Lawmakers embrace managed care regulations - State Report - Column

Business & Health, May, 1996

Here's what's happening on the regulatory and legislative fronts and highlights of the recently adjourned spring sessions.

Texas

Insurance rules and managed care laws

In a potential model for other conservative states, the Texas Department of Insurance last month issued a series of managed care and health insurance regulations. They represent a compromise reached after Gov. George Bush (R) vetoed stricter patient protection legislation last year. All the new rules take effect on June 1.

Chief among them: PPOs can no longer base their rates on undiscounted fees and must pass on savings from provider discounts to consumers. HMOs must pay for out-of-network referrals when they are unable to provide the appropriate services in-network. HMOs can not issue contracts that would make providers liable for damage caused by the health maintenance organization. HMOs must allow the insurance department 45 days to review any ad offering coverage to Medicare beneficiaries.

The insurance department also revised the state's 1993 small market reform law. Insurers and managed care plans must offer small employers at least two standard benefit packages instead of the three previously required. Both policies must offer a basic set of benefits, but they are exempt from specific state-mandated benefits. That will make the plans more affordable to small companies, state officials say.

One of the required offerings must be a catastrophic plan with either a $2,500 or $5,000 deductible. The other must have a mandatory $500 deductible and $3,000 co-insurance cap. Small employers, whether they are fully insured or self-insured, are free to buy richer forms of coverage, of course.

Kentucky

Most '94 reforms survive overhaul attempt

After months of rancor in which Republican lawmakers pushed for a major overhaul of the state's 1994 health insurance reform law, only moderate changes have been made. In an overtime session before adjourning last month, the legislature agreed to let insurers set rates based on gender, geography and occupation. It abolished the Kentucky Health Policy Board, the agency set up to oversee implementation of the law. And it widened the ratio between the highest and lowest rates--allowing a 5-to-1 range instead of the current 30 percent.

However, the measure retains the modified community rating system and the ban on medical underwriting based on health status. It also preserves guaranteed issue, renewability and portability in the small group market. Gov. Paul Patton (D) is expected to sign the changes into law. He's also expected to sign a bill that eliminates a 2 percent tax on physician revenue over the next four years.

California

HIPC to get competition; expands plan options

The state-run Health Insurance Plan of California (HIPC), one of the nation's largest co-ops serving employers with three to 50 workers, will have new competition as of this summer. The Department of Corporations has given the green light to what amounts to a private cooperative, called California Choice, to enter the small business market. The new entity is owned and operated by Word & Brown, a large independent insurance firm in the state. It will offer a choice of 13 HMO and four PPO options. The HIPC has 21 HMO and two PPO plans.

Just as in the HIPC, California Choice's plans will offer standard benefit packages and compete on the basis of price, provider networks and service. Employees will be able to switch plans, and administration will be centralized. California Choice officials hope to match HIPC's enrollment of 104,000 (5,800 employer groups) in 15 months.

Meanwhile, HIPC officials said last month that the co-op would offer the state's first physician-owned managed care plan. California Advantage, which is scheduled to begin operating on July 1, is owned and operated by the California Medical Association.The CMA calls its contract "the first shot" in the doctors' rebellion against HMOs. California Advantage will offer a PPO, an EPO and a point-of-service product. Officials say it has physician networks established in all but three of the state's 58 counties.

Ohio

Legal spat begins over Columbia-Ohio Blues deal

In what is likely to be just the beginning of a public debate over hospital giant Columbia/HCA's proposal to buy most of Ohio Blue Cross and Blue Shield, two policyholders sued the Blues plan last month to "protect policyholders' interests" in the $302 million reserves of the non-profit insurer. The plaintiffs claim to represent all 1.5 million Blues subscribers.

The suit alleges that because the Blues is a non-profit plan that has benefitted from past tax breaks, the reserves and assets of the company are, in part, public property. The plaintiffs seek a full accounting of the financial terms of the deal and a legal ruling on how the state and subscribers should recoup money once the assets convert to for-profit Columbia/HCA. A Blues spokesperson called the suit "misguided" and said the joint venture with Columbia would be strengthening the financial position and reserves of the company.