In the early 1990s, eight state governments imposed “guaranteed issue†and “community rating†regulations on health-insurance companies operating in their states. Guaranteed issue means that insurance companies cannot deny coverage except in rare cases, such as those involving fraud. Community rating means that insurance companies are restricted in their ability to charge higher rates based on things like gender, age, or medical history. All the versions of Obamacare being debated in Congress would impose guaranteed issue and community rating on the nation.
The effect of these reforms at the state level is no longer a matter for debate: In each case, insurance premiums skyrocketed; healthy people stopped buying insurance; and insurance companies exited the market in droves. Each state government was forced to take corrective action. Yet, while three state governments possessed the good sense to repeal or weaken their guaranteed-issue and community-rating requirements, the other five papered over their failures with inadequate, short-term fixes.
What accounts for the difference? In Kentucky, New Hampshire, and Washington state, conservative Republicans were able to find footholds at key moments and repeal or weaken the requirements. In New York, New Jersey, Vermont, Maine, and Massachusetts, the political culture proved inhospitable to calls for market-based solutions.
Kentucky stands out as the most notable example of a state with a misguided health-care policy that was able to turn things around. In 1994, Democratic governor Brereton Jones strong-armed a version of Hillarycare through the Democratic-controlled state legislature over the reservations of Republicans and some conservative Democrats. The law imposed guaranteed issue and community rating on insurance companies offering individual insurance coverage in the state.
According to the Heartland Institute’s Conrad Meier, average premiums increased between 36 and 165 percent. Within four years, over 40 insurance companies had stopped offering individual insurance coverage. The two remaining providers, Anthem Blue Cross/Blue Shield and a state-run plan called Kentucky Kare, teetered on the brink of insolvency (Kentucky Kare went under in 1999). The Democratic-controlled state government tried to undo the damage in 1998 with what Meier called “a disastrously complicated attempt at reforming the reform,†which modified guaranteed-issue and community-rating requirements but didn’t repeal them.
In 1999, however, party switches gave Republicans control of the state senate, and in 2000, the state assembly enacted a reform that eliminated guaranteed issue, relaxed the community-rating requirements, and established a state high-risk pool for Kentuckians whose preexisting conditions left them unable to acquire or afford private coverage. In 2003, Kentucky elected a Republican governor for the first time since 1967, and one of his first acts was to sign a moratorium on new insurance mandates. As of last July, these reforms have brought seven insurance companies back to Kentucky’s individual-health-insurance market.
By contrast, Vermont is a good example of a state that faced the same exploding premiums and insurance-company flight but whose liberal political culture proved resistant to the right kind of reform. In 1992, Vermont became the first state to enact guaranteed-issue and community-rating requirements. A 2006 study commissioned by the Vermont insurance department reached the following unsurprising conclusions regarding the effects of these policies on the individual-insurance market: “The individual market seems to be performing badly: The number of people buying such coverage is falling drastically; coverage is unaffordable for many; and the only coverage that is available has very high cost sharing.â€
This much was obvious as early as 2002, when a Republican gubernatorial candidate named Jim Douglas was campaigning to replace the outgoing Democrat, Howard Dean. Douglas told the Central Vermont Chamber of Commerce that he “would revisit community rating to create more flexibility and competition in the health-insurance marketplace.†Douglas won, but the Democratic-controlled state senate blocked any attempts to weaken the state’s community-rating requirements.
When the Republicans lost the state house two years later, it was all Douglas could do to fight off a “universal†health-care bill similar to the one that Massachusetts eventually enacted. He vetoed one such bill in 2005, but he signed legislation in 2006 creating a new health-insurance plan called Catamount Health, a program offering subsidized coverage to childless adults making up to 300 percent of the federal poverty level (that is, up to $32,490).
This bill did nothing to solve the problem of premiums driven sky-high by “adverse selection†— the problem created when sick people opt in to an insurance plan while healthy people opt out. Instead, premiums continue to rise. The only two individual-insurance providers left in Vermont recently asked for (and received) permission to raise rates by another 12.5 percent.
Guaranteed issue and community rating have failed wherever they have been tried (and not for lack of an individual mandate — to understand why, see my piece on health care policy in New England in the current issue of National Review). However, the example of Kentucky demonstrates that it is possible to repeal these regulations when they fail and repair some of the damage done. If, as some Obamacare supporters insist, these reforms are a fait accompli on the national level, there is still hope that future leaders can undo them: America’s political culture is more like Kentucky’s than Vermont’s.
— Stephen Spruiell is a staff reporter for NRO.
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