Missouri's health care reform: the impact of community ratings and the cost to consumers.

One of the hallmarks of Governor Mel Carnahan's state-wide health care reform bill currently before the state legislature is a "community rating" system. The Committee on Science, Technology, and Critical Issues in the House and Representatives voted to send the bill (HB 1622) to the full House for floor debate the first week in April.

Community rating is not a new idea. When Blue Cross was established, anyone purchasing health insurance was included in a community rating pool which involved a huge group of individuals ranging from healthy to medically at risk. In this system, higher insurance premiums meant that the healthy were subsidizing the high-risk participants. Insurance companies that competed against the Blue Cross system, offered a lower premium system based on experienced rating (or "cherry picking") which offered insurance with variables worked in to deal with the age, sex and occupation.

Modifying "community rating"

According to HB 1622, beginning July 1, 1995 the state would operate under a modified community rating system (some variations allowed) that would lead to phasing in a pure community rating system beginning January 1, 1999. Under the federal government's Health Maintenance Organization (HMO) Act of 1973, community rating became a requirement for a federally qualified HMO. A community-rated figure for a federally qualified HMO in Missouri as of March of this year is $147.44 for an individual. Compared to a statewide (experience-rated) average based on five insurance companies (including State Farm and Blue Cross/Blue Shield of Missouri), there are some significant differences.

For example, a male between the ages of 18-29 has an experience-rated premium of $98.50, which is $48.94 lower than the community-rated figure. (This average figure is considered to be artificially low.) A female between the ages of 18-29, however, has an experience-rated figure of $184.00, which is $36.56 higher than the community-rated figure. A male between the ages of 60-64, has an experience-rated premium of $369.50, while a female between the ages of 60-64 has an experience-rated premium of $327.00, both significantly higher than the community-rated figure. The purpose of community rating is to develop one premium figure of all age groups and both sexes.

Under the community rating system, employers with a high percent-age of female workers and female employees of child-bearing age are the ones that benefit the most. Attorneys have speculated as to whether the money saved would go into company profits or be directed at raising the pay of entry-level female positions.

Doctor's support uneven

While doctors in the St. Louis area have been pictured as opponents of HB 1622, the situations is more complex. The St. Louis Metropolitan Medical Society, for example, supports the community rating aspect of the governor's bill. Yet, at the same time, the medical society endorses a system where 100 percent of the insured in an area are included in a community rating system.

In the political maneuvering surrounding the introduction of this bill into the legislative process, several revisions of the bill with significant changes have occurred and more are expected. The Senate side of the state legislature has yet to begin its process.

One of the revisions that the medical society has objected to is a provision that allows companies with 500 or more employees to be excluded from the community rating pool. Under the terms of the federal government's Employee Retirement Security Act of 1974 (ERISA), companies can self-insure, which allows them to become exempt from costly state regulations and state premium taxes. According to a 1991 General Accounting Office (GAO) report, in 1974 5 percent of the country's employees were in self-insured plans. By 1990 that figure had grown to 56 percent. In 1994 it is estimated that between 60-85 percent of all employees are in self-insured plans. The medical society's position is that ERISA needs "to be waived, repealed or modified if states are to enact their own health care reform programs."

Exactly what percentage of the insured in an area need to be included in a community rating pool to make it effective at controlling medical cost increases is debatable. the state department of insurance uses Rochester, New York as an example of a "reference point."

Who should be included?

The "Rochester model" is based on 85-90 percent of all insurees being included in the community rating system; few self-insured plans exist in the Rochester area. Randy McConnell, spokesman for the Missouri Department of Insurance, feels that given the size of the community pools that would be set up in the states, a pool that included 75 percent of the insured in an area would still be effective. McConnell emphasized that the 500 employee figure used to determine inclusion or exclusion from the pool is a "wall not a gateway." All businesses with less than 500 employees would be included in a pool.

As envisioned in HB 1622 at this juncture, five pools are considered with the St. Louis metropolitan area as one, the Kansas City metropolitan area as another, and three for the rest of the state. The determination of the territories for each of these pools would be made by the Health Assurance Board, a government board which would be established by this bill.

The Rochester model is interesting and offers some contrast with the St. Louis area. For example, Eastman Kodak Company is one of the driving forces behind support for community ratings in the Rochester area. In testimony before a congressional committee, David Edwards, director of benefits, pointed out that "in the short run, Kodak could save several million dollars a year by pulling out of the community pool." But the company looks at the benefits to the larger community in which it exists as a reason for its continued support for community ratings.

Edwards noted that small businesses benefit by being included in the pool since administrative costs of small company insurance plans would be quite high. The 1991 GAO report cited earlier estimated that administrative costs (including administration of claims, risk premium charges, and commission payments) were 30 percent of the total insurance costs for a company with 10-19 employees and 12 percent for a company with 500 to 2,499 employees.

McConnell noted that Civic Progress "had to be taken into account" since it pushed for the exclusion clause in the current version of HB 1622. Originally, there was some bargaining over the figure of 1,000 employees as the point at which companies would be included or exempt from community rating, but in the end the 500 employees figure was agreed upon.

Another feature of the Rochester model is that Blue Cross/Blue Shield dominates the market with 75 percent of the business. In the St. Louis area there are several insurance companies sharing the market with Blue cross/Blue Shield, Physicians Health Plan (PHP), and General American-Gen Care (formerly SANUS) among those at the top.

A recent GAO report that analyzed the Rochester model, noted several distinguishing features about health care in the Rochester area. One key point raised was the active role of the business community in promoting health care cost controls - and emphasis was placed on the long history dating back to the 1920s of active business community involvement in health care issues.

For example, in the late 1950s, Kodak was the driving force behind the creation of a Patient Care Planning Council which included consumers, hospital administrators, physicians, business and local government representatives to assess the needs of hospitals. The St. Louis area has begun to develop something along these lines, but the driving forces are different networks of hospitals moving toward some forms of cooperation. Barnes, Christian, Jewish and Missouri Baptist are in one group; St. Joseph, St. Luke's and St. Anthony's are in another; and St. Mary's and DePaul are possibly in another.

The importance of community rating and the ability to have a big enough pool will relate a to another aspect of HB 1622. There are provisions in the bill that would move the state in the direction of providing universal health care if the federal government has not done so by January 1, 1997. Some of the language in the latest version of the bill will be clarified to better explain the time-table regarding this aspect.

About 600,000 uninsured

Missouri has approximately 600,000 individuals uninsured. According to HB 1622, a person at 250 percent of the federal poverty level or below would be able to buy health insurance at no more than 50 percent of the community rate. Some individuals would be able to buy insurance at less than 50 percent depending on their poverty level. It is estimated that about one-half of the state uninsured would take advantage of this program. Most of these are expected to be individuals who were dropped or prevented from obtaining insurance because of preexisting conditions.

In other words, while Missouri would be offering a universal health care plan, there would be still be a sizable uninsured population. According to the current wording of HB 1622, participation is voluntary. The state would see its uninsured level drop from a current level of around 14 percent to about 7 percent. Even in the Rochester model which receives high praise from the Missouri Department of Insurance, there is still a 6 percent uninsured rate. The national average is 14 percent.

The financing of the uninsured who eventually enter this health care plan would be addressed by another board created by HB 1622. The Health Guaranty Corporation would not be a government board (unlike the Health Assurance Board) and would be non-profit.

The bill, if passed by the General Assembly, will probably come under the jurisdiction of the Joint Committee on Health Care Policy and Planning for the purposes of "legislative oversight."

This committee was created last year and has a "sunset" provision. It is scheduled to end its existence in 1999 and new legislation would be needed to extend its life. Rep. Scott Lakin (D., Kansas City), chair of this committee said. "With most bills you put them on the shelf and go on to the next bill, but this is a bill you'll look at year after year." Lakin also pointed out that one of the major forces behind, pushing health care reform is Medicaid.

Twenty-five percent of the state budget goes to Medicaid.