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Guaranteed Issue? Only With An Individual Mandate



March 10th, 2008

Editor’s Note: This post continues the conversation in the Health Affairs Blog roundtable on the unsuccessful health reform effort in California. Below, Patricia Lynch responds to the ideas expressed in the first round of California posts, which appeared last Wednesday and Thursday. You can also read and comment on response posts appearing today from Rick Curtis and Ed Neuschler and Lucien Wulsin. Watch for an additional response post from Rick Kronick coming up as well. 

I appreciated the insights of my fellow bloggers in this Roundtable, each of whom made a significant contribution to the development of the California health reform bill. The development of the market reform and purchasing pool provisions of the bill were informed by some of the leading experts in state health policy, including these three authors. Politics played a large role in the final shape of the bill, but it was informed by excellent thinking grounded in good health policy and honest conversation between stakeholders wanting to preserve a functional, affordable marketplace for individuals and employers.

One of the conversations was about the “guaranteed issue” requirement, that is the prohibition on health plans from denying applicants coverage in the individual market because of pre-existing medical conditions. Kaiser Permanente, along with Blue Shield and HealthNet, effectively argued that guaranteed issue should not be enacted in the individual market without an individual mandate. This had been done in Kentucky, Maine, Massachusetts, New Hampshire, New Jersey, New York, Vermont and Washington. A study of the impact of guaranteed issue without an individual mandate by Leigh Wachenheim and Hans Leida of Milliman conducted for America’s Health Insurance Plans indicated that the individual insurance markets in each of these states deteriorated after the introduction of guaranteed issue.

A study by JD Malkin found that implementation of health insurance reform in Washington state in January 1996 was followed by substantial increases in the premiums charged for individual policies, a 25 percent reduction in aggregate enrollment, and a decline in the number of comprehensive plans offered. The largest carrier in Washington’s individual market raised premiums on its most heavily-populated plans 78 percent between November 1995 and May 1998 — approximately ten times the rate of medical care inflation. In January 1999, none of the three major carriers offered a plan that included maternity coverage and only one major carrier offered a plan that covered more than $500 per year in prescription drug benefits; two major carriers offered plans that covered mental health. Before Washington’s reforms, all three major carriers offered plans that covered all of these benefits.

The reason for this phenomenon is that people in the individual market purchase coverage with little or no subsidies. Each person makes an economic decision based on his or her perceived best interest. A person who has health conditions and expects to need health care services usually purchases coverage; a person who is healthy and does not expect to need services usually does not. When the majority of people who purchase coverage have health problems, the costs of coverage will increase because the cost is not subsidized by persons who don’t use health services. As the cost of coverage rises, fewer and sicker people purchase coverage utilizing a greater number of services, causing costs to rise further. Eventually, the market enters a “death spiral” when the cost is so high that it is unaffordable to the majority and the individual market fails.

Eventually, we all need health services. It is not unfair to expect everyone to participate in the insurance pool to help stabilize rates and assure that coverage and care is available for everyone when necessary.

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4 Trackbacks for “Guaranteed Issue? Only With An Individual Mandate”

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1 Response to “Guaranteed Issue? Only With An Individual Mandate”

  1. L Ozeran Says:

    As a California physician heavily involved in last year’s reform discussion, this topic is very important to me. I am posting comments in other areas on this site, so I will focus these remarks on the specific aspect addressed. Patricia Lynch’s comments relate to individual mandates.

    Even ignoring the data, it is simple logic that if you guarantee issue of insurance without regard to health status, more sick people will buy insurance and premiums will rise. As a result, guaranteed issue cannot work if it is decoupled from individual mandates. Further, individual mandates cannot work if they are not mandates. As I have posted elsewhere on this site, there can be no exceptions. How one satisfies the mandate should be flexible: individual policy, employer coverage, even posting a $30,000 bond. Any exceptions will lead to more exceptions which will ultimately invalidate the mandate and kill the system. If there are individuals with financial needs, then some mechanism is required to ensure they can meet the mandate. One option is financial support (state subsidies, tax credits), another is providing a basic health plan to every Californian (not single payer). There must also be significant penalties for non-compliance such that it is both cheaper and easier to comply with the mandate than to shirk the responsibility and get caught.

    The bottom line is this, as long as we have a mandate on providers to treat (emergency rooms), we must have a mandate on patients to ensure payment if we are to avoid continuing down our current path towards insolvency in healthcare.

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