Cutting Edge

Doug Boehm

Denver resident Steve Bieringer knows what it's like to suddenly lose insurance coverage that he'd previously taken for granted.

A longtime diabetic, Bieringer uses an insulin pump. After changing jobs several years ago, he transferred to his wife's insurance plan. He was under the impression that the new plan included insulin pumps, but when he filed a claim, the insurance company denied it.

"They said the employer didn't cover that," recalls Bieringer.

Because insulin pumps cost about $5,000 apiece, Bieringer panicked. He appealed the denial through the state insurance commissioner's office. After much bureaucratic wrangling, he was able to get the treatment he needed. But the experience left him convinced that state law has to back up citizens facing a medical crisis.

"People get diabetes all of a sudden, and they think it's covered," says Bieringer. "Then they're told at a time when the need is most severe [that] nobody will pay for it. They may not be able to work, and then on top of it, they find out insurance won't pay for anything."

Situations like Bieringer's have caused the state to mandate that insurance policies address more than a dozen different medical procedures. Each mandate was added to state law after countless consumers testified before the state legislature, expressing their anger at being denied what they thought was basic health care.

Colorado has fewer mandates than many other states, but those it does have would be considered essential to most people: basic maternity care, hospital stays for newborn children, mammography and treatment of birth defects, diabetes and biologically based mental illnesses such as schizophrenia.

Without proper treatment, chronic diseases like diabetes can become more severe -- and more costly -- over time. "Long-term complications are blindness, kidney failure and heart disease, all very expensive to treat," says Bieringer, adding that the legislature was persuaded to pass many of the mandates because they help to catch medical problems early on, preventing future hospitalization.

"What [each] mandate says is, this coverage will be included in any policy sold in Colorado," says Bieringer.

But these same mandates are now under the microscope at the State Capitol. Governor Bill Owens claims that the cost of fulfilling the legislature's requirements is driving the price of health insurance out of the reach of small businesses. He would like to see insurance policies that do not include the mandated benefits.

"Small employers are now required to offer a Cadillac health policy," explains Dan Hopkins, spokesman for the governor. "As an option, they should be able to offer a Chevy policy, so at least someone could get catastrophic coverage. The mandates have resulted in higher medical costs."

The governor's proposal is in response to exploding medical expenses that have outraged employers and consumers all over the state. Annual premium increases of 20 percent are now standard, and many small businesses have faced cost increases of 100 percent or more. Small employers are especially vulnerable to price hikes because they don't have the bargaining power of businesses with hundreds of employees.

"Health-care costs are the top problem for small businesses in Colorado and nationwide," says Tim Jackson, state director of the National Federation of Independent Business (NFIB). "Medical costs are going up four to five times the rate of inflation."

Jackson agrees that getting rid of the mandates will help small businesses offer health coverage to their employees.

"Our health-care policies have been pricing small business out of the market," he asserts. "These are top-down, government-dictated, choice-limiting, unfunded health-care-benefit mandates that add on to the cost of health care."

While no one knows exactly how much the mandated benefits add to the cost of health insurance, most estimates are that costs are boosted from 5 to 10 percent. Many other states have passed laws allowing insurance companies to offer mandate-free, "catastrophic" health coverage, but they've found the policies to be unpopular with both businesses and consumers. Employers are often disappointed with the savings such policies allow, and their employees are unhappy with the loss of coverage for things they regard as health-care essentials.

The push to get rid of mandates is just the beginning of a coming crisis in American health care. As in other states, employers in Colorado -- already hammered by the recession -- are desperately looking for ways to control health-care expenses. New policies are being introduced by all of the state's major insurers that shift more of the cost of health care to consumers. Higher co-payments, bigger deductibles, and policies that don't kick in until expenses reach several thousand dollars are all part of policies now being drafted. People who have counted on their health insurance to protect them from huge medical bills will soon be surprised to discover that they are expected to carry much of the burden themselves.  

"People save money to buy a house or to cover emergencies," says Lorez Meinhold, executive director of the Colorado Consumer Health Initiative. "To say medical costs are something you have to incur every year will put a huge strain on family budgets. Health-care costs are already one of the top ten reasons for bankruptcy. If people are impoverished by this, they'll end up being the responsibility of the state."

Marilyn Lang is a self-described "volunteer lobbyist" on health care. She is frequently seen at the Capitol, talking to lawmakers about health-related issues. Her elderly father struggled with prostate cancer for years, and Lang became interested in the disease. In 1995 she successfully lobbied the legislature to add prostate screening to the list of procedures for which insurers must pay.

"We managed to get support from conservative legislators who had had prostate problems," Lang says.

Getting a mandate approved by the legislature is no easy task, she adds, and she fears the governor's proposal will be the beginning of the end for all of Colorado's mandated coverage.

"We wouldn't have mandates in this state if the insurance industry had been doing what they're supposed to do -- care for their patients," says Lang. "We shouldn't be taking away what little we have."

Meinhold believes the requirements in Colorado add no more than 5 percent to the cost of health insurance. She says many of the mandated services can save huge amounts of money in the long run.

"If you eliminate mammography or prostate cancer screenings, you will have people getting cancer and having more serious problems down the road. A lot of those mandates had to go through a cost/benefit analysis and were proven to be cost-effective. Nobody thinks they're going to get a mental illness, or they may not be planning to get pregnant. That's why you buy insurance -- to cover the unexpected."

Without some mental-health coverage, Meinhold adds, the state will have to pick up the tab for people with severe mental problems. It was sad tales from consumers that pushed conservative lawmakers to go along with the mandates in the first place.

"There were terrible stories about how somebody wouldn't be covered even though they had insurance. They were unable to get immunizations and newborn care or treatment for complications in pregnancy. For every mandate, there's a group that worked on it."

Getting rid of coverage for pregnant women also could boost health-care costs, says Judith Glazner, who teaches health policy at the University of Colorado Health Sciences Center. "If you have good prenatal care, you can avoid huge expenses," she says. "Women who go without prenatal care are at risk of delivering premature babies."

Jackson's NFIB has been the main group pushing the mandate-free idea in the legislature. So far, the insurance industry has stayed out of the fray, saying it will work with whatever guidelines the legislature approves. A bill to roll back the mandates was introduced last month by state senator Bob Hagedorn of Aurora and House Majority Leader Lola Spradley of Beulah. However, Hagedorn abruptly yanked that version of the bill in the Senate two weeks ago, saying he wanted to rework the legislation. Senate President Stan Matsunaka and Senate Majority Leader Bill Thiebaut have both said they oppose getting rid of the mandates.

But Jackson insists that whatever savings can be had from abolishing mandates are well worth the cost. He notes that more than 700,000 Coloradans are without health insurance. Many work full-time at small businesses that either don't offer health coverage at all or ask employees to pay so much of the cost that they decide to decline the benefits.

"The cost of health care is the number-one problem for small business," says Jackson. "If you're an employee in a small business, you're likely to have to pay 50 percent of the cost of your premium and 100 percent for your dependents. If we could lower the cost of health care in Colorado by 8 to 10 percent, we could get thousands more Coloradans insured."

Besides getting rid of the mandates, Jackson would like the legislature to require insurers to offer so-called "catastrophic" policies. These plans have deductibles of as much as $5,000, meaning they would kick in only if someone were hospitalized or had a devastating illness. Such plans are already legal in Colorado, but Jackson says businesses often can't find insurers who want to sell them.

"Under current law, they have to offer basic and standard policies but not catastrophic," he says. "We believe once it's carved out in the law, it will be more of an option."  

Carl Miller, spokesman for Anthem Blue Cross & Blue Shield, says high-deductible policies have been available for years.

"Catastrophic insurance has been sold since the 1940s," he says. "It's indemnity insurance with a very high deductible. You can buy these kinds of policies today. The typical deductible on those type of policies is $5,000. Many self-employed people have these. It's fine for somebody who has a good income; it's not the answer for everybody."

Miller says several states have experimented with allowing mandate-free policies, and the results have been disappointing.

"In other states where this has been attempted, it hasn't really worked," he says. "It probably wouldn't be acceptable to consumers and wouldn't sell well."

Several studies have tracked the experience of states that allowed such policies. A 2000 report by the National Academy for State Health Policy found that "bare bones" or "no frills" policies hadn't made an impact on the number of uninsured employees. Oregon, which passed a law in 1989 allowing limited coverage, never had more than 7,000 people enrolled in such policies, and the state eventually rescinded the provision. In other states that took similar action, only a few hundred policies were sold. Kansas and Illinois sold so few plans that they, too, repealed the laws allowing them. In Maryland, the one insurance carrier that offered streamlined coverage reported no sales.

In 1996, the Indiana Commission on Health Care for the Working Poor rejected a proposal to subsidize the purchase of no-frills plans for the uninsured. The commission found that low-income employees saw the plans as a "bad deal," because most of their medical expenses were under the deductible, so that they would have to pay medical bills in addition to the premiums.

Those who fought to create Colorado's mandates say Owens is trying to blame them for the growing crisis in health-care costs. But the idea that mandates are the cause of health-care inflation is akin to the notion that simply getting rid of government regulation will solve all of society's problems, says Denis Berckefeldt, chief of staff for Senator Thiebaut.

"There's a parallel to Enron, which said, 'Just deregulate everything and the market will take care of everybody,'" Berckefeldt adds.

Lobbyist Lang says that if Colorado scraps the mandates, those unfortunate enough to be covered by no-frills policies will discover that having medical insurance doesn't mean much.

"The governor talks about the Cadillac policy versus the Chevrolet policy," she adds. "I think what the governor wants is a mud-mobile policy."

Gail Lindley owns the Denver Bookbinding Company, which has been in business for 73 years. She has twenty employees, some of whom have worked for the company for decades. She's proud of the way she treats her employees, paying good wages and enjoying a low turnover rate.

But her health-insurance costs are rising so quickly, she fears she soon won't be able to offer the benfit to her employees.

"We have seen a 40 percent increase," she says. "It's awful. At one point, we would pick up the whole premium for employees. Now we're picking up half the employees' cost, and they have to pick up the balance."

Lindley's employees have to pay the full cost of insuring their spouses and children. There's a possibility that some of her employees may simply cancel their insurance policies altogether.

"Are they going to decide 'I'll take the chance and drop insurance so I'll have a bigger paycheck'?" she asks. "Then if something happens, they'll go over to Denver Health. Who pays for that? The community."

Denver Bookbinding is typical of businesses around the state. And so, in response to the clamor over premium costs, Colorado's major insurers are creating new policies that require consumers to pick up more of the tab for their own health care.

"On January 1, we introduced a whole new series of policies," says Miller of Anthem Blue Cross & Blue Shield. "Employers can choose how much they want to spend. Their choices are how much of a deductible or co-payment do they want the employee to share."

Many new policies now require that employees meet 20 percent of their medical bills, says Ralph Pollock, a Denver-based health-care consultant.

"We're shifting the burden to employees," he says. "For more and more people, the system isn't working."

A recent national study found that more than half of all employers intend to require workers to pay a higher percentage of health-care premiums this year then they have in the past. Already, several insurers, including Aetna, Humana, Cigna and UnitedHealth, are introducing a new type of plan that will probably shock many employees. Under the plans, an employee receives an "allowance" of $2,000 to $3,000 to spend on health care. If an employee runs up medical bills larger than that, he has to pay them, with insurance not kicking in again until the employee has shelled out as much as $5,000.  

Many experts believe this kind of policy may be the wave of the future.

"We've been spoiled," says Pollock. "We've come to see [health insurance] as a benefit and now it's being taken away. We're the only [advanced] country where there's a link between your employer and health insurance. That's great if you work for Qwest, but not if you work for 7-Eleven. As long as this is on the employer's back, we're going to have a problem."

The meltdown of the medical-insurance system that now seems to be under way has been described in the media as "the perfect storm." That's because the number of uninsured has started to rise along with the unemployment rate. At the same time, leapfrogging medical costs have caused more businesses to simply drop insurance coverage for their employees altogether. More people are applying for Medicaid coverage (the medical program for the poor that is jointly funded by the state and federal government) at the same time that state governments -- including Colorado's -- are having to slash their budgets because of the recession.

"We're all waiting for the system to implode, and then we'll see what comes next," says Pollock.

Health-care costs are rising so quickly for two reasons: the high cost of pharmaceutical drugs and the continuing introduction of expensive new technology. Other industrialized countries have national health plans that keep a tight rein on these costs, but in the United States, there is no such system. In Canada, for example, the government provides health insurance to all citizens -- a system known as "single payer" -- and carefully evaluates the use of medical technology.

"At one point, Denver had 16 MRIs (magnetic resonance imaging machines), and so did Canada," says CU's Glazner. "Most economists believe the major thing driving costs is technological change. There are tradeoffs we're going to have to make. If we're going to contain costs, we may have to stop investing in new technology."

After the widespread advent of managed care in the mid-1990s, medical inflation declined dramatically. Health maintenance organizations (HMOs) aggressively pressured hospitals and doctors to lower costs. While managed care was unpopular with many consumers who were denied certain types of treatment by their insurers, it definitely reduced costs. But now even managed care seems unable to stop the spiraling price of health care.

"I think managed care has controlled all the costs they can control," says the Consumer Health Initiative's Meinhold.

Colorado Commissioner of Insurance William J. Kirven says he constantly talks to employers frustrated with medical costs. Kirven has been personally affected by the rising premiums, since state employees have to pay a large share of their own insurance costs.

"My own policy went up 27 percent," he says.

Kirven believes Americans need to take a hard look at their medical system. He points to the constant television advertising for prescription drugs as one way people are encouraged to demand drugs they may not even need. "Our drug companies are using advertising to generate money," says Kirven.

Like others in the health field, Kirven also blames the helter-skelter introduction of new technology for medical inflation.

"I was in a hospital the other day and saw a bed that turns from side to side so patients don't get bedsores," he says. "It probably costs $50,000. We really don't have a handle on this."

Kirven estimates that 18 percent of Coloradans, or about 700,000 people, have no health insurance. The problem is especially severe in rural Colorado, since insurers prefer serving the densely populated urban areas, where they can target advertising and generate higher profits.

"We all pay a tax so the rural areas can have phone service," notes Kirven. "Sometimes I think our health care should be like a utility."

The United States spends an estimated 14 percent of its Gross Domestic Product on health care, more than any other country in the world. But Americans are not seeing the quality of care they should for that kind of money.

"Germany spends $2,300 per capita on health care, and we spend $3,400 -- and we're not even in the top ten [countries] for overall health status," says Kirven. "We're not getting bang for the buck."

Many people with insurance haven't paid much attention to medical costs. Pollock thinks that's been part of the problem.

"When people get their $45 prescription drugs for $5, they think that's what it costs," he says.  

He predicts consumers will change their ways when they realize they have to pay at least 20 percent of the bill.

"If you're going to have your hernia repaired and you have to pay 20 percent, you'll want to know how much it costs," says Pollock. "The same procedure can cost $5,000 at one hospital and $2,000 at another."

Others fear consumers will simply not go to the doctor if they know they have to pay a big part of the expense.

"Will people forgo care?" asks Meinhold. "A condition may get worse before people seek care. Are we looking at the long-term costs or just short-term savings?"

In the Colorado Legislature, as in the U.S. Congress, politicians are afraid to propose any kind of radical change to the American health-care system.

That's because they remember the huge political price President Bill Clinton and the Democratic Party paid when Clinton tried to overhaul the country's medical system in 1993. Clinton's proposal for universal health insurance and cost controls was attacked by the insurance industry, which unleashed a blizzard of television advertising -- including the infamous "Harry & Louise" spots -- portraying the plan as a government takeover of health care. Congress became deadlocked and passed no new health legislation. In the 1994 congressional elections, many disillusioned Democrats stayed home, and the Republicans captured the U.S. House of Representatives for the first time in forty years.

"Nobody wants to go at the root problems, because they remember what happened to Clinton when he tried to do something about this," says Pollock. "He ran up against the insurance industry and their ads, and it killed him. It's the third rail for politicians. They don't want to touch it."

On the other hand, Pollock notes that both President George W. Bush and Governor Owens received large campaign contributions from the insurance industry.

"It's really hard to change the system, because you're going to gore somebody's ox," he says.

Senator Thiebaut discovered just how big of an issue health care could be last summer, when he started hearing from state employees in his Pueblo district who said they could no longer afford health insurance. In Pueblo County, the state's health carriers -- Cigna, Aetna, Anthem and Rocky Mountain HMO -- had announced premium increases that averaged 236 percent.

"Toward the end of August, I started getting calls from state workers saying, 'Help us with our insurance,'" recalls Thiebaut. "I found out the [Colorado] department of personnel had bid the state insurance package in such a way as to discriminate against Pueblo. Some providers refused to bid, saying Pueblo had higher needs. It put the state workers in a position where they couldn't afford insurance."

The insurance companies told the state that costs were higher in Pueblo because of a larger population of seniors and uninsured. That's because costs incurred from treating those who don't have insurance eventually get passed on to those who do. (Under federal law, for example, hospitals are required to treat anyone who shows up at an emergency room. If they can't afford to pay and aren't covered by Medicaid, the hospital often has to absorb the costs. By adding this expense to their bottom line, hospitals in effect transfer the cost to their insured patients, a practice known as "cost shifting.")

Thiebaut says the impact of the price jump on families of state employees would have been devastating. "The average state worker makes $2,500 to $3,500 per month in Pueblo, and many of them would have had to pay $1,000 [per month] for health insurance."

In October, angry state employees from Pueblo descended on the capitol, carrying signs that read: "Will Work 4 Health Insurance: state employee, five children" and "My family can't afford $800 health insurance." One speaker described Pueblo employees as "the canary in the coal mine" for a failing insurance system. During last fall's special session, Thiebaut convinced the legislature to appropriate $1.8 million to bring the Pueblo employees' costs in line with those of other state employees.

The experience convinced the senator that the state has to take a larger role in regulating health insurers. In other states, such as Maine, there have been serious discussions in the state legislature about creating a statewide single-payer system, but no one expects that the largely conservative Colorado legislature would consider such a proposal.

Later in this legislative session, Thiebaut hopes to persuade his colleagues to at least create a consumer advocate's office for insurance. The state already has a highly effective consumer advocate for utilities, and he thinks a similar advocate could examine health-insurance policies and make recommendations to the state from the consumer's perspective. Thiebaut also wants to require that insurers win state approval before they can hike rates, similar to what the Colorado Public Utilities Commission (PUC) does with telephone and power rates.  

"We have a state where insurance companies can file rate increases and they're automatic," says the senator. "There should be a hearing process similar to the PUC process on utility rates. There should also be a consumer advocate who can stand up for consumers. I want somebody independent and ready to say what needs to be said."

(Thiebaut's ideas may get a hostile reception from the governor, who usually opposes new government regulations. A spokesman for Owens says he won't comment on Thiebaut's proposal before legislation is introduced.)

The state of Georgia created a consumers' insurance advocate office in 1999.

"Basically, we're an independent watchdog on insurance issues," says Lane Goldberg, spokeswoman for the office. "We provide feedback to the insurance commissioner on proposed rate hikes. We look at ways to make insurance more accessible to people."

Colorado already has an insurance commissioner who is charged with helping consumers. But Thiebaut says that, historically, the state's commissioners have come from the insurance industry, whether they're appointed by a Democratic or Republican governor.

"We need to have somebody who is accountable to the public," he says. Commissioner Kirven is the former legal counsel for PacifiCare health insurance. Despite his background with the industry, he insists that his office is trying its best to represent consumers.

"We devote most of our resources to dealing with consumer complaints," he says. "We have very knowledgeable people here who are strong advocates."

The leap in health-care costs doesn't just affect health insurance. Automobile insurance rates have also been increasing rapidly in Colorado.

"Auto premiums are going up, primarily because of medical expenses," notes Kirven. "The personal-injury-protection premium at State Farm went up 50 percent."

This year the legislature will debate the future of the state's no-fault auto insurance law. Under that law, most medical expenses in accidents are paid by each driver's insurer, regardless of fault. However, Colorado allows people with more than $2,500 in medical bills to file claims against the other driver for bodily injury, which may include "pain and suffering." There is expected to be a push this year to raise that threshold, something the state's trial lawyers will fiercely resist.

All of this skirmishing over auto insurance and mandated health care won't do much to help small businesses struggling to cover employees or the thousands of Coloradans who live without health insurance. Many people believe the crisis will only worsen, while the legislature keeps trying to find easy solutions that have little impact.

"What we see happening at the legislature is a hodgepodge of temporary fixes rather than trying to get a permanent fix," says Ellen Golombek, president of the Colorado AFL-CIO.

In the meantime, thousands of Coloradans are either frantically trying to get the money together to pay high deductibles or taking their chances without insurance.

"It's frustrating to watch this," says Pollock. "A lot of people are really struggling. Mothers go to bed at night saying 'I hope my kids don't get sick because we don't have insurance.'"

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