of
view, but not from a, you know, regular person's point of view.
The Chairman. Let me just end this part by saying that it's
sad to me because Americans are trusting people. And I'm always
very happy about that. That's why I'm glad that I married a
young lady from Chicago.
I mean, the Midwest is trusting. The Northeast and the
Southwest is a little less trusting. I don't know. But they're
good people.
And when you say Aetna or CIGNA or you know, one of these
big insurance companies people tend to trust them just because
they're a large institution with large amounts of money with a
clearly public interest purpose. That is to pay health
insurance for people who are sick. And they have the money to
do it and people know that. So people tend to trust them.
And then they turn around and spend their money on figuring
out how to get rid of people. So they can make more money. And
don't have to--I mean, why would they care so much about that
more money?
Why would they be proud about dropping eight million people
because they, you know, they were too big a health risk or
probably weren't going to be able to pay. What is insurance
for? What is public policy for? What is America for? What do we
stand for when it comes to the care of our people?
We had a Metro accident obviously and it's tragic in
Washington. And the first thing to hit you when you read the
news and heard the news was how people were just clawing
through hot steel and cutting themselves to try and rescue
their neighbors, to get comfort to their neighbors, or give
last rites to their neighbors in this wreckage. I mean, we are
people that try to protect each other and do the right thing by
each other.
And yet here we have insurance companies, as a matter of
practice, we don't question them partly because we do trust
them. And now we're paying this terrible consequence. A lot of
people are just, you know, breast cancer, whatever, just left
out in the cold.
And it makes me very, very angry. And I now turn to my more
reasonable and sensible Governor, former Governor of the State
of Nebraska.
Senator Johanns. Well, thank you. I've lived my whole life
in the Midwest. I grew up in northern Iowa and spent my adult
life in Nebraska.
I would just offer this. We also have, I think, a healthy
suspicion about those who claim that government will solve all
problems. And I look at the Medicare financial situation and
it's easy to reach that conclusion. I, as Governor, dealt with
state budgets. And did everything I could to sign up every
single child to our Kids Connection program.
I believed in it. I knew my costs were going to go up in
the state budget. And I would have to defend that with
conservative friends. But I really believed in it.
And you know what? We could only get to 90 percent. You
know why? Because there were 10 percent that did not want their
kids in the program and that was their right.
When you started your discussion today I got the impression
that each witness was----
The Chairman. Would the Senator yield?
Senator Johanns. Yes.
The Chairman. Then I take this out of my next round.
Senator Johanns. I will be happy to yield.
The Chairman. Well, I'm going to be here as long as you're
going to be here.
[Laughter.]
The Chairman. But West Virginia is in fact more of a
Midwestern state than it is an Eastern state or a Northern
state or it's more of a Southern state than. But Midwestern
basically in its values and that's what counts. You talked
about the 10 percent that don't take advantage of that.
I started out as a VISTA volunteer in West Virginia in a
little town with the closest hospital or rural health clinic
was so far away that if you had a car and if your car could
possibly make it. And if you could afford the gasoline because
you didn't have a job, you didn't have an education. You didn't
know where the hospital had been.
Some of the people from the community that I worked in for
2 years had never crossed a street with a red light or had been
up a building in an elevator. Because that's rural life and you
know that from Nebraska. So sometimes, it's like sometimes
people would hold their children back from going to school. It
was made easier by the fact that the county refused to send us
a school bus to pick up our children because they thought we
were irrelevant and too far away and not important.
But I mean, sometimes it's not so the government or people
being irresponsible. Personal responsibility is a very, very
valid concept. I strongly believe in it. But I think that one
has to define it fairly.
And I apologize for interrupting you.
Senator Johanns. Well, you never have to apologize, Mr.
Chairman.
Let me, if I might, focus in. I think we kind of got off to
a start here. And Mr. Potter, you were obviously, continuing to
be quite critical of your former employer.
But I get the impression what you're really asking me to
do, as a member of this Committee and somebody who will try to
figure out the legislation, you're really trying to get me to
focus in on how can we better explain what people are getting.
Right?
Mr. Potter. Yes, sir.
Senator Johanns. OK. And then you mention the pre-existing
conditions and I don't disagree with you there. I think you
make a compelling point. But I don't hear a lot of disagreement
here either as we talk about health care issues.
I'm going to leave you alone now. Thank you for being here.
Ms. Metcalf, if I might ask a question of you. Again, as I
hear your testimony and whether you favor a public plan
government option, whatever it's called, I think, too, what
you're trying to get me to focus on is look, Mike, if you just
sat down and read this stuff you won't understand it.
And if you're not understanding it and you're a member of
the U.S. Senate, how can you possibly expect a young family to
ever figure this stuff out until the insurance company reads it
or doesn't read it, sends them a letter, and says, you're not
covered. The young family then finally reads it and goes, oh my
lord. They've made the point.
What we need, I think, is some really good concrete ideas
on how to make that better. Because what it comes down to is
this. It's like the questioning with Mr. Potter. You've owned
real estate. We've passed tons of laws to make real estate
transactions more understandable and it's just page after page
of federal-ese.
And it just goes on and on. And if there's one thing we've
found about this financial crisis, many people had no idea what
they were signing when they signed their mortgage. Now all of a
sudden they've got their letter that their mortgage was going
to reset.
And they asked themselves, reset? What does that mean? And
they realized they were out of luck. So we need some advice on
how best to do that.
Same way with you, Ms. Pollitz, is that how you pronounce
it?
Ms. Pollitz. Pollitz.
Senator Johanns. Pollitz. I think you've made some
excellent points here. But I would hate to get at the end of
this and find out that we've only made it more complicated, not
less complicated.
Ms. Pollitz. Senator, there's no question that health
insurance is an inherently complicated thing and medical care
is an inherently complicated thing. And I think there have been
many efforts to try to, you know, drive all of this down to a
fifth grade reading level. And that's just always going to be a
very difficult thing to do and a very imperfect outcome.
Having said that, we switched from steadying the policies
that were for sale in the private market in other states and
for the last few months we've been reading polices that are for
sale to you, through the Federal Employees Health Benefits
program. And there are requirements. And all of the companies
meet them.
And I have to say reading through your health plan is such
a relief to me after having read through some of these other
ones. So, I mean, there are rules about that things have to be
explained. They have to be explained in a way that the average
participant could begin to understand.
There have to be examples to illustrate, you know, this is
what's covered. This is what's not. This is what we mean by
that. Here's an example.
The terms have to be standardized. There's a common order
to the brochures. So you always sort of, begin with what's
covered and then how it's covered and then in certain orders.
And it does make it easier. It's still hard. But it's a
whole lot easier than some of the other policies that I looked
at. So I think you can make progress on this without
necessarily tackling the whole thing in one try.
Senator Johanns. Just off the cuff, not seeing a piece of
legislation in front of me, to me, that's a no-brainer. If
that's what this is about today that you're saying to us, Mike,
if you could just make this as readable as what you got when
you signed up for your Blue Cross policy here with the Federal
Government, as did every other Federal employee. Man, I'm
there.
If that's what we're getting to here today then this
hearing has been well worth the effort and well worth your
time, I hope, because that makes sense to me. Absolutely. Thank
you.
Mr. Pollitz. Great.
Senator Johanns. All of you, I appreciate it.
The Chairman. Can I just close this hearing unless any of
you have statements that you would like to make at the end? By
hardly agreeing with what you've said, Senator Johanns. It is,
listening to the conversation, you go for this most complicated
list of things, but horrifically written and all different. And
then we said, we'll just make it right across the board so that
everybody understands it.
And all of a sudden you say, now wait a second. That's not
going to work. That's not possible.
And the answer is that it probably is possible, but that's
it's going to be very hard to do. And that the companies that
are involved are going to have to communicate with their people
saying they are in the process of doing this.
And they're going to do it. And maybe you can't get it,
maybe you can get it done in 2 weeks, maybe in 2 months, maybe
in 2 years. I don't know.
But it does have to happen. People have to know what
they're buying. And what they're going to get. And what they're
not going to get. And that is axiomatic. That is not something
that one can argue against.
So I would agree with you, Senator. That's--it's a no-
brainer. If this hearing accomplishes nothing else and I hope
it did accomplish something else. And we were able to do that.
It is worth it. It is worth it. And I think all of you
would be right on the front lines with your number two pencils
ready to go.
Do any of you have any closing comments?
Mr. Potter. Senator, I would just like to make one comment.
I--and need to address your point. I hope that I'm not coming
across as someone who is just critical of my former employer.
I had a good career at CIGNA and was well compensated. And
I was there for 15 years and lasted 15 years. My comments are
directed toward an industry that is really going in the wrong
direction and taking this country in the wrong direction.
The Chairman. I don't know why you should be worried about
that. I mean, it is nice of you to say. But if we were doing
Normandy Beach and we had all of our ships headed away from the
beach, I would assume somebody would say this is not good. We
ought to change this. And that's really what we've said here.
And I really honor you. I mean, I really respect you.
Mr. Potter. Thank you, sir.
The Chairman. I was going to say that you're better than
Russell Crowe on The Insider. But actually, I mean, they had
to--he really would, you just sort of came out and did it
because you cared about the insurance industry because you
worked with it for a long time. And you want to see it work.
Mr. Potter. Yes, sir.
The Chairman. And I honor you for that. And I thank you all
for your presence. And this hearing is adjourned.
[Whereupon, at 3:53 p.m. the hearing was adjourned.]
A P P E N D I X
Response to Written Questions Submitted by Hon. Tom Udall to
Karen Pollitz
Question 1. The minimum creditable coverage standards in
Massachusetts for 2009 include inpatient and outpatient hospital and
physician care, emergency services, mental health and substance abuse
treatment, and prescription drug coverage. In addition, there are
maximums for annual deductibles and out-of-pocket spending for an
individual. How would you say that this compares with most health
insurance policies available for individuals and groups today?
Answer. The policies in Massachusetts are far more comprehensive
than coverage offered in the individual market in most other states.
All policies in Massachusetts must provide ``minimum creditable
coverage,'' which includes key services such as prescription drugs,
maternity care, mental health care, and rehab--services often excluded
or limited in other state individual health insurance policies.
In Massachusetts, all health insurance is subject to greater
consumer protections than apply in most other state individual health
insurance markets. No individuals in Massachusetts can be turned down
or charged more based on health status. Pre-existing conditions are not
excluded.
Compared to employer-sponsored group policies--the Silver and Gold
level plans offered through the Commonwealth Connector generally
provide cost sharing levels that are comparable to typical employer
sponsored group plans.
Question 2. Do you know what the Massachusetts experience has been
in medical bankruptcy compared with other states where health insurance
coverage is not as expansive? Is there less?
Answer. I am not aware of any data that would answer this question.