Charge health insurance equally

January President Barack Obama and his new health czar, former U.S. Sen. Tom Daschle, have promised big changes for our health care system. In a number of states, though, many of their government-heavy ideas have already been tried — and failed.

Paramount among the proposed changes are “guaranteed issue” and “community rating” for individual insurance policies. These twin reforms require insurers to issue policies to all who apply and to charge everyone similar rates, regardless of pre-existing conditions or health history.

Effectively, guaranteed issue and community rating allow consumers to wait until they get sick to purchase insurance. That may sound innocuous, but it’s akin to purchasing auto insurance after you’ve crashed your car.

Mr. Daschle’s home state of South Dakota offers an instructive tale on the impact of these measures. Lawmakers there imposed guaranteed issue and community rating on individual insurance policies in 1996.

The insurance market in South Dakota collapsed as a result. Premiums went sky-high, and because customers refused to pay the astronomical premiums, insurers were forced to leave the market.

In 1990, 30 carriers wrote policies in South Dakota; by 2003, after seven years of guaranteed issue and community rating, only seven insurers remained.

In 2003, South Dakota repealed guaranteed issue. Lo and behold, the insurance market has come back to life. The state had at least 12 insurers operating by 2007.

You’d think that Mr. Daschle would learn from his own state’s experience. Instead, we may be subjected to a national policy of guaranteed issue and community rating. The eventual outcome is all too predictable: Skyrocketing premiums will drive the young and healthy into the ranks of the uninsured and raise costs for everybody else.

Data from elsewhere confirm that South Dakota’s experience is typical. A study from 2003 found that guaranteed issue in a state drives up premiums by 227 percent. New Jersey discovered that premiums for a standard policy shot up 683 percent between 1994 and 2005, thanks in large part to guaranteed issue and community rating.

The new administration also is looking to expand existing government health insurance programs like the State Children’s Health Insurance Program. SCHIP offers taxpayer-funded coverage for children whose family income is less than twice the poverty level. In 2007, Congress tried unsuccessfully to raise the ceiling for coverage to three times the federal poverty level — $63,600 for a family of four.

But as many as three-fourths of all uninsured children already are eligible for government assistance through SCHIP or Medicaid. What’s more, for every 100 youngsters enrolled in SCHIP, 25 to 30 abandoned the private coverage they previously had. In other words, the public program doesn’t just cover the uninsured — it picks off many who already have coverage.

Worst of all, many states currently use SCHIP funds to cover adults, directly undermining the program’s intent. Plus, several states are already over budget for their existing SCHIP obligations. It makes no sense to expand this already failing program.

The reform plans of President Obama and health czar-designate Daschle already have proven failures. It doesn’t make sense to force them upon the entire nation.
The writer is director of health care studies at the Pacific Research Institute in San Francisco.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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