About 350,000 Georgians who buy their own health insurance may not have to worry about their insurer leaving the state, under an Obama administration decision Tuesday. But they will have to wait until 2013 to get the full benefit of a new rule designed to give consumers more value from their health plans.
The federal health law mandates that insurers spend 80 percent of the money they collect from consumers on claims, but the decision Tuesday means that Georgia insurers will not have to immediately comply with that rule.
The decision was in response to Georgia Insurance Commissioner Ralph Hudgens' request to give insurers more time. He warned federal officials that otherwise, some insurers would be driven from the Georgia market. This affects Georgians who get coverage through the individual marketplace instead of at work.
With the federal officials' decision, Hudgens did not get everything he requested. Instead, the feds delivered a compromise that offered some relief to insurers by phasing in the requirement, but also drew approval from consumer advocates. Insurers who don't meet the requirement must pay rebates to their customers.
The provision of the law is designed to control the cost of health coverage by limiting how much of a customer's premium dollars go to profits, commissions, executive salaries and marketing.
"This provision ensures that people get value when they buy their insurance policy," said Steve Larsen, the official at the U.S. Department of Health and Human Services who issued the decision.
Instead of insisting on the 80 percent threshold this year, the feds will require insurers in Georgia's individual market to spend 70 percent of premiums on claims this year and 75 percent in 2012. They will have to meet the 80 percent standard in 2013, under the decision.
Georgia wasn't alone in seeking a waiver. Seventeen states, including Georgia, have sought them, and HHS has made decisions in eight states, with most of them compromise deals. Hudgens had requested that insurers have until 2014 to meet the 80 percent requirement, with a phase-in of 65 percent in 2011, 70 percent in 2012 and 75 percent in 2013.
"We did create a glide path for implementation and a shorter path than what the [Georgia insurance] department has recommended," Larsen said in an interview. "We think this is a very strong consumer decision."
Statewide, 23 insurers offer individual policies. But the market is dominated by a handful of players. Blue Cross Blue Shield of Georgia has 40 percent of the market, according to statistics reported by the state Insurance Department.
Hudgens' office said as many as eight insurers might pull out of the market if the 80 percent requirement hit this year. HHS officials said they didn't believe that many would exit. But the feds decided, after reviewing each company's expenditures on claims and overhead, that three companies would be vulnerable if the rule were enforced immediately. Those companies -- Coventry, Time and American General -- together insure about 16 percent of the state's individual market.
The possibility of those companies leaving Georgia prompted HHS to give the companies more time to reach the 80 percent requirement.
That decision was influenced by the fact that Georgia law does little to help consumers with pre-existing conditions get health coverage, unlike some other states. So losing an insurer in the market could leave Georgians with pre-existing conditions unable to obtain any coverage at all. The federal health care law does offer such coverage through a program for Georgians run by Washington, but only consumers who have been without coverage for six months can qualify.
"We want to make sure that consumers get value," Larsen said. "Ultimately, it's not beneficial for consumers if companies are going to be leaving."
State insurance officials reported that two other companies -- American Republic and World -- have notified the state that they will leave the individual market. But HHS said those companies were leaving other states as well and that decision was not related to the federal law's "medical loss ratio" requirement. The companies cover about 1.7 percent of the Georgia individual market.
Hudgens released a statement Tuesday saying he was pleased that HHS agreed with his concern about the potential of the rule to destabilize the Georgia market.
Cindy Zeldin, executive director of the consumer advocacy group Georgians for a Health Future, described the decision as "a win for consumers."
Zeldin's group and other advocates had asked HHS to deny Hudgens' request entirely. But Zeldin said Tuesday that the decision represents "a good balance between giving consumers the transparency and value they deserve and ensuring that the market remains stable and viable for consumers."
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