The Commonwealth Fund has issued yet another of its reports that earnestly recommends that we do everything wrong. This is a report by Nancy Turnbull and Nancy Kane of the Harvard School of Public Health entitled "Insuring the Healthy or Insuring the Sick? The Dilemma of Regulating the Individual Health Insurance Market."
The report examines the markets in seven states: three highly regulated states – New Jersey, New York, and Massachusetts; two lightly regulated states – Iowa and Kansas; and two states that used to have tight regulations but repealed them – Washington and Kentucky. The paper is based on publicly available data and interviews with 8 to 10 people in each state.
This is an approach that is bound to capture anecdotes and opinions rather than real analysis, and the report is indeed steeped in such anecdotes and opinions. Even when it tries to capture data, the data is contradictory and inconsistent. For example, in trying to reassure us that competition is alive and well in the highly regulated states, the authors present a table showing that there are 17 carriers "participating" in the individual market in Massachusetts, 20+ in New York, and 15 in New Jersey, while Iowa has only 7, Kansas has 11, Kentucky 7, and Washington state, 8.
But the text immediately under the table contradicts these numbers. It says, "In Washington, for instance, we identified at least 18 carriers that provided products in the individual market in 1993; by 1999, the number of plans that provided individual products was down to one, largely because of mergers. In New York, of 11 carriers identified as providing individual insurance in 1996, after several mergers only six remained in 2002."
Now, perhaps the table is for 2004 and perhaps Washington went from only one carrier in 1999 to 8 in 2004, and New York perhaps went from 6 in 2002 to 20+ in 2004. If so, that would seem like a market development that should be examined and celebrated, but the authors provide no explanation at all.
On another table, the authors list the monthly premium in each state for the "product closest to $500 deductible with coverage for prescription drugs and mental health services." New Jersey is listed as costing $490/month for a 25-year-old male (and the same for a 60-year-old male, since New Jersey has strict community rating). That seems like an awful lot of money — $5,880 a year.
But I went to the state's official web site, which lists all the premiums by all the carriers for all of the standardized products as of December 2004, and found only one product with a $500 deductible – Plan D. The least expensive offering is $1,427.92 a month from Oxford Health Insurance Company. The eight other carriers offering the $500 deductible plan range in premium from $2,193 (Aetna) to $9,398 (Celtic) – per month!
You may wonder where the authors got their numbers. But you may also wonder if a company that offers coverage for $112,000 per year can really be said to "be in the market." By the way, the state's dominant carrier — Horizon Blue Cross Blue Shield of New Jersey, with 60% of the market according to the authors — offers this product for $2,542.35 per month.
It is probably safe to say that a $500 deductible plan no longer exists in the Garden State. And yet that is the Gold Standard, according to the authors. Their reference point throughout the paper for adequate insurance coverage is a $500 deductible with coverage for maternity, prescription drugs and mental health. And they keep bemoaning the idea that this policy is very expensive for both a 25-year-old male and for a 63-year-old couple – even though neither one is likely to have any use for maternity benefits and could lower their premium by declining that coverage. But there is not a single word of complaint from the authors that the only coverage worth having (according to them) is no longer available in New Jersey.
Indeed, their policy prescriptions are that the entire country should do what New Jersey has done. They offer a list of ten things for the states to do, including: Require carriers to offer coverage to everyone; Standardize benefits; Limit permissible rating factors and rate variations; Impose clear standards for market conduct; Undertake more active monitoring of the individual health insurance market; Adopt a strict and consistent definition of who is eligible to purchase individual health insurance; Clarify the link between the individual and small group markets; Make associations play by the same rules; Find ways to keep as many people as possible in the group market; and, Promote mechanisms to make individual health insurance more affordable by spreading costs of the individual market more broadly.
I would argue (and have) that each of these ideas is mistaken and wrong-headed. Taken together they would bring about a collapse of the individual market and create conditions that likely would require the government to step in and become the sole provider of coverage.
More remarkable is that the Commonwealth recommendations are the exact same prescriptions that were being bandied about ten and fifteen years ago, endorsed by the National Association of Insurance Commissioners (NAIC) and adopted by many states. They are just as wrong-headed today as they were back then. They have been tried and proven to be failures. It isn't only Kentucky and Washington that have repealed these laws, but also New Hampshire, Minnesota, Tennessee, and a host of other states.
The study's prescriptions are based more on emotion than on analysis. The authors are offended, for instance, that insurance markets expect older and sicker people to pay more for coverage than younger and healthier people. But the fact is that higher-risk people value insurance coverage far more than low-risk people do, and so are willing to pay more for it. They are not being punished when they pay a risk-adjusted premium. Quite the opposite. They are being charged a premium that approximates the value they place on the coverage. Charging healthier people a lower premium also approximates the value they place on coverage and keeps them in the market helping to subsidize the high-risk people.
New Jersey has tried strict insurance market regulations, and the consequences are profound. Pennsylvania, which is more lightly regulated though not included in the authors' analysis, is right next door and offers a marked contrast. It is demographically similar to New Jersey, and both states have Blue plans that dominate the market. A 34-year-old male can get a range of coverage options in Pennsylvania for a fraction of what they cost in New Jersey. Don't take my word for it. Go to www.ehealthinsurance.com and enter a zip code for Camp Hill (17088). I got quotes of $111/mo for an Aetna HMO, $67.90/mo for a $2,600 deductible HSA policy from American Medical Security, $90.56/mo for a $1,000 deductible policy from Golden Rule, and $230.40 for a $500 deductible policy from Celtic Life.
New Jersey has the lowest percentage of people buying individual coverage of any state in the nation – 4.1%, according to EBRI's December, 2004 report. Pennsylvania had more than half again as many people buying individual coverage – 6.7%. The same report reveals that New Jersey also has far more uninsured people than Pennsylvania — 15.6% of the population versus 12.4%.
Community rating, guaranteed issue, and standardized benefits have proven to be colossal failures. Any state that adopts such policies in the 21st Century is ignoring well-established history.
SOURCES: The Commonwealth report is at: http://www.cmwf.org/
The information on premiums in New Jersey is at:
My colleague Grace-Marie Turner authored a study of state insurance reforms that can be found at: http://www.galen.org/statehealth.asp?docID=179
Please send all comments/questions directly to me at email@example.com.
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