NAHUNAHUHealth Insurance 101

The Basics About How Health Insurance Markets Work and What You Need to Know To Get Started in

the Group Insurance Sales Business

Introduction• Everyone needs medical care sometime, and the most common way to pay for it in this country is through private health insurance. •While most Americans have some type of private health insurance coverage, the different types of health insurance coverage and how they work can be confusing and difficult to understand.•This presentation is designed to explain health insurance basics in layman's terms, and also provide you with contact information for resources that can provide you with additional information and help as you begin your sales career.

Role of NAHU• The National Association of Health Underwriters

represents over 20,000 health insurance agents, brokers and employee benefit specialists nationally.

• Our members sell health insurance and employee benefit products. Annually we assist millions of Americans with their insurance needs.

• Our members help both individuals and also employers purchase health insurance products. Our employer clients range from Fortune 500 companies to sole proprietors.

Role of the Health Insurance Producer

• Agents and brokers in most states are legally called producers, and you will hear us interchange the terms agent, broker, and producer throughout this presentation.

• In addition to selling insurance products, producers often help their clients, particularly the small employers, with all sorts of employee benefit issues, including assistance with claims processing, COBRA administration, privacy issues, and more.

• Many of our members are independent health insurance agents, brokers or consultants, and many are small-business owners themselves.

Role of NAHU

• As an association, our two top public policy goals are:– Reducing the number of uninsured

Americans through private-market solutions; and

– Making sure that state-level private health insurance markets are as vibrant and competitive as possible.

Health Insurance Coverage in the United States

• To begin, it is important to understand how people obtain their health insurance coverage in the United States:– 54% through their employer or the employer of a

family member– 5% purchase individual insurance coverage– 13% receive Medicaid– 12% receive Medicare– 16% are uninsured

» Source: Kaiser Family Foundation

Part I

Employer Group Health Insurance Coverage

• The majority of Americans have group health insurance coverage through either their employer or the employer of a family member.

• Many people don’t realize that health insurance is issued differently for different types of employers, and that since insurance is regulated at the state level, health insurance requirements for the different types of employers can vary significantly from state to state.

Employer Group Health Insurance Coverage

• Millions of Americans work for small employers, which for health plan purposes, are generally those with 2-50 employees. – A few states have expanded this definition to 1-50

employees. These states are sometimes referred to as “allowing business groups of one.”

• Millions of other Americans get their health insurance coverage through large employers. Generally, for health plan purposes, those are business with more than 50 employees.

• The requirements for the issuance of coverage to large groups are different than for small groups, and the way that rates are determined is also different.

Employer-Sponsored Group Health Insurance

• People who lose their group health insurance coverage, due to a job change, a divorce, job loss or other reason are often able to keep their group coverage, at least temporarily.

• Most people who are able to continue their group health insurance benefits are eligible to do so according to federal Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) legislation if their employer has 20 or more employees.

• However COBRA does not apply to all employers, and many states have mandated continuation of coverage options for people who are not covered by COBRA.

HIPPA Portability• The federal Health Insurance Portability and Accountability Act of 1996

(HIPAA) requires that all small-group health plans:– Be issued on a guaranteed basis, no matter what health conditions

members of the group have.– Be guarantee-renewable, unless there is non-payment of premium, the

employer has committed fraud or intentional misrepresentation or the employer has not complied with the terms of the health insurance contract.

– To impose no more than a 6-month look-back/12-month exclusionary period for preexisting conditions on enrollees that do not have prior creditable coverage. (States can reduce)

– To give employees credit for prior coverage regarding preexisting conditions, as long as there is no more than a 63-day break in coverage.

• Also, many people leaving group insurance for the individual market have federally mandated group-to-individual health insurance portability benefits.

Small Employer Health Plans

• In most states, small employer plans are defined as 2-50 eligible employees.

• It’s very important for agents to understand how small group insurance is rated in the various states. In most states, the rating factors and variances are similar, but no two states are identical.

• In 40 states, the law allows small group health insurance carriers to determine their rates using a process known as medical underwriting.

• The other states all allow for either modified community rating or community rating in their group markets.

Small Employer Health Plans• When small-group plans are medically underwritten, the

underwriting is usually done after the initial quote or prescreen, based on a “rating model” that varies from state to state

• Employees are usually asked to provide health information about themselves and their covered family members.

• When determining rates, insurance carriers use the medical information on these applications. Sometimes they will request additional information from an applicant’s physician or ask the applicants for clarification.

Small Employer Health Plans

• If an underwriter is unable to obtain information necessary to accurately determine the risk of a particular applicant, he or she will underwrite more conservatively, meaning that the assumption relative to the missing information will be negative rather than positive. – Example: A person has a history of high blood pressure, but

it is controlled with medication and they are not overweight. If the underwriter is unable to determine if that individual smokes or if he or she has normal cholesterol, the carrier will assume that the missing information is negative and rate accordingly.

Small Employer Health Plans• Most state laws concerning small group medical underwriting are based

on a National Association of Insurance Commissioners Model and allow groups to be rated “X” percent above or below the indexed rate.

• The indexed rate is determined by averaging the lowest possible rate and the highest possible rate. Most states that have this type of rating system also have a limit on rate increases due to the health status of the group, which is helpful in stabilizing rates over time.

• Even with initial rate fluctuations for a new group, small employer rates in these states tend to be much lower than in states where health status rating is not allowed.

• A group that is rated correctly up front is much less likely to have a very large increase at renewal.

• In order to rate the group correctly, the correct information on the initial application is essential.

Differences in Underwriting

• In every state, each carrier has different underwriting requirements.

• What is “Guarantee Issue”?

• Medical Rate ups: Max Load/ “RAF”

• Employer questionnaire vs. individual health statements

• Contribution & Participation are key!• What is an eligible employee?

Trouble Spots in Underwriting• 2-5 life cases can be a problem, particularly if one or more

employees have serious health conditions.• Supporting documentation is important

– Always show employer/employee relationship• (Something official that shows that each person is getting paid at least

min. wage).

– Creditable coverage (to waive pre-ex). Credit will be given as long as their isn’t a break in coverage more than 63 days. (get prior carrier bill when turning in group).

• Always get an application or a waiver from every eligible employee!• Husband and wife enroll separately if they are both working

there.• Rates are NEVER final until approved in writing and a policy

number is issued.

What are “Rate Sensitive” Things• Any changes from the original census to the actual

enrollment• Zip codes• SIC codes• Effective date• Medical information • Prescriptions (one person having 3 or more) • One person having multiple conditions• Medicare is primary under 20 lives/ Group is primary over

20 lives• TEFRA • COBRA

Small Employer Health Plans• The alternative to medical underwriting is known as

community rating. • Community rating requires insurers to charge all

individuals who live in the same geographical area the same exact premium regardless of their age or health status.

• Example: An employer’s cost to insure a healthy 27-year old non-smoking male with no health conditions would be the same as it would be to insure a 55-year old male smoker who is suffering from prostate cancer and a heart condition.

Small Employer Health Plans• A variation on community rating used by some states is

called modified community rating (MCR). • With MCR, health plans may vary the community rate based

on limited factors, such as age, gender and/or smoker status. • Example: In a state that allows MCR variations for age, the

employer would pay more to insure the 55-year old male smoker with cancer and a heart condition. However, the insurer would have to use the same rate when calculating premiums for the healthy 27-year old male as it would for a male co-worker who is the same age but suffers from juvenile diabetes.

Small Employer Health Plans

• State-level MCR laws vary greatly. Some allow for many adjustment factors, but many allow for just a limited few.

• If age is an allowed factor, it may or not be limited. For example, there may be a restriction on how much the rates can vary based on age, such as the rate for the oldest eligible individual can be no more than twice the rate for the youngest eligible individual.

• Community rating and modified community rating have a severely negative impact on health insurance rates in all states that employ the mechanism, but the more limited the rate adjustment factors, the more severe the problem.

Large Employer Groups• Large group health insurance contracts, unlike small group health insurance

contracts, do not have to be offered on a guarantee-issue basis, although it is unusual for a group to be declined.

• Large group health insurance is not medically underwritten but the rates may be based on the overall claims experience of the entire group.

• HIPAA mandates all group insurance contracts, including large group contracts, must be guaranteed renewable, unless there is non-payment of premium, the employer has committed fraud or intentional misrepresentation or the employer has not complied with the terms of the health insurance contract.

• HIPAA also requires large employers to give employees credit for prior coverage for preexisting condition exclusions, as long as there is no more than a 63-day break in coverage.

• With large groups, a minimum of 3 years of claims information, renewal and current rates are needed for a quote.

Large Employer Groups• The quoting process can take longer than small group and the

underwriter may come back to the broker for more information in order to get a better rate.

• Many employer-based health insurance plans are fully insured by a health insurance carrier. The individual states regulate these plans.

• Larger group health plans (usually several hundred employees or larger) may choose to either fully or partially self-insure their group benefit plans.

• Companies that self-insure generally buy stop-loss coverage to protect themselves against losses above a certain threshold. This coverage can be purchased to protect against losses by a single individual, the whole group, or both.

• Self-funded employers also generally contract with either a third-party administrator or a health plan to administer their plans and handle claims.

Large Employer Groups• Many employees of companies that self-fund their coverage do

not even realize that their plan is self-funded by their employer.• Self-funded plans are regulated federally by the Department of

Labor under the Employee Retirement Income Security Act of 1974 (ERISA). That is why they are sometimes known as ERISA plans.

• Self-funded plans are not subject to state-level rating laws, nor are they subject to state-level health insurance mandates (i.e., requirement that all group health plan contracts in the state cover diabetic treatment supplies).

• Self-funded ERISA plans are required to abide by federal requirements and mandates (I.e., HIPAA, federal mental health parity requirements, etc.)

• Stop-loss plans purchased by self-funded employers are still regulated by the state department of insurance.

Leaving Employer Health Plan Coverage

• Most Americans with employer-sponsored health plan coverage have the option of continuing that coverage for 18-36 months at their own cost if they lose their group coverage.

• Federal COBRA legislation applies to companies that employed 20 or more full-time workers in the past year.

• COBRA applies to both private employers and state and local health plans, but it does not apply to Federal government plans and those sponsored by certain church organizations.

• COBRA also does not apply if the company goes out of business, or ceases to offer group health insurance.

Leaving Employer Health Plan Coverage

• Many states have enacted legislation requiring smaller employers or those not bound by COBRA to offer some type of continuation of coverage benefits to their employees.

• In addition, many states have requirements that allow individuals who are transitioning out of group coverage to convert their group health coverage into an individual health insurance plan that they pay for privately.

• Some states allow for both of these options, and a few states have no continuation of coverage options for individuals who do not have COBRA rights.

Leaving Employer Health Plan Coverage

• People who leave group health insurance coverage also have rights under HIPAA.

• HIPAA mandated that every state develop at least one option for people who are transitioning from group coverage and meet certain criteria, so that they can purchase an individual health insurance policy on a guarantee-issue basis.

• The people who are eligible to purchase these health insurance policies are known as having group-to-individual portability rights under HIPAA and are often called HIPAA-eligibles.

• The various states have developed a wide range of mechanisms to provide guarantee-issue coverage to their HIPAA-eligible populations, the most common of which is allowing them to purchase coverage thorough a state individual market high-risk health insurance pool.

.

Part II

Individual Health Insurance Coverage

• Approximately 5 percent of Americans do not get their health insurance coverage through an employer or through a government program.

• Instead, they purchase private coverage on an individual basis.

• Individual coverage is regulated at the state level of government.

Individual Health Insurance Coverage

• Individual health insurance is very different than group insurance in a number of ways.

• Individual market carriers are much more limited in their ability to spread risk.

• Benefit packages are generally less extensive than what is available to most groups.

• Deductibles and cost-sharing are generally higher in order to produce a lower premium.

• This lower premium is important because individual market purchasers do not have an employer paying part of their premium.

Individual Health Insurance Coverage

• Individual health insurance is also regulated differently than group policies in most states.

• A key reason why individual policies need to be regulated differently, is that in most cases, individuals do not purchase them unless they in some way anticipate that they will using their benefits.

• This is particularly true in states where individual market premium rates are very high.

• This occurrence is known as “adverse selection.”

Individual Health Insurance Coverage

• To help prevent against adverse selection, 43 states allow for medical underwriting in the individual market.

• The vast majority of these states allow for unrestricted medical underwriting without the rating bands that are so common in the small group market.

• Most federal HIPAA provisions do not apply to the individual market, and in the majority of states, traditional individual health insurance is not required to be issued on a guaranteed issue basis, so people can be turned down for coverage due to a preexisting medical condition.

Individual Health Insurance Coverage

• In many states, individual market carriers can issue a policy with an elimination riders.

• Elimination riders allow for carriers to offer coverage to an individual with a preexisting condition, but exclude coverage of that condition. – Example: An individual has severe seasonal allergies,

but can control them with medication. A carrier may offer a policy at a more expensive rate with full allergy coverage or offer a less expensive policy that excludes allergy coverage. The individual may find that it is more affordable to take the less expensive policy and pay for his/her allergy medication out-of-pocket.

Individual Health Insurance Coverage• Individual policies are also generally different than group

policies concerning the amount of time prior to the application for coverage the carrier can look back for preexisting conditions, and also how long carriers can exclude coverage for those preexisting conditions.

• On the group level, according to HIPAA, a pre-existing condition is a condition that a person was treated for in the 6 months prior to the effective date of their policy. This 6 month period is called the “look-back” period.

• A condition considered to be pre-existing can be excluded from coverage for a maximum period of 12 months for group policies.

Individual Health Insurance Coverage

• Federal law does not prescribe the pre-existing condition limitation period on individual health insurance policies.

• Also, unlike group coverage, there is no federal requirement that carriers give credit for prior creditable coverage under another plan in the individual market.

• It should be noted that some state laws do limit the pre-existing condition provisions of policies in the individual market as well as require that they give credit against the limitation for time served under another creditable health insurance plan.

Medically Uninsurable Coverage

• Since in most states, individual health insurance is not offered on a guarantee issue basis, people can be turned down for coverage if they have a very serious medical condition (i.e, HIV, cancer).

• States are not required to have an alternative option for medically uninsurable individuals, but most states do.

• Thirty-four states provide coverage to medically uninsurables through state high-risk health insurance pools.

• Ten states use other means of providing uninsurable people with access to individual market coverage, and four states have no such means (i.e., guarantee issue, carrier of last resort). In Florida, the state high risk pool is closed to new applicants.

High-Risk Health Insurance Pools

• People who purchase coverage through state high risk pools are often self-employed individuals, early retirees or employees of small businesses that do not offer benefits.

• The average amount of time an individual spends in a risk-pool is 30 months.

• Consumers that need to purchase coverage in the high-risk-pool have access to comprehensive private-market coverage options that might not otherwise be available to them.

• These individuals pay higher rates than other individual market consumers, but these rates are capped, generally at about 125-200 percent of the average individual market rate.

• Consumers are provided with a very important safety net, and insurers are provided with a predictable means of accounting for uninsurable risks.

Plan/Product Types

• It is crucial for every producer to be well informed about all of the Plan/Product types and differences in your market.

• That is the only way you can decide what is right for your client.

• Dual Options????• Fully Insured• Self-Funded

FSA

Sec 125

SDHP

HSA

GAPIndemnity

PPO

POS

HMO

HRA

ASO

CDHP

Managed Care Options—HMOS and POS Plans

• HMO=Health Maintenance Organization• POS=Point of Service (an HMO with an Out

of Network benefit)– Both requires a Primary Care Physician (PCP)– Both requires a service area (no care, except

emergency, outside of service area)• These plans can be “open access” which

means that members can self refer themselves to specialists.

PPO, Indemnity & Major Medical

• PPO= Preferred Provider Organization– Has a deductible, coinsurance and often times an office visit

copay– Providers are reimbursed at a contracted amount if they are

“in-network.” “Out of network” benefits are paid at a lesser benefit (ex: U&C or Fee Schedule)

– No primary care physician required– No referrals necessary– No service area requirement

• Indemnity• Major Medical • Gap Plans

– Sold with high deducible plans to fill in the gaps

CDHP/ Mandate Lite

• CDHP- Consumer Directed Health Plans– HSAs– HRAs– FSAs– Hybrid

• Mandate Lite- Some states have passed legislation requiring that a plan be made available that does not include state mandated benefits. These are sometimes referred to as “bare bones” or “stripped down” plans.

HSA or HRA

• HSA Plans- “Health Savings Account”- Must be sold with a High Deductible Health Plan (HDHP). Not everyone qualifies. Allows people to set aside $$ for qualified medical expenses (no use it or lose it rule). Unused funds can be saved for later medical expenses or used in retirement. Employee owned accounts.

• HRA Plans- “Health Reimbursement Account”- Employers can set aside an account for employees to be reimbursed for out of pocket medical expenses. Employer owns accounts.

Section 125/ FSA/ Cafeteria Plans

• IRS Code Section 125- Cafeteria Plans– Sec. 125 “POP Plan”- Premium Only Plan. Enables

employers to offer employee benefits on a pretax basis.

– Sec. 125 FSA- Flexible Spending Account. Employers offer benefits on a pretax basis AND employees can set $$$ aside into a medical and/or dependent care account. *

– Use it or lose it applies!

*Putting pretax dollars away to spend on Sec. 213d IRS approved items or dependent day care costs.

“Out to bid”/ RFQ’s/ RFP’s

• Once you have discussed product options with your client and gathered the necessary information, you will use a request for quote (RFQ) or request for proposal (RFP) for “going out to bid” for an employer.

• Sample of what information is normally required:– Employee Census Information

• DOB, sex, dependent status, zip code, medical info

– In states that allow for medical underwriting, it is important to get medical information up front!

“Out to bid”/ RFQ’s/ RFP’s

– Group Information Needed• Address, ER contact, multiple or single

locations, prior coverage, anniversary date & renewal vs. current rate information or if it is a new group

• In some states, you may be able to vary the rating structures: age rated vs. composite rates

• You also have some options for dependent rates

Enrollment Meetings

• It is common that employees are allowed to make changes to their coverage during an annual enrollment period.– The exception is a qualifying event. Marriage, Divorce,

Birth, change in status, etc.– Be careful of Section 125’s (people can’t just drop)

• Lead times are important! • Always check enrollment forms during the actual

enrollment to ensure accuracy and completion• Issues with installation (ex: someone goes to the

pharmacy and has no ID card yet)• MANAGE EXPECTATIONS PROPERLY UPFRONT!

Privacy Requirements• Health insurance producers have to abide by financial and

health information privacy requirements specified by federal law.

• HIPAA- Health Insurance Portability and Accountability Act of 1996 led to the adoption of privacy regulations concerning health information.

• GLBA-Gramm-Leach-Bliley Act specified that states had to adopt privacy requirements to protect financial information.

• Privacy- Protecting “personally identifiable financial and medical information”– Who can have what????– Anything that’s not in a phone book– Privacy notices and authorizations – Business Associate—For health information purposes, an

agent is a business associate of each carrier for whom they sell products. For self-funded plans, you are a business associate of the plan.

Continuing Education: License Requirements

• In every state, health insurance producers are required to complete continuing education to maintain their licenses.

• CE requirements can be annual or biannual, depending on the state.

• The amount of CE needed and the way in which CE is provided varies by state.

• Local NAHU chapter meetings are a great source for CE classes.

• NAHU also has CE options – get more information at www.nahu.org

Licensing & Appointments• E&O Insurance is a must. Most carriers require at least

$1,000,000 of E&O coverage. • Some states also require producers to be “appointed” to

work with each carrier for whom they sell products.• If appointments are required in your state, make sure you

have begun the process of getting appointed with each carrier before you start selling.

• Don’t wait until something sells or you may forfeit commissions.

• Some carriers have appointment fees.• Some carriers require that you are appointed before a quote

can be given.• Be prepared so you can get an “AOR” (Agent of Record).

Commissions and Bonuses• The name on the appointment paperwork is

who gets the commissions and bonuses (agent or agency).

• Each carrier has their own commission structure (flat or graded percentage or per head)

• Commissions are paid as groups pay premiums. • First year vs. renewal commissions.• What is a charge back?• This is the business of deferred rewards! You

get out of it what you put into it!

Where to Get More Information

• www.nahu.org

• www.naic.org

– Links to each state’s Department of Insurance

• www.siccode.com

– Lookup and cross reference SIC codes and NAICS codes