How ObamaCare-Style Preexisting Condition Regulations Failed In the States


Republicans like Sen. John Cornyn have occasionally suggested that although ObamaCare's individual mandate—the requirement to purchase health coverage or pay a fine—should be struck down, the law's preexisting condition exclusions should be left in place. But at this point, even the Obama administration agrees that if the mandate goes, the major preexisting condition regulations should be thrown out too. Why? In part because, as I've noted before, we've watched what happens in states that have enacted the two key insurance market regulations: community rating, which limits how insurers can charge based on health history, and guaranteed issue, which requires insurers to sell to all comers. Those insurance markets have essentially melted down, with prices going through the roof and enrollment declining. 

Ian Millhiser at the Center for American Progress has more detail on what happened in the seven states that tried such regulations:

  • Kentucky: Forty insurers left Kentucky's market by some estimates, and only two remained before the law was repealed.
  • Maine: Thirteen of Maine's 18 major insurance carriers stopped issuing new individual policies. Many also doubled their premiums.
  • New Hampshire: New Hampshire's insurance law left it with nearly no carriers in its individual insurance market. The state enacted an emergency tax to compensate insurers for the costs of the law, which was repealed in 2002.
  • New Jersey: Premiums rose as much as 350 percent in New Jersey after its pre-existing conditions law took effect. Even HMO plans, which tend to resist premium increases, nearly doubled in price.
  • New York: The percentage of nonelderly New Yorkers without insurance grew 21 percent, with premiums increasing as much as 40 percent per year.
  • Vermont: Vermont fared better than other states with similar laws, but its premiums spiked an average of 16 percent in two years.
  • Washington: Nonmanaged care options disappeared entirely from Washington's individual market. Eventually, entire counties had no private individual insurance options at all.

With these regulations in place, it becomes too easy to game the system: Wait until you're sick, then buy insurance. Insurers have no choice but to sell, and can't charge special rates because you're buying in late. In theory, the mandate mitigates these effects by forcing everyone to buy in, which is why Millhiser and CAP argue in favor of a mandate. Millhiser points to Massachusetts as an example of a successful mandate. (The Bay State, however, has seen individuals game its rules as well.)

And as John Goodman of the National Center Policy Analysis points out, "a weakly enforced mandate with minor penalties would produce the same results" as a no-mandate evironment. Which may be the case. In January, Princeton professor Paul Starr, author of a Pulitzer Prize winning book on American health policy, argued in The New Republic that the mandate as written is "soft" and will be difficult to enforce:

The word "mandate" suggests to most people that a failure to comply will bring serious consequences. But the law explicitly bars the government from the means available to the IRS to collect taxes: the government cannot threaten to seize property, garnish wages, or levy any other source of income, much less impose criminal penalties for failing to insure. What can it do? Withhold a tax refund. In other words, the mandate is enforced only by a forfeiture—the forfeiture of a tax refund, if someone who fails to insure is due a refund.

This does not make the mandate any less offensive. But it may well make it less effective. 

So although it is not a foregone conclusion, it is at least possible that if the Supreme Court does not strike down the mandate, we may be left with the worst of all world: an unbound Commerce Clause and a newly dysfunctional health insurance market. 

NEXT: Andrew Napolitano on Obama's Assassination Powers

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  1. If insurers are to be able to serve the market, they need to be profitable. To be profitable, they need to exclude people with preexisting conditions and they need to be able to rescind the policies of anyone who gets sick.

    1. And insurers that do that too much will quickly lose current customers and deter future ones. Which would be good.

    2. Bill|3.14.12 @ 10:57AM|#

    3. Remove government restrictions from insurance providers, save the obvious “If you agreed to cover it, you will cover it” thing.

      Employers should drop health care coverage and offer workers money to find their own insurance suited to their needs, or put the money in a medical savings account.

      But, if people actually paid for their own health care, instead of using insurance, medical care prices would drastically decrease.

  2. Once this dog’s breakfast of “health care reform” goes fully into effect and people finally realize what Obama has given them, this nation will go nuts. The first election after that will be historic.

    1. I hate that word.

  3. That link concludes that the prices in Mass. have decreased:

    “In contrast, Massachusetts enacted a law just like the Affordable Care Act that contains both insurance regulations and a coverage requirement. As a result, “The average individual premium in [Massachusetts] fell from $8537 at the end of 2006 to $5143 in mid-2009, a 40% reduction while the rest of the nation was seeing a 14% increase.”[8]”

    Which is counter to much I have read, including here on Reason.

    So what’s the reality of the AHIP study they both cite?

    1. I don’t about the AHIP study, but I’ll hazard a guess based on the full quote from the cited paper. Mass had really high individual premiums (over three times the national average), probably because of really dumb laws. Then the mandate took effect, that mitigated the effect of some of those dumb laws by pushing more people into the pools. That decreased the individual premiums so that they were a little less than twice the national average.

    2. “In their
      December 2007 report, AHIP reported that the average single premium at the end of 2006 for a
      non-group product in the U.S. was $2613. In their October 2009 report, AHIP found that the
      average single premium in mid-2009 was $2985, or a 14% increase. … And the results have been an enormous reduction in
      the cost of non-group insurance in the state: the average individual premium in the state fell from
      $8537 at the end of 2006 to $5143 in mid-2009, a 40% reduction while the rest of the nation was
      seeing a 14% increase.”

    3. Mine have doubled.

  4. But the law explicitly bars the government from the means available to the IRS to collect taxes: the government cannot threaten to seize property, garnish wages, or levy any other source of income, much less impose criminal penalties for failing to insure.

    For now. But does anyone think that those provisions won’t be repealed in the name of “strengthening” our health”care” system when the crunch comes?

  5. I still don’t see the absolute need for the mandate. There has been guaranteed issue-community rating within employer sponsored plans for decades without any death spiral. Medicare Advantage is also guaranteed issue-community rating. Those plans prevent the death spiral by limiting times when you can enroll to a set enrollment period each year (usually Nov. 15 to Dec. 31), with a few exceptions for “life events” and those newly hired/eligible. Why couldn’t they have done the same with Obamacare and avoided this whole mandate mess? I’m really flummoxed as to why this was never suggested during the congressional debates or afterward during all the litigation/controversy.

  6. There has been guaranteed issue-community rating within employer sponsored plans for decades without any death spiral.

    There has been massive premium inflation, and the exit of insurers from those markets.

    How sustainable does that sound to you, especially when the only way an insurer can exit the US market is to go out of business entirely?

    Also, note that some states repealed their laws after their insurance markets were gutted.

    I would say there is plenty of reason to believe that guaranteed issue w/out a strong individual mandate is not sustainable over any length of time.

    1. Well, yes, premiums have gone up. But is that due to death spiral concerns, or to rising underlying medical care prices?

      I didn’t realize there were lots of insurers exiting the group plan markets. Which ones?

      1. I didn’t realize there were lots of insurers exiting the group plan markets.

        Check the bullet points in the post.

        Rapidly rising prices are pretty much the first phase of the death spiral, anyway. As prices rise, more people see the advantage of gaming the system by not buying health insurance while they’re healthy, so the pool of insureds gets sicker an more expensive, driving prices up, more healthy people exit, etc.

        1. Those bullet point have to do with individual plan markets, not group plan markets.

          1. Not sure about Kentucky, but what difference does it make?

            1. The difference is that insurers have not left the group plan markets, nor have premiums skyrocketed due to death spirals in the group plan markets, even though the group plan markets use community rating and guaranteed issue. They haven’t had those effects because employers and insurers have found a solution- limited windows for enrollment.

  7. This is great example of the value of states being policy laboratories. While it’s true that many states have tried and failed with community rating, a lot has been learned too.

    IMO, the recipe for success is pretty clear. The first ingredient is limitations on community rating that allow rates to vary based on age and smoking status. Next is limited open enrollment windows, that only offer new coverage or changes in coverage during a limited time period each year (similar to how many employers do it).

    1. IMO, the recipe for success is pretty clear.

      Hit it harder, only with a rubber mallet?

  8. Massachusetts initially experienced serious free-rider problems under Romneycare, but that’s been mostly eliminated with the introduction of limited enrollment windows.

    Unless you have a change in circumstances like losing a job, you can only make a change or get a new policy during their once a year open enrollment period.

    If you try to game the system and go without coverage, you may have to wait up to 11 months. It would sure be a bummer to you lose the free-loader lottery and have a heart attack, an accident, or need cancer treatment shortly after the window closes.

    In reality, this is turning out to be ample disincentive to freeriding, to the point where I wonder how much the mandate even matters.

    1. Precisely. Insurance companies and employers got together to solve this problem effectively long ago. That solution didn’t involve forcing all employees to sign up for coverage.

  9. So although it is not a foregone conclusion, it is at least possible that if the Supreme Court does not strike down the mandate…

    In related news:

    On Wednesday, White House officials summoned dozens of leaders of nonprofit organizations that strongly back the health law to help them coordinate plans for a prayer vigil, press conferences and other events outside the court when justices hear arguments for three days beginning March 26.


  10. It’s supposed to fail. It’s all in aid of preparing us for the Big Plan: a UK-style National Health Service.

    1. Hey, we can prolly get it from the UK at a real good price soon!

  11. I sometimes wonder if an insurance death spiral would be good in the long term. But it would certainly suck for anyone who needs insurance in the short term.

    1. Whatever happens, deregulation will somehow get the blame.

  12. Even in “successful” states (enrollment windows, flexible community rating), there are a couple of points:

    (1) Those successful reforms require reversing course from the original plan. That should make you wonder about the premises of the original plan.

    (2) Even with the reforms, the rate of medical inflation is unsustainable.

    No, “modified” community rating and “reformed” guaranteed issue are not a solution to what ails our health insurance system. They are an extension of the problem, based on the premise that insurance exists to “socialize” costs, rather than as a contract to protect people against risk.

    1. But, but, healthcare is a RIGHT! Tony and the NYT told me so!

    2. Would you be ok with premiums based on DNA tests that screen for genetic predispositions to ailments? What if the science was 100% perfect and covered every genetic predisposition?

      Although I’m theoretically ok with higher premiums for things caused by individual behavior, health expenses seem mostly about a genetic lottery coupled with dumb luck.

      As someone who believes strongly in equality of opportunity (rather than outcome), I really don’t have a big problem with “socializing” at least some of these costs, particularly to the extent that they costs are based on genetics.

      1. The “socializing” of costs is a side effect, not a purpose, of insurance.

        When you turn a side effect of an activity into the raison d’etre, you pervert the underlying activity.

        Example: GM. GM’s purpose is to make a profit. A side effect is it employs people. However, that is no longer the case. GM now exists to employ people, pay their benefits, etc.

        How did that work out.

  13. Here’s a big problem: As of 2011, the states impose 2,262 mandated coverages on insurance plans. That’s 100 more than in 2010:


    And insurance premiums rise? Thank god single males have plans that cover mammographies and minimum maternity stays.

    1. Hey, that saved my life when I got tit cancer.

    2. And thank god that single females have plans that cover prostate exams…

      1. “And thank god that single females have plans that cover prostate exams…”

        Prostate exams are part of a standard physical, and require sticking some fingers up an ass.

        If the example had been “breast exam” you’d be good, but it was mammography, so your attempt to draw equivalence fails utterly.

        As an aside, why is there ALWAYS, and I mean ALWAYS some asshole like you in every thread who does that?

        1. Sorry, I meant prostate cancer screening!

      2. Females have prostates too. They are different than men’s, but they still have them. Not sure what you point is.

  14. “Necessary and Proper” in a nutshell.

    Thanks, Reason!

  15. If the feds make guaranteed issue mandatory along with the mandate to insure, we can expect to see the P&C businsess devolve into the “P” only business. Then the taxpayer covers everyone and we’re all happy again!

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