Prepared by Mary Anderlik, Researh Profesor, Health Law and Policy Institute,
and Wendy Wilkinson, Attorney and Project Director, Southwest DBTAC, ILRU

U.S. Agency for Health Care Policy and Research. Theory and Reality of Value-based Purchasing: Lessons from the Pioneers. AHCPR Publication No. 98-0004, November 1997. Free, single copies of the printed report (AHCPR 98-0004), are available from the AHCPR Publications Clearinghouse, P.O. Box 8547, Silver Spring, Md. 20907; tel: 1-800-358-9295. The report is also available on-line at http://www.ahcpr.gov/qual/meyerrpt.htm. The report describes strategies used by innovative employers.

National Health Law Program. Medicaid Managed Care Contracts: An Advocacy Checklist for People with Disabilities. National Health Law Program, 1997. This document is available on-line at http://nhelp.org/pubs/mc1997checklist-disabilities.html. Although the checklist was designed for advocates reviewing Medicaid managed care contracts, many of the sections would be helpful to an employer negotiating a contract with a managed care organization, e.g., Selection of Primary Care Provider, Specialists, Access and Availability Standards, Scope of Services (some items), Special Needs, Due Process (some items), Financial and Organizational Requirements, and Reporting Requirements.

The website for the National Committee for Quality Assurance includes a page specifically for employers, http://www.ncqa.org/Pages/Main/employers.htm. Among other things, this site can be used to search NCQA’s accreditation status list and review accreditation summary reports on particular health plans.

The Pacific Business Group on Health has created the California Consumer HealthScope, http://www.healthscope.org/. This webpage provides access to quality information concerning a number of health plans, hospitals, and medical groups located in California. Also, it can serve as a model in two areas: (1) selection of quality indicators to evaluate plans and providers and (2) consumer education. Another webpage that can be used for similar purposes is that of the Federal Employees Health Benefit program, http://www.opm.gov/hr/insure/html/about.html.

Tony Dreyfus, Richard Kronick, and Carol Tobias. Using Payment to Promote Better Medicaid Managed Care for People with AIDS. Henry J. Kaiser Family Foundation, July 1997. This report should be available free of charge from the Kaiser Family Foundation, 1-800-656-4533 or www.kff.org. While the focus is on HIV/AIDS, much of the information is general and should be relevant across disabilities.

The Health Care Financing Review, a subscription journal sponsored by HCFA, has published several articles on capitation rates for people with disabilities: Richard Kronick et al., "Diagnostic Risk Adjustment for Medicaid: The Disability Payment System," Health Care Financing Review, 17, no.3 (Spring 1996): 7-33; Richard Conviser et al., "Health-Based Payment for HIV/AIDS in Medicaid Managed Care Programs," Health Care Financing Review, 19, no. 3 (Spring 1998).

In July of 1999, the National Academy for State Health Policy published the Directory of Risk-Based Medical Managed Care Programs Serving Elderly Persons or Persons with Disabilities. The Directory details the activities of the 37 states enrolling the elderly or people with disabilities in Medicaid managed care. Information provided on each state's program(s) includes: start year, scope, eligibility, number of enrollees, benefit package, risk-adjustment and limitation mechanisms, and contractors. The directory can be purchased via the academy’s publication page at http://www.nashp.org/pubs/medicaid.htm#MMC52. The cost is $20 for governmental and non-profit organizations and $35 for others.

A press release from the Health Care Financing Administration (HCFA) concerning implementation of risk-adjustment in the Medicare program is available on-line at http://www.hcfa.gov/certcontrol/news/pr1999/pr011599.htm.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA), Pub. L. No. 104-191, sets limits on pre-existing condition exclusions. The following description is taken from an appendix to a GAO report, Private Health Insurance: Progress and Challenges in Implementing 1996 Federal Standards (GAO/HEHS-99-100):

Group plan issuers generally may deny, exclude, or limit an enrollee’s benefits arising from a preexisting condition for no more than 12 months following the effective date of coverage. A preexisting condition is defined as a condition for which medical advice, diagnosis, care, or treatment was received or recommended during the 6 months preceding the date of coverage or the first day of the waiting period for coverage. Pregnancy may not be considered a preexisting condition, nor can preexisting conditions be imposed on newborn or adopted children in most cases.

Issuers of group coverage must credit an enrollee’s period of prior coverage against the group issuer’s preexisting condition exclusion period. Prior coverage must have been consecutive with no breaks of more than 63 days to be creditable. For example, an individual who has been covered for 6 months and changes employers may be eligible to have the subsequent employer’s plan’s 12-month waiting period for preexisting conditions reduced by 6 months. Time spent in a prior health plan’s waiting period may not count as part of a break in coverage.

Apart from HIPAA, the question arises whether a pre-existing condition exclusion can be challenged under the ADA. This gets complicated. The challenge would proceed under Title I (governing employer-sponsored benefits) and/or Title III (governing public accommodations). (The courts are split over whether Title III applies to the terms of insurance policies, but let’s assume it does.) Section 501(c), which is referred to as the "insurance safe harbor," protects at least some insurance practices from challenge under the ADA. It says that Titles I through IV should not be construed to prohibit or restrict (1) an insurer or other entity that administers benefit plans from underwriting risks, classifying risks, or administering such risks in a manner based on or not inconsistent with State law; (2) a person or organization from establishing, sponsoring, observing or administering the terms of a bona fide benefit plan based on underwriting risks, classifying risks, or administering such risks in a manner based on or not inconsistent with State law; or (3) a person or organization from establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that is not subject to State laws that regulate insurance (ERISA prevents the application of state insurance regulations to employer-sponsored self-funded health plans). However, the safe harbor may not be used as a "subterfuge to evade the purposes of title I and III."

What does this mean? Here’s what the Equal Employment Opportunity Commission (EEOC), which is responsible for Title I, has to say in its Title I Technical Assistance Manual: "An employer may continue to offer health insurance plans that contain pre-existing condition exclusions, even if this adversely affects individuals with disabilities, unless these exclusions are being used as a subterfuge to evade the purpose of the ADA." In the EEOC’s Interim Enforcement Guidance on employer-provided health insurance (June 8, 1993), the agency says subterfuge "refers to disability-based disparate treatment that is not justified by the risks or costs associated with the disability." If the EEOC determines that a challenged provision is "disability-based"—and this may be very difficult to establish with a general pre-existing condition exclusion—the EEOC says it is up to the respondent to come forward with evidence that there is no subterfuge. For example, the respondent could prove that the disparate treatment is justified by legitimate actuarial data or reasonably anticipated experience.

Now these interpretations of the ADA by the EEOC were not the result of notice and comment rulemaking, so courts may not give them much weight. Several federal courts have required insurers to offer justifications for terms in their policies, e.g., Winslow v. IDS Life Insurance Co., 29 F.Supp.2d 557 (D. Minn. 1998); Chabner v. United of Omaha Life Ins. Co., 994 F.Supp. 1185 (N.D. Cal. 1998); World Ins. Co. v. Branch, 966 F. Supp. 1203 (N.D. Ga. 1997) (note that these were mostly cases in which a particular condition was singled out in a denial or in the terms of a policy). However, a number of courts have gone the other way: Pallozzi v. Allstate Life Ins. Co., 998 F. Supp. 204 (N.D.N.Y. 1998) (party challenging discrimination has the burden of proof); Ford v. Schering-Plough Corporation, 145 F.3d 601 (3d Cir. 1998), cert. denied, 119 S.Ct. 850 (1999) (a prima facie allegation of subterfuge does not compel the insurer to justify its policy coverage); Modderno v. King, 82 F.3d 1059 (D.C. Cir. 1996) (suggesting that plaintiff has burden of proof on the issue of subterfuge).

A related issue is whether someone challenging a term in an insurance policy has to show intent to evade the purposes of the ADA in order to establish subterfuge. The EEOC says no. In Doukas v. Metropolitan Life Ins. Co., 950 F.Supp. 422 (D.N.H. 1996), a federal district court ruled that the plaintiff was not required to show conscious intent to discriminate to establish subterfuge. Unfortunately, the appeals courts seem to be headed in the other direction. In Leonard F. v. Israel Discount Bank of New York, 1999 WL 1114700 (2nd Cir. 1999), the Second Circuit Court of Appeals ruled that the subterfuge clause in Section 501(c) requires an intent to evade the ADA, making it inapplicable to a plan formulated prior to the passage of the ADA, regardless of whether the plan relied on sound actuarial principles. The court rejected the plaintiff’s argument that Section 501(c) requires insurers to base their decisions with respect to disabled individuals on sound actuarial principles. See also Modderno v. King, 82 F.3d 1059 (D.C. Cir. 1996); Ford v. Schering-Plough Corporation, 145 F.3d 601 (3d Cir. 1998), cert. denied, 119 S.Ct. 850 (1999); Krauel v. Iowa Methodist Medical Center, 95 F.3d 674 (8th Cir. 1996).

State laws often require that insurers base underwriting decisions on actuarial data or reasonably anticipated experience. A good beginning is to contact the state department of insurance for information on state requirements and how one might go about initiating an investigation.