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How Your State Affects Your Health Insurance
Health insurance is one of the most heavily regulated industries in the United States. These regulations give consumers a measure of protection against unscrupulous business practices and monitor the ability of managed care organizations to pay claims. Individual states can also adopt health insurance mandates, such as requiring insurers to pay for Pap smears and prostate cancer screenings. While mandates make health insurance more comprehensive, they also drive up the cost. This is because insurers must cover care that consumers previously paid for out of their own pockets.
The number of mandates has increased significantly over time. In 1965, there were only seven health insurance benefits mandated by states, according to the Council for Affordable Health Insurance (CAHI). Today, there are more than 1,900. In some markets, CAHI estimates that mandated benefits have increased the cost of individual health insurance by as much as 45%.
The problem is that when health insurance costs increase, more people drop or refuse coverage. The self-employed and micro-business owners who employ ten or fewer workers are hardest hit. This is because the current tax code favors large corporations that are able to deduct health insurance premiums as a business expense while the self-employed are forbidden to do so. In addition, the self-employed are required to pay an additional 15.3 percent self-employment tax on these expenses as well.
State Laws Designed to Help Small Businesses
Some states (including Arkansas, Colorado, Florida, Georgia, Kentucky, Montana, North Dakota and Utah) are now trying to counter health insurance purchasing inequities by allowing mandate-free or mandate-light health insurance policies to be sold to those who need a lower-cost alternative. These bare bones policies still provide a measure of financial protection against a catastrophic accident, illness, or injury.
Other states have created their own small health insurance purchasing pools. These pools allow businesses with 50 or fewer employees to join and then take advantage of discounted rates and lower administrative costs and broker fees. The problem is that these pools can potentially flounder and go bankrupt when rates escalate and all the healthier and younger employees abandon it, leaving the sickest individuals behind. This is commonly known in the managed industry as a “death spiral.”
States Fight Health Insurance Scams
State Departments of Insurance (DOI) also serve as agencies where consumers can verify the license status of insurance agents and insurance companies. This is important, say Federal investigators, because there has been a sharp increase in recent years in the number of unlicensed health insurance companies. These bogus companies have left an estimated 200,000 policyholders stuck with virtually worthless health coverage. In fact, most victims don't discover the scam until they file a claim for a major illness.
According to the United States General Accounting Office, many of the scams sell policies to the self-employed, small business owners, and uninsured workers struggling to find affordable health insurance. These fraudulent plans often claim that they are a “union plan,” or a “self-funded” or “ERISA plan,” in which other employers participate, and are immune from state regulations. The truth is that “multiple employer welfare arrangements,” or MEWAs as they are known, must be licensed by the state in which they do business. Never buy an insurance policy unless you have verified that the company from which you are buying is licensed in your state to sell health insurance. You can do this by calling your state DOI.
The National Association of Insurance Commissioners (NAIC) urges small business owners to take a hard look at all health insurance marketing materials and Web sites before making a purchase. The following are guidelines to help you detect illegal health benefit plans:
- Be suspicious of any coverage that boasts low rates and minimal or no underwriting. Always be wary of any health insurance application that features only a few questions. Most legal applications will consist of many detailed questions, including those about your current and prior health status.
- Verfiy that a licensed insurance agent is selling a state licensed insurance product. If an agent is marketing a “union plan,” a “self-funded” or an “ERISA plan,” in which other employers participate, contact your state’s DOI to confirm approvals.
- Only deal with reputable agents. If the person trying to sell you coverage claims he doesn't need a license because the coverage isn't an “insurance product,” or is exempt from state regulation, immediately notify your state’s DOI.
- Ask the agent or broker to provide all documents related to the plan, including the name of the insurer and documentation that the insurer is licensed and fully insuring the coverage (paying all claims).
| Get More Help For more information about the health insurance options in your state, see our Health Insurance Basics for Micro-businesses. In addition, you can visit your state DOI on the Internet. |