Eliminating Coverage Barriers

If you’re already ahead of the federal mandate to cover employees’ pre-existing medical conditions starting in 2014, consider giving chronic conditions special attention in your health plan.

By Scott Ladd Jun 1, 2010

0610cover.gifVisionAIR Inc., an information technology company in Castle Hayne, N.C., with 111 full-time employees, does not exclude health coverage for new employees’ pre-existing medical conditions—not even for the limited periods permitted under federal law. What’s more, says HR Manager Sharon D. Smith, neither the company’s current insurance carrier nor the one in place when she joined VisionAIR seven years ago has ever increased premiums for covering pre-existing conditions. 

Providing health coverage without exclusions for a new employee with a chronic illness “just seems like the right thing to do,” Smith says. So it will be business as usual for her when, starting in 2014, it will be unlawful for insurers or employers to deny coverage for pre-existing medical conditions. The requirement takes effect even earlier—in 2011—when the person with the condition is a child younger than 19.

The mandate to cover pre-existing conditions is one of several major changes affecting employers in the recently enacted health care reform package, but Smith says that portion of the new law is simply “telling me to do something I’m already doing with my insurance company.”

Like VisionAIR, most large U.S. companies already cover pre-existing conditions when employees sign on—even for new employees whose recent health coverage history would, under current federal law, allow the employer to hold off covering particular pre-existing conditions for a year or longer.

Employers’ reasons are more practical than altruistic, according to benefits analysts. Covering excludable conditions from the start of employment can—like providing wellness initiatives and healthful living programs—help slow the acceleration of medical costs. Delays in coverage, some maintain, can lead afflicted workers to neglect health maintenance and, in turn, increase an employer’s long-term health costs.

Paul Fronstin, director of health research and education at the Employee Benefit Research Institute in Washington, D.C., says, “Why not cover a pre-existing condition?” Eventually, “you’re going to cover it anyway.”

The requirement that pre-existing conditions be covered will be a plus mainly for individuals and families seeking coverage in the so-called individual market—coverage they buy on their own, not through an employer.

For smaller employers whose health plans exclude coverage of pre-existing conditions under particular circumstances, however, effects of the change remain to be measured. The end of such exclusions may increase some employers’ health costs, and these price hikes could prompt the employers to reconsider whether it’s in their financial interest to provide coverage at all. Deciding not to provide coverage, of course, would likely mean a separate and new set of penalties and expenses, as spelled out in other parts of the health care reform legislation. (For more on the impact of health care reform on employers, see “Now It’s Employers’ Turn” on page 34.)

Thus, even though the question of whether to cover pre-existing conditions will be moot for all insurers and employers beginning in 2014, employers still need to be familiar with the rules that are about to change and need to begin deciding how to accommodate those changes in their health coverage planning. Moreover, employers may decide that occurrences of pre-existing conditions call for stepped-up health management and incentives as part of their overall health strategies.

A ‘Pre-existing’ Primer

Pre-existing conditions are health problems—usually serious or chronic—that a person has prior to enrolling in an employer-sponsored or an individual health plan. The federal law that applies to pre-existing conditions is the Health Insurance Portability and Accountability Act of 1996, known as HIPAA. The law, according to a U.S. Department of Labor fact sheet, “defines a pre-existing condition as one for which medical advice, diagnosis, care or treatment was recommended or received during the six-month period prior to an individual’s enrollment date.” Some states’ laws pertaining to the insurance industry may set stricter requirements.

Conditions that commercial insurers have established as grounds for denying or delaying coverage vary by insurer; they include asthma, cancer, diabetes, epilepsy, heart disease, even acne.

In some circumstances, group coverage insurers could delay coverage for specific illnesses diagnosed or treated within the previous six months—illnesses that an insurer or an employer might tag as potentially problematic. The delay of coverage for that illness could last up to 12 months or up to 18 months if the new employee hasn’t enrolled promptly in a company plan. Coverage would be denied for that illness only; other medical costs would be covered.

Under HIPAA, however, if a new employee has at least 12 months of documented health coverage at his or her previous job and then enrolls in the new employer’s plan, and if there has been no break in “creditable coverage” of more than 63 days, the new plan generally cannot exclude coverage for a pre-existing condition. Types of creditable coverage include group health plans, COBRA coverage, Medicare, Medicaid and individual health insurance policies. The length of time that creditable coverage was in place can be used to offset the length of exclusion for a pre-existing illness in the new medical plan.

A Search for Value

While the ability to deny coverage for pre-existing conditions ends in 2014, such conditions could play a role in shaping employer-sponsored health coverage, particularly with the rise of value-based benefits design. It’s an approach that can include financial incentives to encourage more-healthful behavior, and it can help those with chronic conditions gain access to care that has proved to be beneficial.

For example, value-based design could encourage employees to seek more regular medical attention for chronic illnesses such as diabetes and hypertension—just two of the conditions often cited by insurers in blocking coverage.

In addition, in value-based design, co-payments for medical treatments not regarded as essential typically rise, making health plan participants think twice about elective or medically unnecessary procedures. In the bargain, companies will likely save money.

“The wave of the future is being more innovative with benefits packages,” says Fronstin, who adds that “pockets of innovation” such as value-based benefits design can make a difference.

Fronstin cites a Pitney Bowes program that has had an enduring, if indirect, impact on how pre-existing conditions are assessed. It’s part of a movement toward a broader application of evidence-based medicine—finding out what works and what doesn’t, and using that as the basis for making medical decisions and providing health insurance.

Andrew Gold, executive director of global benefits planning for Pitney Bowes, a business products provider based in Stamford, Conn., says executives noticed a sharp increase in employee medical costs more than a decade ago. Company research found that chronic illnesses were becoming a big issue: People weren’t getting treatment quickly enough, or they weren’t taking medications as prescribed, or they weren’t aware of the benefits of a preventive approach to their own health care.

Those findings seeded the value-based benefits design experiment. For Gold, what’s most critical is persuading workers to get proper treatment, teaching them how to aggressively manage serious or chronic illnesses, and educating them on how they can save on health costs. Like many companies, Pitney Bowes has put a high value on preventive care: It comes without co-payments.

Uncertainties Ahead

How employers and insurers handle coverage of pre-existing conditions—until coverage is mandated, and from 2014 on—remains to be assessed. Even the most informed experts on evolving health care reform can’t say for certain how things will play out.

The financial pressures to keep exclusions in place as long as possible for their cost-saving effects might be eased by the fact that additional revenues will flow to insurers’ coffers because of the requirement that Americans purchase health insurance. Milton J. Perkins, SPHR, senior director of Workforce Consulting Solutions in Lewisville, Texas, says the individual insurance mandate could offset any increased-cost burden to commercial insurers having to cover all pre-existing conditions.

“You’ll have 30 million more people walking in the door,” he says of the move to insure most of the country’s current pool of uninsured. “It’s not a complete wash, but a win for the insurance companies and medical practitioners. Who knows exactly where it will end up?”

The author is a freelance business writer in Basking Ridge, N.J.

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