New Guide Promotes Affordable Health Insurance

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Health Insurance

Editor's note: A guide designed to help state legislators understand why health insurance premiums have been rising was released in January by the Council for Affordable Health Insurance (CAHI). The 2006 State Legislators' Guide to Health Insurance Solutions provides solutions that encourage greater access to affordable health coverage.

"State legislators often think they are powerless to control rising health insurance costs," said guide author and CAHI State Affairs Director J.P. Weiske. "But the fact is they are often responsible for the increases. State laws, including state mandates and regulations such as guaranteed issue, are an important factor leading to high health insurance costs. By covering most of the major health insurance issues, explaining them, and including a glossary, this guide will help state legislators understand the consequences of their legislative actions and provide them with constructive options for reducing health care costs."

In the State Legislators' Guide, each critical health insurance issue is summarized, actions already taken by states are highlighted, and possible solutions are offered. The Guide is designed to offer lawmakers a starting point for deliberations and legislative proposals.

The following excerpts give the authors' perspectives on Medicaid Health Savings Accounts and medical malpractice reform.

Medicaid Health Savings Accounts

HSAs combine a high-deductible health insurance policy with a savings account. The high-deductible policy protects the insured from the cost of a catastrophic illness, prolonged hospitalization, or a particularly unhealthy year. The savings account is controlled by the insured and is intended to pay small and routine health care expenses.

Medicaid is the federal-state program that provides health insurance, long-term care, and other health care services to about 52 million poor, disabled, and senior Americans. For the first time since Congress passed it in 1965, Medicaid has become more costly than Medicare and is the largest budget item in nearly half the states.

Can HSAs help the Medicaid program? For at least some of the Medicaid population, the answer is yes, but the savings will likely be relatively small given the size and scope of the Medicaid program. The problem with the Medicaid program as it is currently structured is that people have little incentive to be prudent shoppers of medical services. A Medicaid HSA plan could change those incentives and save the program money over the long term.

Iowa and Florida have already incorporated HSAs into their Medicaid programs, and South Carolina is trying [as of January 2006].

Solutions: States should consider adding an HSA to their Medicaid program. The state could continue to be the insurer, but increase the deductible, depositing part or all of the savings in the Medicaid beneficiary's HSA. Or, the state could simply provide a defined contribution to a private-sector insurer or third-party administrator selling HSA plans.

Would this approach be a radical departure from traditional Medicaid programs? Yes, but Medicaid needs radical change in order to sustain the program. Some considerations when designing an HSA Medicaid plan:

  • What should happen to the HSA balances once a Medicaid beneficiary leaves the program?

  • Can states use methods such as electronic benefit transfer (EBT) cards to protect against misuse of the account as they do with their food stamp programs?

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  • Should a Medicaid HSA program be implemented as a limited demonstration project to test and evaluate it (as Florida has done)?

  • Since HSA plans already include a financial incentive to use the funds wisely, would frequently used state cost-control restrictions, such as prescription drug lists and formularies that limit patient choice, also be imposed on the Medicaid HSA population?

Medical Malpractice Reform

[Medical malpractice reform] involves efforts to limit the size of punitive damage awards or to require arbitration, which would reduce the cost and increase the availability of malpractice and health insurance.

The United States has become the most litigious society in history. The Towers Perrin Tillinghast annual report pegs U.S. tort system cost at about $246 billion in 2003, a 5.4 percent increase over 2002, which experienced a 13.4 percent increase over 2001.

Some efforts at reforming the tort system have been successful. Building on these reforms could produce billions of dollars in savings throughout the health care system.

Even more importantly, a 2004 report by the Pew Charitable Trusts Project on Medical Liability indicates there is a link between liability concerns and the quality of care delivered by physicians and hospitals. In states without liability reform, doctors had a higher tendency toward dissatisfaction in their profession, which affected the care they delivered and limited their investment in new technologies.

Many states adopted provisions intended to contain the rise in malpractice premiums by limiting the volume of malpractice litigation and the size of malpractice awards. Some states passed laws shortening the statute of limitations for malpractice claims; others imposed ceilings on the amount of attorneys' fees recoverable as a result of malpractice actions. Some states imposed damage caps, some on non-economic damages only, others on pain and suffering awards, and still others on both.

Some of these efforts have been very successful. For example, the St. Petersburg Times reports that First Profession Insurance Co. lowered its premium rate increase for 2004 from 18.6 percent to 8 percent after passage of Florida's medical malpractice reform bill. However, the problem of frivolous lawsuits brought by trial lawyers remains. Further, under scrutiny in the courts some early reforms have been found wanting.

Solutions: The Pew study demonstrates reducing medical liability costs not only affects health care costs, but also may improve patient care. Legislators should consider following the example of California's 1975 Medical Injury Compensation Reform Act (MICRA), which among other reforms limits non-economic damage awards to $250,000 and limits contingency fees charged by trial lawyers. Florida, New Jersey, Ohio, Texas, West Virginia, Nevada, Mississippi, and other states have recently passed significant tort reforms, and in some cases success has been immediate. For example, the AP recently reported: "The Medical Assurance Co. of Mississippi, which provides medical malpractice insurance to about 60 percent of the doctors in the state, will not raise base premium rates in 2005."

Legislators might also require arbitration before litigation. The National Arbitration Forum has suggested language for such a requirement. Research by the American Bar Association indicates arbitration can save as much as 95 percent of the cost of a lawsuit. While 54 percent of individual plaintiffs win their lawsuits, as many as 70 percent of individual claimants win their arbitration cases. Requiring arbitration as a condition precedent to filing a lawsuit could be a win-win situation for consumers, insurers, medical practitioners and lawyers.

Finally, legislators might consider that in Nebraska, punitive damages awarded in malpractice suits are directed to the state's education fund. Might not such monies also be usefully directed to a state's high-risk pool to cover the state's uninsured?

Reprinted with permission from the March 2006 issue of Health Care News: www.heartland.org

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