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A cautionary tale in healthcare reform
Two decades ago, New York passed a law requiring insurers to accept all
applicants, even those with preexisting conditions. Now, premiums in the state
are the highest in the nation by some estimates.
By Noam N. Levey
February 21, 2010
Reporting from Washington
Spurred by heart-wrenching stories of sick people denied health coverage, the
state of New York did what many of President Obama's critics say he should do
now -- it passed a relatively simple law requiring insurers to accept all
applicants.
Other states have taken similar steps, making narrowly
targeted changes instead of trying to overhaul their whole healthcare
systems.
But two decades later, New York's experience offers a cautionary
tale: Making isolated changes to the complex medical insurance system can have
unwelcome consequences.
Premiums in New York are now the highest in the
nation by some measures, with individual health coverage costing about $9,000 a
year on average. And nearly one in seven New Yorkers still lacks health
coverage, a greater proportion than before the law was passed.
The state
has become a victim of a dangerous dynamic in insurance markets. Laws allowing
consumers to buy insurance at any time often saddle companies with a lot of
high-cost customers.
That in turn drives up premiums, pushing away
younger, healthier people who are vital to a functioning insurance system.
"You basically can't have a functioning insurance market if people can
buy insurance on the way to the hospital," said Mark Hall, a Wake Forest
University economist who studied New York's experience.
'Case
study'
This issue is now at the heart of one of the biggest fights
over Obama's healthcare plan: the so-called mandate requiring Americans to buy
insurance -- a requirement that many experts believe is crucial to avoid the
problems seen in New York and other states.
"We are sort of a case study
of what not to do," said Mark Scherzer, a consumer attorney who helped lead the
fight for New York's changes in the early 1990s and is now counsel to New
Yorkers for Accessible Health Coverage.
Other states have either
abandoned such reforms or been forced to scale them back.
When then-Gov.
Mario Cuomo signed New York's insurance law in 1992, many advocates believed the
state was charting a path toward affordable, accessible healthcare. Cuomo called
the legislation a "forerunner of what we'll [be] seeing nationally."
The
law focused on people who did not get health benefits from their employer,
forcing them to shop for insurance on their own in what is called the individual
market.
To protect these people, state lawmakers approved the "guaranteed
issue" provision, which prohibited insurance companies from denying coverage to
customers, even those with preexisting conditions.
Such rules became
popular in the early 1990s, as states including New Jersey and Washington
contended with insurance companies that were denying coverage to people with
preexisting health problems.
New York went further, becoming the first
state to also include a "pure community rating" requirement that prohibited
insurers from varying premiums based on customers' age or health, another common
industry practice. Three years later, the state required all HMOs to offer a
comprehensive, standardized package of benefits.
The law allowed
consumers to buy insurance after they became sick with only a relatively short
waiting period. They could also drop it when they no longer needed
it.
The New York insurance market did not collapse, as some insurers had
warned. But in the ensuing years, more older and sicker New Yorkers bought
individual health plans. And premiums shot upward.
Since 2001, the
average premiums for a health plan on the individual market in New York has
nearly tripled, according to the state Insurance Department. In some counties,
it is impossible to buy an individual plan for less than $12,000 a
year.
Although New York has higher medical costs than many states, its
premiums still outpace other high-cost states.
An informal survey by
America's Health Insurance Plans, an industry group, showed that average
premiums in New York last year were more than twice those in California and
Florida, two other high-cost states.
In New Jersey, which enacted similar
insurance rules at the same time as New York, researchers found that the
regulations contributed to a 50% decline in enrollment in individual health
plans and a two- to threefold increase in premiums.
Kentucky and
Washington were forced to roll back their new insurance rules in the 1990s after
insurance companies abandoned the state market. In Washington, the three largest
insurers simply stopped issuing coverage to individuals.
An
exception
Today, New York is one of only a few states that have
retained both guaranteed issue and pure community rating rules.
That
offers New Yorkers who are sick substantially more protections than consumers in
less regulated states such as California, Florida and Texas, where people with
cancer or other preexisting conditions are routinely denied coverage.
But with premiums continuing to climb, the market regulations are
increasingly becoming an empty promise, said Scherzer, the consumer attorney.
"You have to be incredibly sick to make it worthwhile," he said.
Obama
and congressional Democrats tried to head off the problem confronting New York
by including a requirement in their healthcare legislation that nearly all
Americans buy insurance.
This so-called insurance mandate alone would not
guarantee lower premiums, many experts concede. Insurance rates in
Massachusetts, which included a mandate in its landmark insurance overhaul in
2006, remain relatively high.
But there is broad consensus that a mandate
would encourage younger and healthier people to buy insurance, spreading risk
more broadly and ultimately helping to restrain the growth of
premiums.
New York's largest insurer, Empire Blue Cross Blue Shield, a
division of WellPoint Inc., has calculated that a mandate could bring down
premiums 50% to 60%, Empire President Mark Wagar said.
But the mandate
has become one of the most controversial elements of congressional Democrats'
healthcare bill, and a reason why the bill is so expensive. Most experts believe
that if the government requires everyone to buy insurance, it must provide
subsidies for low-income consumers.
Now, Republicans and some Democrats
are pushing to remove the mandate.
Before they do, they should look
north, said Courtney Burke, who directs the Health Policy Research Center at the
Rockefeller Institute of Government in Albany, N.Y.
"They could learn
from New York's experience," she said. "If you don't have some kind of incentive
for people to participate, you are going to have problems."
noam.levey@latimes.com
Copyright © 2010, The Los Angeles Times