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New York Fills Insurance Gap

January 1996

Beginning January 1, 1996, New Yorkers who purchase health coverage as individuals will have important new opportunities thanks to a law popularly known as the "Point of Service Law," signed by Governor Pataki last August. For thousands of New Yorkers whose insurance options were severely curtailed last year when Empire Blue Cross stopped selling its individual "TraditionPlus" policies, comprehensive coverage is once again available.

What the Law Requires

The law requires every health maintenance organization ("HMO") in the state to offer two standardized benefit plans to every individual or family, regardless of their health. The plans are generous compared to the individual coverage now generally on the market. Among the more important benefits are inpatient hospital and outpatient major medical coverage, primary and preventive care (like check-ups and immunizations), emergency care, diagnostic tests, physical therapy, prescription drugs from participating pharmacies, blood and blood products, durable medical equipment and prosthetics, and some limited inpatient and outpatient mental health coverage, private duty nursing and hospice care. The benefit package was designed to duplicate to a significant degree the benefits that had previously been available under the Empire TraditionPlus Comprehensive policy, but also to include the preventive and primary care features usually association with managed care. After January 1, 1997, commercial insurers who offer individual contracts will also have to match this benefit package.

Under the first of the two packages, there will be copayments for doctor visits, prescription drugs and emergency room visits which do not result in hospital admission, and for surgeries and hospitalizations. There is a prescription drug deductible ($100 per individual, $300 per family per year), but that will not apply to maintenance drugs received through a mail order program. Out-of-pocket expenditures are limited to $1,500.00 per individual and $3,000.00 per family per year.

Under the second benefit package, consumers will be able to buy additional coverage for care they receive out of the HMO network (other than prescription drugs, which must be from participating pharmacies). For out-of-network services there is an annual deductible of $1,000.00 for individuals and $2,000.00 for families. Once you have reached your applicable deductible, the insurer or HMO will then pay 80% of the usual, customary and reasonable charge for out-of-network services until you reach your annual out of pocket maximum: $3,000.00 for individuals and $5,000.00 for families. Thereafter, the insurer will reimburse 100% of the usual, customary and reasonable charges. The maximum the insurer can be required to pay in your lifetime for out-of-network services is $500,000.00. Even if you reach these lifetime maximums, the whole set of in-network benefits of the basic package will still be available to you without limit.

The out-of-network option, included in the law at the urging of advocates for the chronically ill and disabled, is why the law is popularly known as the "point of service" law. Point of service insurance allows you to choose at any point during your treatment to stay in the HMO network or go out. It has been the fastest growing type of coverage in the HMO marketplace. This law makes available to individuals insurance options that have up until now been marketed almost exclusively to groups.

Why Was This Legislation Necessary?

The Point of Service Law remedies a problem left unsolved by New York's "Community Rating Law" of 1992. That landmark law attempted to reform the small group insurance and individual insurance markets. In 1992 commercial insurers would insure only the healthiest small groups and individuals; many sicker people and the groups for which they worked were refused coverage. Less healthy subscribers often ended up at Empire Blue Cross and Blue Shield, which practiced "open enrollment" with no health questions asked. Blue Cross suffered severe financial losses as a result.

The legislature determined that anyone who wanted to be in the small group insurance market or individual market in New York would have to practice open enrollment just like Blue Cross did. All subscribers would be charged the same per capita premium for the same coverage, ending discrimination based on age, sex, health status and other factors. Elaborate cross-subsidies were set up so that insurers who had older and sicker subscribers would get assistance from those with younger and healthier populations. And insurers were restricted in applying pre-existing condition limitations and required to offer more generous continuation rights when people left small groups.

These reforms succeeded in the small group market, where groups with between 3 and 50 employees found many options for coverage. But in the individual market, the reforms were significantly less effective.

Individual purchasers of insurance are, on average, less healthy than the typical insurance consumer. In part this is because employee groups contain people who are actively at work, while individual purchasers may include many who are totally or partially disabled, or who have been unable to find employment after losing jobs. Even among the self-employed, it is probably the less healthy portion of the market that buys insurance. Without an employer subsidizing coverage, many people do not feel they can afford insurance. Those who most need the benefits are the ones most likely to make the sacrifice to purchase.

Unhealthy demographics made insurers wary of the individual market. When the Community Rating Law interfered with their ability to discriminate, most simply stopped selling individual coverage. The few commercial insurers who remained imposed unreasonably high deductibles. HMOs, which were required to enroll individuals, offered policies without prescription drug coverage and, in most cases, without rights to go out of the network, thus discouraging all but the healthiest individual purchasers. As a result, the only insurer continuing to sell affordable, comprehensive individual coverage with the right to see your own doctor was Empire Blue Cross.

Empire became a magnet for sick people. By the end of 1994, Empire's 80,000 individual policyholders had a rate of incidence of heart disease and cancer three times as high as in Empire's groups. For AIDS, there was ten times the incidence. The company was losing $10 million per month in the individual market and asking for huge rate increases. When Empire was denied the rate increases it wanted, it ceased selling its comprehensive product to new purchasers.

Chronically ill consumers, who need affordable insurance with prescription coverage and the right to see their own specialists, pressed for reform. Their cause was championed by Alexander B. (Pete) Grannis, the head of the Insurance Committee in the State Assembly, who worked tirelessly for a solution. He and his staff took to heart the concerns of these consumers, as conveyed to them by New Yorkers for Accessible Health Coverage ("NYFAHC"), a coalition of voluntary health organizations. In early 1995, our new Superintendent of Insurance Muhl and Governor Pataki endorsed the idea of a Point of Service Law, Senate Health Committee Chair Kemp Hannon took up the cause, and the bill passed in the final days of the legislative session.

It is expected that by giving individuals the opportunity to get a generous standardized plan from numerous providers, less healthy subscribers will spread around the entire market, relieving the pressure on Empire Blue Cross. What will the insurance cost?

Initial prices for the new coverage have just recently been published. Individual coverage in New York County ranges from $196.00 to $280.00 per month, depending upon the HMO. The price with the Point-of-Service option ranges from $225.00 to $325.00. A list of available HMO's with current rates for each county can be obtained from the State Insurance Department at (800) 342-3736.

Future premiums will rise to cover the cost of claims, but there are some provisions to moderate increases. Insurers will have to pay out at least 80% of premiums received in the form of benefits, limiting overhead expenditures and profits. Insurers who wish to increase premiums by more than 10% in any year will have to justify the increases at public hearings. Finally, the state will try to make its already existing subsidy system more workable by changing the way insurers share the costs of catastrophic claims for specified medical conditions. The subsidy monies will be applied to reduce the premiums of the group of policyholders who have the catastrophic illnesses.

Unfortunately, the law does not make insurance more affordable than it was; it simply makes it more available.

Should I Buy This Coverage?

Each person must evaluate his or her insurance coverage to determine whether it is adequate. If you have no insurance and can afford the premiums, you should buy this coverage. Indeed, it makes sense to act quickly. Virtually all policies have one-year pre-existing condition limitations. You can get credit for time spent on previous plans, shortening the limitation period, as long as the policies have substantially similar benefits and you don't have more than a 60 day break between your old coverage and new coverage. Already existing HMO coverage will be considered fully equivalent to the new point of service plan as long as you switch by February 1, 1996.

If you have current individual coverage with an HMO, you will be offered the option to continue your current policy or buy the new one. Consider the choice carefully. In most cases the new point of service coverage will be superior because it will offer you prescription drugs and the flexibility to select the health care provider who is best for you

Mark Scherzer is an attorney concentrating in plaintiff's insurance policy and employee benefits litigation and counseling. He has been appointed to the technical advisory committee which will assist New York's Superintendent of Insurance in implementing this law. Mr. Scherzer is the author of numerous articles and publications on insurance issues for people with serious or chronic illnesses.

This article was provided by Mark Scherzer, Esq..
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