Alabama health insurance reforms needed for affordability

KM | April 29, 2008

Two important forces are working against small group health insurance in Alabama: 1) state laws currently prevent employers from incorporating the lowest cost type of insurance into their health plans, and 2) the state's strict liability laws and past legal judgments deter innovative health insurance companies from offering the types of more affordable health plans that are increasingly becoming the popular choice in other states.

First, it is important to realize that we are in the midst of a long term trend from defined benefit health plans to defined contribution health plans. These new plans are often referred to as "consumer driven health plans". This economic trend can be compared to the change in employer-sponsored retirement benefits that evolved over the past three decades. Defined benefit pension plans of past generations were largely replaced with defined contribution 401(k) plans that prevail today. Similarly, most large employers have already switched their health plans to the defined contribution type. Small businesses will follow, but at a slower pace. Antiquated insurance laws prohibit small businesses from using the lowest cost and most efficient insurance. For example, Alabama law prevents an employer from paying the premium on an individual type health insurance policy even when that policy is chosen by the employee as the best value. Individual insurance is typically less expensive than group insurance because it tends to be "plain vanilla" coverage without expensive mandated coverage provisions. The restrictive law was originally designed to protect consumers but now largely serves to make insurance unaffordable or unavailable. A simple change in insurance law to allow employer plans to use any available health insurance would greatly benefit Alabama's small businesses.

Second, Alabama needs to model its legal standards closer to national norms by limiting the legal liabilities of health insurance companies. Court decisions and verdicts in Alabama are considered to be the worst in the nation. We fail to see the legal logic in some the decisions handed down by Alabama state courts regarding health insurance over the past decade. As a result of these actions, most of the innovative low cost health insurance plans have pulled out of Alabama, citing "adverse legal climate". If the state wants the nation's best health insurance companies to come back to the state then some limitation on liability will be necessary.

For now, most Alabama small business owners and their employees may be best finding their own individual low cost health plans. Al list of popular and reputable choices can be found on the Alabama Benefits Listing page at http://www.medsave.com /low-cost-health-insurance-listing/al.htm


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