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Insurer Cherry-Picking More Aggressive Than Ever Before, Illinois Commissioner Says

By John Reichard, CQ HealthBeat Editor

October 25, 2010 -- Are for-profit insurers being more aggressive than ever before in denying insurance applications and limiting coverage?

Michael McRaith, director of the Illinois Department of Insurance, says that's his take. Insurers are attempting, he says, to build up a book of business that is as low-cost as possible by 2014, when they are required by the health care overhaul law to take all applicants regardless of health status.

Insurers attempt to cope with their costs from bad insurance risks through a process known as "underwriting"—they decide what to cover, what rates to charge, or even whether they will cover the applicant at all.

McRaith told a Washington, D.C., forum on Oct. 22 that "there are some including me who ... perceive the underwriting and rating to be more aggressive now than it has ever been because as we approach 2014 when every person who applies is to be covered, the for-profit companies would prefer starting with a healthier book of policy holders."

Having more of these good risks would help offset the costs of sicker enrollees coming in and require less of a premium increase going into 2014 to compensate for bigger medical outlays. But it would come at the expense of sicker people trying to get coverage before then.

When asked to elaborate on his remarks, McRaith said in an e-mail Monday that "In Illinois, we have received complaints and inquiries regarding premium increases from families and from employers of all sizes, large and small. We do not have guaranteed issue for employers with more than 50 employees. We have heard of insurers not even offering [coverage to] some groups of employee sizes between 50 to 100.

"Also, small employers with high-deductible plans are experiencing rate increases of 30 percent or more even though the employees do not ever reach the deductible level. Small employers commonly report rate increases of 30 percent or more. Insurers have attempted to attribute the reason for the increases to the [overhaul], even though the total cost of the reforms implemented to date should be 1 percent at most.

"In Illinois, individuals and families can be denied health insurance coverage for any reason other than 'race, color, religion or national origin.' We hear from individuals age 55-64 who are being coverage despite not having any history of serious illness."

A check with Consumers Union found no evidence on whether so-called cherry-picking is at an all-time high. But Sabrina Corlette, a professor at Georgetown University's Health Policy Institute, said McRaith's remarks "are similar to what I've been hearing from other folks in the field."

Corlette drew an analogy to insurer behavior leading up to the Sept. 23 requirement that plans no longer deny coverage to children with pre-existing medical conditions. Corlette said she heard from people in the insurance industry that they were trying to build up a base of the healthiest possible children as enrollees to better offset the costs of children coming in with pre-existing conditions. It "rings true" that insurers would be doing this leading up to 2014, she said.

John Greene of the National Association of Health Underwriters (NAHU) didn't directly respond to the question of whether underwriting is now more aggressive than ever. But Greene did point to conditions in the insurance market that suggest a greater need to reduce exposure to risk.

"With continued high unemployment, healthy people are dropping out of the market" for individual coverage, said Greene, "The addition of new coverage requirements adds the to the cost of coverage as does the ability of providers to demand increased payment from insurers because they have to include them in order to meet network requirements."

"Underwriting is an assessment of risk," Greene added. When insurers "look at their claim data and see healthy people leaving and sicker people coming in, then they will increase rates in order to satisfy the expected claims.

Robert Zirkelbach, spokesman for America's Health Insurance Plans, said "there's no evidence for that" when asked if underwriting is more aggressive than ever. But he said premiums are going up for various reasons including an increase in the costs of medical care, a sicker mix of enrollees, and requirements of the health law. The impact of the law on premiums depends on what type of coverage people have now—premiums go up more if they have less comprehensive coverage, Zirkelbach added.

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