Consumer Watchdog has identified at least 10 problem areas “in the new federal law that, if not addressed, will be exploited by health insurers and drug companies looking to charge more for less health care.”

From what I can tell, the list is pretty good, and makes me wonder why the organization wasn’t calling on Congress to fix the bill before it became law. Many of these issues have been covered on this blog and so I’m highlighting the main points and adding some commentary below, but the full letter is certainly worth reading.

– Lack of Insurer Rate Regulation. The federal law fails to adequately limit what insurers can charge American families and business owners for coverage, even though tens of millions of Americans are required to purchase private health insurance policies. Without the strongest possible review and prior approval of health insurance rates insurers will be able to raise rates nearly without limit and use rate-setting as a vehicle for continuing to cherry-pick the healthiest customers.
 

Unfortunately, there is little stopping insurers from increasing premiums before 2014. Lawmakers were unable to include Sen. Dianne Feinstein’s (D-CA) national rate review board in the reconciliation package — even though it had some loopholes in it that would have allowed insurers to transfer premium hikes into higher deductibles and co pays — and it’s unclear that Congress has the will to pass it as a separate bill. Without a national board, the rate review authority falls to the states.

– Weakening of benefits. Pre-emption of stronger state benefit requirements by so-called Nationwide and Multi-state plans will threaten the survivability of the state Exchanges and eliminate key health and consumer protections in many states. This is a “race to the bottom” provision that may allow insurers to sell highly profitable bare-bones policies under the guise of cutting costs. Consumers who fall seriously ill would suffer the consequences.

To be clear, the bill permits insurers to sell national plans or semi national plans in three ways. 1) States can form health care choice compacts and allow insurers to sell policies in any state participating in the compact. Insurers selling policies through a compact would only be subject to the laws and regulations of the state where the policy is written or issued (the states participating in the compact designate a primary state for the benefit mandate standards and rate regulations). Compacts may only be approved if it is determined that the compact will provide coverage that is at least as comprehensive and affordable as coverage provided through the state Exchanges. 2) Insurers can also sell nationwide plans that only comply with the benefit requirements of the state from which the coverage is sold. 3) Insurers can sell multi-state plans that comply with the new federal rules but ignore state based consumer protections.

Either way, the concern is the same. The federal rules provide a floor of regulations, but insurers will have every incentive to sell coverage from the states with the worst consumer protections and pressure compacts to declare the state with the lowest standards as the primary state. This will allow insurers to lure younger and cheaper individuals into national policies, driving up health care costs for everyone else (particularly the exchanges).

– Continued rescission. The federal law allows insurers to define the terms of future coverage rescissions when customers fall seriously ill in the fine print of their policies. The law limits rescission of health policies to instances of fraud or “intentional misrepresentation,” however no new regulatory oversight of rescission is provided to ensure that omissions or errors are indeed fraudulent or intentional, rather than innocent mistakes.

I fear this will become a problem. After all, insurers are already required to renew policies in the individual health insurance market under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), but often “do not follow federal standards and instead follow state laws that offer weaker consumer protections.” It’s unclear which agency will implement the federal standards.

Existing law already stipulates that in “most cases, that employers or individuals who purchase health insurance can renew the coverage regardless of any health conditions of individuals covered under the insurance policy.” The exceptions to guaranteed renewability are: non-payment of premiums; “fraud or other intentional misrepresentation”; if the insurer is leaving the market; if an individual or employer moves out of geographic area of the plan; or, in the case of an association policy, if an individual has left the association contracting with the plan.

– Definition of medical expenses.  Consumer Watchdog has called on the Obama Administration and the Department of Health and Human Services (“HHS”) to probe insurance giant WellPoint Inc. in light of a message to its investors describing how WellPoint would simply re-label administrative costs as “medical care” in response to the new health reform law. HHS must narrowly define what constitutes medical care to block gaming of the new medical loss ratio requirement by health insurers.

These definitions will certainly become critical and HHS is currently asking the National Association of Insurance Commissioners (NAIC) and the public comment for input on how to define these terms.