The Health Insurance Reform Debate
Harrington, Scott E., Journal of Risk and Insurance
This article provides an overview of the U.S. health care reform debate and legislation, with a focus on health insurance. Following a synopsis of the main problems that confront U.S. health care and insurance, it outlines the health care reform bills in the U.S. House and Senate as of early December 2009, including the key provisions for expanding and regulating health insurance, and projections of the proposals' costs, funding, and impact on the number of people with insurance. The article then discusses (1) the potential effects of the mandate that individuals have health insurance in conjunction with proposed premium subsidies and health insurance underwriting and rating restrictions, (2) the proposed creation of a public health insurance plan and/or nonprofit cooperatives, and (3) provisions that would modify permissible grounds for health policy rescission and repeal the limited antitrust exemption for health and medical liability insurance. It concludes by contrasting the reform bills with market-oriented proposals and with brief perspective on future developments.
At least three broad problems characterize U.S. health care and insurance: (1) high and rapidly growing costs, (2) large numbers of nonelderly people without insurance, and (3) enormous projected Medicare deficits and continued Medicaid cost growth. The health care reform debate and reform proposals have focused largely on expanding the number of people with health insurance. On November 7, 2009, the U.S. House of Representatives narrowly approved legislation to mandate that all individuals be covered by health insurance coupled with Medicaid expansion, premium subsidies for low-income persons, creation of a health insurance exchange (or exchanges) with strong restrictions on health insurance underwriting and pricing, and creation of a government-run health insurer to compete with private health plans. While the details differ, on November 21 the U.S. Senate voted 60-39 along straight party lines to approve for floor debate a bill with the same broad outlines.
Passage of health care legislation with these features would transform U.S. health insurance. Massachusetts is the only state with an individual health insurance mandate, enacted in 2006. The California Legislature rejected an individual mandate in 2008. Maine and Vermont programs offering subsidized health insurance without a mandate have attracted relatively few applicants. The Connecticut General Assembly overrode a veto by the state's governor to enact legislation in 2009 appointing a board to develop a public health insurance option to promote universal coverage, including low-income subsidies, to take effect by July 2012. The board is authorized "to evaluate implementation of an individual mandate." As part of its reforms, Massachusetts fines employers who fail to make reasonable contributions to employee health coverage. Hawaii has required employers to offer coverage to employees working at least 20 hours weekly since 1974. Subsequent employer mandates in Massachusetts, Oregon, Washington, and California were either repealed or never took effect.
Relatively few states have strict restrictions on health insurance underwriting and pricing of the type proposed in the Congress. Six states require guaranteed issue in the individual market (Kaiser Family Foundation, 2009). Ten states have a rate band system limiting permissible variation of rates based on health status. Five states have adjusted (modified) community rating laws that permit rates to vary in relation to factors such as age, location, and coverage, but not health status. New Jersey and New York have pure community rating, which requires an insurer to accept all applicants for a given type of coverage and location at the same rate. The small group health insurance market has more restrictions. In conjunction with federal law, all states require guaranteed issue. Thirty-five states have rating bands, 11 states have adjusted community rating, and New York has pure community rating. …