Magazine article Consumers' Research Magazine

Insurance 'Reform' Can Backfire

Magazine article Consumers' Research Magazine

Insurance 'Reform' Can Backfire

Article excerpt

When President Clinton's ambitious health care plan died in Congress two years ago, many thought that marked the end of such proposals. But state governments have been marching forward with their own fixes, many of which borrow central features of the Clinton plan.

These proposals are usually advertised as being fairly modest, unlike the ambitious plans of two years back, and thus not especially controversial. And, whereas Clinton wanted to refashion the entire insurance industry, these reforms target only the individual and small group insurance markets. These are the smallest parts of the insurance industry, selling policies either directly to individuals, or to businesses with only a few workers. Reformers say these are where most alleged insurance industry abuses occur.

Even so, the reforms pushed at the state level--and comparable ones being voted on at the federal level--actually embrace many of the core principles of the more expansive measures, which critics said would have converted the health insurance business into a government-dominated system, not unlike those in Canada and Europe.

The common theme of these proposals is to require or prohibit various health insurance practices, in the interest of making coverage more widely available and less costly. In simplest terms, they would create a network of insurance price controls, a method that has created daunting problems when it has been tried in other sectors of the economy.

Foremost among these "simple reforms" are such ideas as requiring health insurers to write coverage for preexisting conditions (known as "guaranteed issue"), prohibiting higher premiums for people more at risk for illness (called "community rating"), and mandating renewal of coverage for those who move from one job to another ("portability"). There are other features also, but these are the main proposals.

More than a dozen states adopted these reforms for at least some parts of their insurance markets in the early 1990s. That's allowed investigators to test whether these "modest" fixes actually work. The findings: As with countless other efforts to regulate the price and availability of goods and services, this regulatory approach appears to have had, at best, little or no positive effect. At worst, it's made things much tougher for many consumers trying to buy insurance--raising the cost of insurance sharply, forcing people to buy less coverage than they might want, or to forego coverage altogether. As Bill Gradison, head of the Health Insurance Association of America warns: "Put simply, efforts to make individual insurance more accessible may result in making it unaffordable for almost everyone."

Unfortunately, while some states are backing away from these fixes, lawmakers at the federal level and in many of the remaining states still haven't gotten the message, and are pushing for more of the same, in what appears to be a coordinated effort. The federal version is a bill by Sen. Nancy Kassebaum (R-Kans.) and Sen. Edward Kennedy (D-Mass.). At the state level it is being handled by the National Association of Insurance Commissioners, now promoting a package of such reforms in state capitals around the nation.

The Reform Mix. As with the Clinton plan, consumers trying to assess the current proposals need to understand the interrelated workings of "guaranteed issue" of insurance for preexisting conditions and the concept of "community rating." While these things sound technical and harmless, they have considerable impact on the cost and availability of such insurance.

Currently, insurance companies can deny coverage to those with preexisting conditions. This, say reformers, has left millions either without insurance or with very limited coverage. It also can "lock" people into jobs they would like to leave, just to maintain health coverage, reformers add. Under guaranteed issue proposals, no carrier could deny anyone coverage, no matter how sick that person was when he applied. …

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