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Estimated Costs of Selected Consumer Protection Proposals: A Cost Analysis of the President’s Advisory Commission’s Consumer Bill of Rights

Leading Health Care Consumer Protection Proposals Would Result In Modest Premium Increases for HMOS

New Cost Analysis of Consumer Protections:
Major Provisions of President’s Consumer Bill of Rights and PARCA Estimated to Raise Premiums by Less Than 1%

Embargoed for release until: 9:00 a.m., EDT, Wednesday, April 22, 1998

For further information contact:
Chris Ferris (202) 347-5270
or Matt James (650) 854-9400

Washington, DC – A new independent cost analysis finds that the premium increases likely to result from two leading health care consumer protections proposals currently before Congress are modest. The study, prepared by Coopers & Lybrand for the Kaiser Family Foundation, finds that major provisions of the Consumer Bill of Rights and Responsibilities (CBRR) endorsed by the President are estimated to result in an annual premium increase of 0.61% for a typical HMO policy, adding approximately $31 per year to the cost of an average family insurance policy.

Major provisions of a similar proposal in the Congress, the Patient Access to Responsible Care Act (PARCA), would increase HMO premiums by 0.77%, adding an extra $40 to a family policy per year. The estimated premium increases under PARCA do not include the provision in the legislation that would allow health care consumers to sue their health plan directly; the researchers were unable to attach a dollar figure to this measure because of the high level of uncertainty regarding its potential impact.

The cost of individual consumer protection provisions in both bills range from 12 cents per person per year to assure access to specialists in the CBRR to $6.96 per person per year to require a point of service option in PARCA.

The study estimated the effect of the consumer protection provisions on HMOs, which are the types of plans most likely to be affected. The study finds that other types of health insurance plans – such as Preferred Provider Organizations or Fee for Service plans – would be less affected by the consumer protection provisions, so the average premium increases across all types of health insurance would be lower than the figures found in the study.

The average cost of an HMO policy for a family is approximately $5,160 per year, according to the study. The report uses the HMO policy as the prototype for estimating the effects of the proposals on health insurance premiums. Premium costs are usually shared by employer and employee.

The report, Estimated Cost Effect of Provisions of Consumer Protection Proposals by the President’s Advisory Commission and the Patient Access to Responsible Care Act, is among the first to provide an independent analysis of PARCA. It comes on the heels of similar preliminary estimates of CBRR costs prepared by the Congressional Budget Office in March.

“This study suggests that most of the consumer protection provisions in the bills currently before Congress will have modest price tags,” said Drew Altman, President of the Kaiser Family Foundation. “There should be plenty of room to find common ground as the legislative process moves forward.”

A Comparison of the Two Proposals

Last year, the President appointed a commission – the Advisory Commission on Consumer Protection and Quality in the Health Care Industry – to make recommendations for ways to improve the quality of health care services. The commission issued its report, the Consumer Bill of Rights and Responsibilities, last November. The President endorsed its recommendations earlier this year and required through executive order the application of many of the provisions to all federal health programs.

The Patient Access to Responsible Care Act sponsored by Representative Norwood (H.R. 1415) and the companion bill sponsored by Senator D’Amato (S.644) contain many provisions similar to the CBRR.

“The consumer protection proposals that we examined largely reflect changes that are already underway in the health care market,” said Sandra Hunt of Coopers & Lybrand, the study’s lead author. “We estimate a modest change in HMO costs resulting from these proposals.”

The study sponsored by the Kaiser Family Foundation finds some variation in the costs of the specific measures included in the proposals:

  • Information Disclosure: Both proposals contain provisions requiring information disclosure, which would require quality and satisfaction data to be made available to consumers. The CBRR recommends greater information reporting than PARCA. Because they are more extensive, the CBRR information disclosure requirements are estimated to cost six dollars per person per year; the PARCA provisions would cost about $1.20.

  • Emergency Services Access: Both also propose specific levels of access to emergency services, requiring the use of a “prudent layperson” standard for access to these services. This standard generally means that an individual who reasonably believes that emergency treatment is necessary must be provided coverage for the initial treatment costs of emergency care. The study estimates that the emergency care provisions in each of the proposals would increase premiums by about $1.20 per person annually.
  • Access to Specialists: The CBRR and PARCA include standards for access to specialist services, with the CBRR having more specific standards applying to gynecologists, certified nurse midwives and other routine and preventive services for women. In part because many health plans already allow access to specialists in a way similar to what the proposals call for, this provision would likely raise premiums nominally (by about 24 cents per person each year). Expanded access to women’s health services under CBRR, taken alone, would add about 12 cents per year.
  • Third Party Appeals: The two proposals include provisions to allow health care consumers to ask for an independent third party review of health plan service requests and utilization decisions. This appeals process is designed to ensure that health plan consumers have a fair and impartial decision-making process to determine the medical necessity of covered services. The estimated cost of this provision is $1.20 per person annually under each of the proposals.
  • Point of Service Option: Unlike the CBRR, PARCA would require that all network-model health maintenance organizations (HMOs) offer a Point of Service (POS) option to members. This would allow health plan members to chose health care providers that are not in the network by paying higher cost sharing for those services. This option would add an estimated $6.96 per person to annual premiums.
  • Liability and Malpractice: PARCA also includes an amendment to federal law to permit patients to sue health plans in cases of personal injury or wrongful death. However, the cost implications of this provision are uncertain, and Coopers & Lybrand did not estimate the potential cost because of the high level of uncertainty regarding its potential impact.

Estimated Annual Costs Per Person and Percent Increase in Premium 1391-pix_black.gifProvision CBRR PARCA Per Person Percent of Premium Per Person Percent of Premium pix_black.gif Information Disclosure $6.00 0.40% $1.20 0.08% pix_black.gif Emergency Service Access $1.20 0.11% $1.20 0.11% pix_black.gif Access to Specialists $0.12 0.01% $0.24 0.02% pix_black.gif Access to Women’s Services $0.12 0.01% Not part of PARCA pix_black.gif Third Party Appeals $1.20 0.08% $1.20 0.08% pix_black.gif Point of Service Option Not part of CBRR $6.96 0.48% pix_black.gifTotal $8.64 0.61% $10.80 0.77% Note: In some cases the figures cited here are annualized from monthly estimates included in the study.

Other Consumer Protection Proposals:

Since the Kaiser Family Foundation commissioned the report, two other consumer protection measures have been proposed on Capitol Hill, one sponsored by Representative Dingell and Senator Daschle (H.R. 3605/S. 1890), and the other by Senators Jeffords and Lieberman (S. 1712).

More information on the four consumer protection proposals can be found on the Internet:

CBRR
PARCA
Dingell/Daschle
Jeffords/Lieberman


Methodology

The report, Estimated Cost Effects of Provisions of Consumer Protection Proposals by the President’s Advisory Commission and the Patient and Access to Care Act, is based on a Coopers & Lybrand analysis of actuarial data, prior research, and interviews with key health plan, association, and industry leaders. Actuarial data were used in those portions of the analysis where certain practices are already in place. Information regarding the level of change in practices that would be required to comply with the proposed standards was obtained from experts in the field and from a review of literature. The estimated premium increases under PARCA do not include the provision in the legislation that would allow health care consumers to sue their health plan directly, since the researchers were unable to attach a dollar figure to this measure because of the high level of uncertainty regarding its potential impact. The estimates also do not include the effects of provisions in PARCA prohibiting health plans from discriminating against certain providers and providing health professionals with a variety of due process rights.

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The Kaiser Family Foundation, based in Menlo Park, California, is an independent national health care philanthropy and is not associated with Kaiser Permanente or Kaiser Industries.

Additional copies of this report are available by calling Kaiser Family Foundation’s publication request line at 1-800-656-4533 (Ask for document #1391). This press release is also available on the Kaiser Family Foundation website at http://www.kff.org.

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Leading Health Care Consumer Protection Proposals Would Result In Modest Premium Increases for HMOS
Press Release

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