Get the Facts: Health Care Reform: August 2009

August 14, 2009

Kansas City, MO.—Blue Cross and Blue Shield of Kansas City (Blue KC) supports comprehensive health reform to extend coverage to everyone, rein in costs and improve quality. Blue KC supports the broad framework of the reform proposals being advocated by the President.

To make sure these reforms result in affordable coverage for all, reform must be accompanied by an individual responsibility requirement (sometimes called a mandate) to obtain coverage and subsidies to help those with low and moderate incomes. The insurance industry has set the bar in calling for changes in their own industry.

Below are some basic facts about health insurance that must be considered when discussing insurance reform.

Claim: Insurers are opposed to health care reform.

Fact: Blue KC strongly supports enactment of health care reform this year. We also support new federal rules to require insurers to offer coverage to everyone – regardless of pre-existing medical conditions – coupled with individual responsibility requirement and federal subsidies to make health coverage affordable.

Claim: Insurers can drop you whenever you get sick.

Fact: Federal law (HIPAA, 1996) already prohibits insurers from dropping people when they get sick. Insurers are required by federal and state laws to issue coverage on a "guaranteed renewable" basis – meaning the decision to renew is made by the individual and not the insurer. These rules apply to all coverage sold to individuals, small employers and large employers.

Claim: Insurers retroactively rescind individuals' policies if they become sick.

Fact: Under Federal and state laws, policies in the individual market can only be cancelled in cases of fraud or material misrepresentation (e.g., not being truthful on applications) and nonpayment of premiums. Rescissions are very rare. The National Association of Insurance Commissioners reports only 56 complaints nationwide regarding rescissions in 2007.

Claim: Insurers raise premiums when someone becomes sick.

Fact: Federal and state laws prevent employers or health insurers from charging an employee in a group health plan a higher premium based on their health or claims status. Premiums paid in the individual market are subject to significant state regulation. Individuals generally cannot be singled out for rate increases based on their health status once they obtain insurance.

Claim: People can't take their coverage when they leave a job.

Fact: Federal law requires most employers (with more than 20 employees) to allow people to "take" their coverage with them (for up to 18-36 months) when they leave by paying 102% of the premium (COBRA). Many states apply these same rules to smaller employers. In addition, Federal law (HIPAA) requires all states to assure that people who run out of COBRA coverage have permanent guaranteed coverage rights.

Claim: Insurers routinely discriminate against individuals with pre-existing conditions.

Fact: Insurers can exclude pre-existing conditions subject to federal and state law. This is necessary to ensure that people do not wait to buy coverage until they are sick, which raises premiums for everyone.

Claim: Insurers need a government plan to keep them "honest."

Fact: We do not support a government run plan. We believe it would cause most people to lose the insurance coverage they enjoy today and ultimately result in a single payer system. In addition, a government run plan would underpay providers by up to 30%, creating decreased access to care and undermining quality and cost controls. Our area is already faced with a physician shortage as 40% of primary care physicians look to retire within ten years.

Claim: There's inadequate competition in the insurance market and insurer profits are high.

Fact: There is significant competition in local health insurance markets. On average, there are about 27 carriers serving the small group market in each state, with a range varying from 4 insurers in Hawaii to over 300 in Indiana (GAO, 2009). Moreover, health plan profits, including Blue KC's, are much lower than most other industries – averaging 2-3% per year.

Claim: A high percentage of premium dollars go towards private plans' administrative costs.

Fact: Private health plans' administrative expenses are much lower than commonly perceived. Based on 2007 data from Sherlock Co., administrative expenses represented 9% of premiums and costs for small employers and individual insurance were 11% and 16% of premiums respectively, amounts that are two to three times lower than commonly cited.

About Blue KC

Blue KC, the largest not-for-profit health insurer in the state and the only not-for-profit health insurer in Kansas City, has been part of the Kansas City community since 1938. Blue KC provides health coverage to nearly 900,000 residents in the greater Kansas City area and Northwest Missouri. Blue KC is an independent licensee of the Blue Cross and Blue Shield Association. For more information on our company, visit our website at www.BlueKC.com. Our mission statement: We will use our role as the area's leading health insurer to provide affordable access to healthcare and to improve the health and wellness of our members.

• Back to News Archives