Written Statement of Lee Tooman, Golden Rule Insurance Company Regarding H.R. 2121, H.R. 1565, H.R. 3626, et al

Golden Rule Insurance Company finds areas of general agreement with these legislative initiatives, and areas of significant disagreement.

Areas of Agreement with Respect to Small Employer Group
Health Insurance Reform

1)

2)

Collective Renewability: No small group should ever find itself singled out for termination or an abusive rate increase due to claims cost, duration since issue, or health of the group. Golden Rule has supported state legislation which would require every carrier to treat all its small group business as one collectively renewable pool of insurance.

Golden Rule has

Limited Use of Experience Rating:
supported state legislation which would limit to 15%
the annual rate increase any small group could receive
for claim experience, duration since issue, and health
of the group.
15% has become a number viewed as fair
by both the insurance industry and insurance regu-
lators. This, in fact, is the law in several states.

Golden Rule also supports placing limits on rate bands. The insurance industry and insurance regulators are in basic agreement that no small group should ever have rates more than two times (2x) higher than an identical group with the same coverage due to claims experience, duration since issue, or health of the group.

(While some states have laws with rate band limits of
1.67 to 1.00 for any one pool small group insurance,
these states also allow the use of multiple pools.
These states have a second rule which limits the aver-
age rate of the highest cost pool to 20% above the
average rate of the lowest cost pool. This combination
of factors ultimately produces a maximum spread of
rates of two-to-one (2:1). Golden Rule and others
favor the simpler approach of one pool and a two-to-one
spread of rates).

1

3)

4)

5)

Coverage Continuity for Individuals:

Golden Rule has worked with several organizations and state legislatures to promote coverage continuity for those who have entered into and stayed in the insurance system. Specifically, we propose that any individual who has remained continuously insured for at least one year should be able to have access to group health insurance without the application of new underwriting or new preexisting condition limitations.

The positive impact would be immediate and significant. The problem of "job-lock" would disappear, literally overnight. Moreover, the benefits would extend to dependent coverage. For example, a young person uninsured under his parents' health plan but who now loses his or her dependent status would be guaranteed to be insured with no interruption in coverage as he or she enters the job market. Newly divorced or widowed persons would similarly have guaranteed access to group health insurance as they enter or re-enter the job market.

Because individuals would have to meet the one year test of continuous coverage, there would be little opportunity for "gaming", particularly if the legislation is written with a "no loss, no gain" provision.

Coverage Continuity For Groups: To issue fair treat-
ment of groups and individuals within the group, Golden
Rule supports the concept of whole group underwriting
and coverage continuity found in the NAIC's Discontinu-
ance and Replacement Model Law. This law already
exists in numerous states.

By coupling the Discontinuance and Replacement Law with
rating and renewability reform, it is clear that no
small group should ever need to change carriers.
But if the group should want to, the group will be
treated as a whole group; so-called "cherry picking"
would be proscribed.

Abolishment of Ineligible Industries: Golden Rule
makes no individual or group ineligible for its health
insurance products due to occupation or industry. It
is clear that the rest of the health insurance industry
must take this same position.

Areas of Disagreement with Respect to Small Group Health Insurance Reform

1)

Guaranteed Issue:

Many people believe that insurance can function more fairly if no one is denied coverage.

Nothing could be further from the truth. Insurance is the business of indemnifying someone against a loss caused by a contingency or peril. That means risk: it might happen.

If someone has a known, serious medical condition and
is seeking "insurance" for that condition, there is not
one element of risk involved. That person is not seek-
ing insurance; that person is seeking someone else to
pay for that medical condition. That someone else"
will be the other policyholders, not some distant in-
surance company, and certainly not society as a whole.
That means higher premiums for the current policyhold-

ers.

Many are manipulating the definition of insurance. They wrongly believe that insurance is the process of taking bad risks with good risks.

Completely false. The role of insurance is to pool a group of common risks so that when one suffers a calamity, there are sufficient funds out of which to pay the costs of that calamity.

What is lost in all the pejorative terms like "creamskimming", "cherry-picking", and "risk avoidance" is that our insureds bought their coverage when they were in reasonably good health.

Many subsequently incurred medical costs that would
have otherwise ruined them. They didn't get automatic,
abusive rate increases, much less notices of termina-
tion. They were and are pooled with thousands of
other people. Some will get better and some will not.
But they know that their claims will be paid and their
premiums will not be singularly affected.

Insurers are seekers of risk, not avoiders of risk.
But it is risk which we seek.

Most people have no trouble applying this concept to other lines of insurance. We don't expect to buy a million dollar life insurance policy after we develop a life threatening disease. We don't expect to buy auto insurance after we wreck our cars. But somehow we expect we should be able to buy health "insurance" regardless of our health.

It is impossible to accomplish this goal in a market in which people can choose to be in or not be in the insurance system. Concepts such as guaranteed issue and community rating can only work if everyone is compelled to be in the system.

Unless you are prepared to mandate that all Americans must purchase and keep health insurance, guaranteed issue will have the likely consequences of much higher health insurance premiums and fewer people with insurance.

How much higher will health insurance premiums be? Proponents claim that the increase will be negligible. Golden Rule's experience was considerably different:

-Golden Rule offered no-questions-asked health insurance for employers with 10 to 25 employees. There was a surcharge for the no-questions-asked groups that ranged 15 to 20% above what the same group could get if they provided health information in their application.

-The no-questions-asked groups were required to have
had a previous insurance carrier. It was not
offered to groups that were purchasing insurance
for the first time.

-On the take-over from the other insurance company, pre-existing conditions were limited to $3000 in benefits during the first twelve months.

-After the first twelve months, the 15 to 20% sur charge proved insufficient. Claim costs rose to more than 50% above standard claim cost.

2)

-Over time, claim cost on the no-questions-asked business tapered off to 30 to 35% above standard claim cost.

There is a correct way to deal with the problem of those in our society who are both uninsured and uninsurable. Fortunately, they represent only about 1% of the non-elderly U.S. population.

That solution has already been found in most states.
It is known as a Comprehensive Health Insurance Pool
(CHIP). In Illinois, Maine, and Colorado (to name just
a few), the public has enacted CHIP plans that guaran-
tee that the funding is broad-based.

And this is critical. The great lure is to force the
financing back to insurance companies; a typical way is
through assessments on premiums. The problem with this
method is that less than half the population in a
typical state relies on private health insurance as its
primary source of insurance. The rest are either
exempted by virtue of ERISA, rely on government (Medi-
care and Medicaid) or are uninsured. The result will
be that those least able to withstand assessments
(small groups and individual buyers) are the ones who
get assessed.

Community Rating: Many people mistakenly believe that fairness can be promoted by charging equal premiums; i.e., community rating. They want to point to the way business was conducted 40 or 50 years ago by Blue Cross as proof.

People who buy health insurance want the lowest priced insurance available to them. The movement away from community rating many years ago was not a conspiracy engineered by the insurance industry, but rather a demand from the marketplace to be charged a rate that corresponds to risk and health care costs.

As with guaranteed issue, community rating can only
work in an environment where everyone is compelled to
buy insurance. This is because, with community rating,
some in society are being asked to subsidize others.
If those doing the subsidizing view it as unfair, they
will simply refuse to do it. When they drop out those
left behind will have no one to subsidize them, and
their rates will climb.