By Linda Gorman
There are many ways to provide medical care for people with pre-existing conditions. Real world experience shows that some work better than others. Properly structured stand-alone high risk pools and medically underwritten individual health policies guaranteed coverage for more than a decade before ObamaCare. They cost much less and provided more flexible coverage. Why not repeal ObamaCare and introduce new and improved structures based on past successes?
The fact that so few policy makers have any actual experience with the individual insurance markets they want to regulate makes them particularly susceptible to snake oil salesmen with an agenda. Passing reforms that work requires focusing on things known to work rather than on fashionable nostrums offered by ideologues claiming to know more about health insurance than the people who buy and sell it.
In 2012, about 199 million people in the United States had private health coverage. Only about 30 million people purchased their own coverage directly thanks to U.S. tax laws requiring individual coverage to be purchased with after-tax dollars, while pre-tax dollars could be used to purchase coverage offered by employers.
In 1996, federal law required each state to provide guaranteed coverage for people with pre-existing conditions. By 2009, thirty-five states had chosen to operate stand-alone high-risk pools. In 2008, the GAO reported that they enrolled about 200,000 people who paid premiums covering 54 percent of their $1.9 billion in claims in 2008. Federal grants paid for less than 2 percent of total 2008 costs.
States like New York, New Jersey, and Massachusetts decided to cover pre-existing conditions using the ObamaCare approach. They passed guaranteed issue laws requiring insurers to issue policies regardless of individual health status. Some also eliminated risk pricing and replaced it with community-rating price controls.
Premiums were more affordable, products were more attractive, and people with pre-existing conditions were offered more reasonably priced coverage in states with more sensible regulation, medically underwritten individual policies, and segregated high-risk pools. In Kansas in 2009, a 27-year-old man could buy a policy with a $5,000 deductible for $50 a month. The same policy for a 60-year-old cost $179 a month. Policies were guaranteed renewable once they were in force. It was illegal to raise someone’s premiums because he became ill.
The sensible regulation that led to lower overall premiums also led to lower costs for people which pre-existing conditions. In Colorado in 2007, premiums for people with pre-existing conditions were set at 140 percent of the average individual market premium for the most popular policies in the individual market. At the time, Colorado had a lightly regulated individual insurance market. Thanks to the low premiums produced in the medically underwritten individual market, the state plan covering people with pre-existing conditions charged a 27-year old male non-smoker $92 a month. Subsidies reduced premiums to almost standard rates for households with incomes under $40,000.
In states that required guaranteed issue for the sick and healthy alike, premiums were as unaffordable as they are under ObamaCare. A 2007 New Jersey policy for a 27-year-old man with a $5,000 deductible cost $658 a month. In 2010, State Health Facts reported that the guaranteed issue states of New York, Vermont, New jersey, Massachusetts, Maine, Connecticut and New Hampshire had the highest average per person premiums in the lower 48 states.
Along with high premiums, people in the guaranteed issue states suffered reduced access to medical care as insurers sought to reduce expenditures by limiting access to physicians, hospitals and treatments.
When people can get a policy regardless of their state of health, they have little incentive to purchase insurance. They buy coverage when they get sick and need care. Or they trade up from a cheap policy with limited access to one offering better coverage. A sick person switching to another insurance company creates an immediate loss for the new company and an immediate gain for the old one.
Unless the immediate loss problem is addressed with health status insurance, guaranteed issue gets the incentives all wrong. Rather than design policies and procedures to take good care of patients, companies spend money on things like gym memberships that attract the relatively healthy while eliminating the top hospitals and specialists that attract people who need expensive medical care.
In quality terms, it’s a race to the bottom.
Most people use little medical care in most years, and most Americans with private insurance can afford to pay for their own medical care using cash or credit. They prefer low premiums for policies that provide top-flight care for expensive events. High premiums and lousy coverage drive people from the health insurance market. Better to take the risk and use hard-earned money to buy things more valuable than high-priced insurance products offering poor medical care.
Winston Churchill reportedly said, “You can always count on Americans to do the right thing — after they’ve tried everything else.” We had lower premiums and good protection for people with pre-existing conditions before ObamaCare. Can we please stop being forced to try everything else?
Linda Gorman is director of health care policy at the Independence Institute, a free market think tank based in Denver.