Learning from States
On the eve of federal health reform, five states—Maine, Massachusetts, New Jersey, New York, and Vermont—prohibited insurers from denying coverage or charging a higher premium based on health status. With the notable exception of Massachusetts, these states did not provide incentives to encourage healthy people who could afford coverage to buy it. And—except for Massachusetts—their individual health insurance markets were
dysfunctional. In general, fewer plans participated, risk pools were smaller, and premiums were much higher than they had been (or would be after the ACA). In New York, for example, rates skyrocketed after the state’s market reforms took effect in the early 1990s and remained high. In 2012, one carrier in New York City was charging
$1,299 a month for individual coverage, nearly three times the unsubsidized price of the 2017 benchmark plan offered in the marketplace today. (For the vast majority of marketplace participants who are receiving premium tax credits, the cost differential is even greater.) In New Jersey, years of declining enrollment and premium increases led the state to
modify its reforms in 2003 to introduce the “Basic and Essential” plan. Notwithstanding the name, these plans didn’t cover many critical benefits, including chemotherapy, outpatient prescription drugs, and maternity, and allowed insurers to raise premiums based on gender and other factors.
Other states had also attempted nongroup market reforms without a mandate or subsidies, but had abandoned this strategy prior to 2013. Kentucky, New Hampshire, and Washington established guaranteed issue and community rating rules in the 1990s; each subsequently repealed or significantly weakened those requirements in the face of deteriorating markets (as did other states, including
Iowa and South Dakota, where only guaranteed issue requirements had been present). In
Kentucky,
only two insurers remained in the individual market out of more than 23 that were active before the state’s reforms. In Washington,
after years of adverse selection and consequent escalations in premiums,
every individual insurer—19 in total—stopped writing nongroup policies until reform efforts were rolled back.
And what of Massachusetts? After years of unsuccessful experiments with partial reform, the state enacted broad changes in 2006. It established a coverage mandate, created a health insurance marketplace where consumers could buy comprehensive policies on a guaranteed basis, merged the individual and small-group markets, and enrolled those with lower incomes into a new state program offering subsidized coverage. By 2010,
Massachusetts’ individual market had experienced increased enrollment, remained competitive, and had lower premiums than on the date of reform.