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Short-term customers boosting health costs

Lesson for US overhaul in gaming of Mass. system

By Kay Lazar
Globe Staff / April 4, 2010

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Thousands of consumers are gaming Massachusetts’ 2006 health insurance law by buying insurance when they need to cover pricey medical care, such as fertility treatments and knee surgery, and then swiftly dropping coverage, a practice that insurance executives say is driving up costs for other people and small businesses.

In 2009 alone, 936 people signed up for coverage with Blue Cross and Blue Shield of Massachusetts for three months or less and ran up claims of more than $1,000 per month while in the plan. Their medical spending while insured was more than four times the average for consumers who buy coverage on their own and retain it in a normal fashion, according to data the state’s largest private insurer provided the Globe.

The typical monthly premium for these short-term members was $400, but their average claims exceeded $2,200 per month. The previous year, the company’s data show it had even more high-spending, short-term members. Over those two years, the figures suggest the price tag ran into the millions.

Other insurers could not produce such detailed information for short-term customers but said they have witnessed a similar pattern. And, they said, the phenomenon is likely to be repeated on a grander scale when the new national health care law begins requiring most people to have insurance in 2014, unless federal regulators craft regulations to avoid the pitfall.

“These consumers come in and get their service, and then they leave because current regulations allow them to do it,’’ said Todd Bailey, vice president of underwriting at Fallon Community Health Plan, the state’s fourth-largest insurer.

The problem is, it is less expensive for consumers — especially young and healthy people — to pay the monthly penalty of as much as $93 imposed under the state law for not having insurance, than to buy the coverage year-round. This is also the case under the federal health care overhaul legislation signed by the president, insurers say.

Governor Deval Patrick recently filed legislation that state regulators believe will help fix the problem, by restricting insurance enrollment to twice a year for people who buy on the open market and allowing waiting periods before coverage kicks in. But insurers say stronger action is needed. Consumer advocates caution, however, that many people who sign up for short-term coverage may merely be between jobs.

When state lawmakers overhauled the health care system in 2006, they combined into a single insurance pool consumers who buy coverage on their own with those who get insurance through their jobs at small businesses that employ 50 or fewer people. The aim was to make insurance more affordable for the individuals buying coverage on their own, who tended to be sicker and therefore had been paying very high premiums. And the hope was that having small businesses and their workers absorb some of the cost of covering this group would raise their premiums only modestly.

But insurers now say that it didn’t work as planned, and that consumers who work for small businesses have ended up shouldering a much larger burden. Part of the reason, they say, are the short-termers.

Insurers want rules that would restrict enrollment for individuals buying on the open market to a designated month each year, unless they have had a major life change, such as a divorce — similar to the practice used by most employers. They say this would curb the practice of buying coverage just before an expensive elective procedure that can be planned ahead, such as knee or hip replacements or fertility treatments. Imposing waiting periods for coverage on this group, which was effectively disallowed by the 2006 law, would also deter this practice, insurers say.

“I raised these concerns with the Patrick administration, but I didn’t make much progress. And I even sent them my data,’’ said Charles D. Baker, a Republican candidate for governor and former chief executive of the state’s second largest insurer, Harvard Pilgrim Health Care. He blogged about these issues last June, when he was still at the company.

Baker’s data showed that about 40 percent of the consumers who purchased insurance from Harvard Pilgrim on the open market kept the insurance fewer than five months, and they incurred, on average, $2,400 a month in medical expenses — about six times higher than the monthly spending of other consumers.

“They said to me, ‘This is interesting, we’ll get back to you,’ ’’ Baker said in an interview last week referring to conversations he had with state regulators.

Patrick administration officials said they are taking the short-term coverage issue seriously, noting that they requested data on the problem from all insurers last year and expect to release their findings this month.

“This is an issue we have been concerned about, and carriers have not been shy about bringing this to our attention,’’ said Barbara Anthony, undersecretary of the Office of Consumer Affairs and Business Regulation, which oversees insurance.

“Even though our report isn’t concluded, the proposal by the governor to limit open enrollment to two times a year seems like an obvious way to get a handle on the problem,’’ Anthony said.

In February, Patrick filed legislation that would give his administration sweeping authority to cap rates charged by insurers and medical providers. The bill included a provision that would restrict enrollment for consumers who are buying insurance on their own to two annual periods — in June and December — but includes exceptions for people facing life changes, such as loss of workplace insurance or the birth of a child.

It would also bring back the rule allowing insurers to exclude coverage for preexisting conditions for six months, or impose a similar waiting period under certain conditions for people buying coverage on their own. However, the new national legislation prohibits insurers from denying coverage based on preexisting conditions as of 2014, and will allow only a three-month waiting period.

Blue Cross-Blue Shield executives said the governor’s proposal is a step in the right direction, but the insurer favors a plan that would allow only one annual enrollment period, and that would also bar consumers from buying on the open market if they have access to coverage through work or a spouse. Larry Croes, a Blue Cross-Blue Shield vice president for small group sales, said this would stop consumers from buying insurance for procedures not covered by their employer — typically fertility treatments — then dropping the plan after treatment.

Senate President Therese Murray said in an e-mailed statement that the issue needs to be tackled.

“I support the governor’s proposal . . . and could see us going even further, with reasonable exceptions, to a single annual enrollment for individuals,’’ Murray said. “The Senate continues to work on payment reform legislation that targets this issue and others to reduce waste and inefficiency in the delivery and administration of health care.’’

Consumer advocates said they aren’t convinced that a lot of people are gaming the system, and they said that many of the individuals buying on the open market are likely those who are between jobs, new to the state, or have some other legitimate reason to buy coverage for a short period. They said that before the state makes it harder for consumers to buy coverage, there should be reliable data showing the extent of the problem.

“We would need to understand the severity of the issues,’’ said Brian Rosman, research director at Health Care for All, a Boston-based consumer group, “and whether the governor’s proposed changes would address the problem.’’

Kay Lazar can be reached at klazar@globe.com.

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