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Short-term insurance buyers driving some costs in Massachusetts

However, the overall cost effect is small, and it's unclear to what extent people are waiting until they get sick to purchase coverage.

By Doug Trapp — Posted July 14, 2010

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Although the number of short-term health insurance subscribers in recent years significantly increased in Massachusetts' nongroup and small group health insurance markets, it did not dramatically increase health insurers' costs, according to an analysis released in June by the Massachusetts Division of Insurance's Health Care Access Bureau.

The Massachusetts Commonwealth Connector health system reforms merged the nongroup and small group health insurance markets in July 2007, among other changes. This allowed individuals to buy coverage at rates available to people working in businesses with 50 or fewer employees. The reform also ended waiting periods for coverage and exclusions for preexisting conditions.

Massachusetts residents took advantage of the opportunity, at least for a short time, the report found. The number of individuals who enrolled in a merged market health plan for less than a year increased by 223% to reach 2,141 between 2006 and 2008. Also, the number of high-cost subscribers -- those with $1,000 or more in monthly claims -- increased by 83% to reach 7,185 in 2008. The latter increase was driven largely by people who kept coverage for less than six months.

Subscriber turnover contributed to a 3.4% increase in the cost of merged market claims between 2006 and 2008, more than twice the expected rate. But the report tied only part of the increase to short-term enrollees. The older average age of nongroup subscribers also played a substantial role.

These cost increases are significant, but some of the turnover is due to people gaining or losing jobs, said Brian Rosman, research director for Health Care for All, a consumer advocacy group. Waiting to enroll until the day before a surgery, counting on the coverage's guaranteed issue, would be abusing the system, he said. "There's not much of that."

Eric Linzer, a spokesman for the Massachusetts Assn. of Health Plans, said health care cost increases were being driven more by the negotiating advantage certain hospitals and physician groups have over insurers in the state. This echoes a central conclusion of a report issued in March by Massachusetts Attorney General Martha Coakley, though it has been challenged by some hospitals and health networks in the state.

Still, the Division of Insurance report recommended decreasing subscriber turnover by increasing penalties for those who have access to affordable insurance but do not sign up for it. The maximum penalty for remaining uninsured -- a key element of the state's health reform law -- is $93 per month, typically much less than the cost of having coverage.

The report also recommended implementing a set enrollment period for merged market coverage or waiting periods for people with preexisting conditions.

Rosman expects the Massachusetts Legislature to adopt some of the report's recommendations. The Massachusetts Senate in May approved a bill that would create an enrollment period for individual subscribers starting in July, among other provisions. Massachusetts Gov. Deval Patrick has backed similar legislation.

The state's lessons could have nationwide implications. The national health reform law ends preexisting condition exclusions in 2014 while implementing an individual mandate to obtain health insurance. The penalty will start at $95 annually or 1% of income for individuals, whichever is higher, increasing to $695 or 2.5% of income in 2016 if an individual fails to obtain health coverage. The penalty is capped at the average nationwide cost of less-expensive plans available in health insurance exchanges. Some health reform critics have said these penalties are set too low to deter many people from waiting until they develop serious medical conditions to obtain insurance.

The Division of Insurance report is available online (link).

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