Friday, April 03, 2009

Observations on the impact of implementing guaranteed issue on individual medical insurance plans in Connecticut.

The Connecticut General Assembly is considering legislation, in Senate Bill 1022, to require individual medical insurance plans to accept applicants without regard to their medical condition.

The state of New Jersey did this several years ago together with a requirement for individuals of all ages to have the same premium. Today there are only three companies offering individual medical insurance plans remaining in the marketplace. Their April 2009 monthly premium for single coverage on a plan with a $1,000 deductible followed by 80%/20% cost sharing is:

$ 2,544 - Aetna
$6,009 - Celtic
$ 3,457.97 - Horizon BCBS

Note: All available individual major medical plans in New Jersey and their monthly rates can be seen here:

The guaranteed issue and community rate experiment in New Jersey is proof of two things:
+ First - when younger folks end up with huge increases in their medical insurance there is a mass exodus from the market, which in turn puts significant upward pressure on the medical treatment loss ratios of the insurance companies and thus much higher premiums are required for the remaining older and sicker individuals.

+ Second - when a person can apply for medical insurance without regard to their medical situation they simply wait until medical treatment is needed. This is called adverse selection and thus the medical insurance plans find they only have the sickest individuals.

Is this what we want for individual medical insurance in Connecticut when rates are currently very high?.

What to do? Reforming the individual medical insurance market should begin at the federal level. Having just returned from a March 30 through April 1st conference in Washington DC I can state Congress, as part of the federal level discussion on health care reform, is actively considering significant changes.

One highly effective recommendation, developed by the health insurance professionals association, is a 10 point proposal to improve the individual medical insurance market so every person could obtain an individual medical insurance plan. Some recommended points:

+ The practice of evaluating health risks and the use of pre existing condition exclusions would be dropped.
+ Individual plans would still consider rating factors such as age and location, would give discounts for involvement in wellness programs, and increase rates for smoking.
+ To make this approach work and avoid high rates, such as in New Jersey, a way must be developed so everyone has medical insurance. The requirement to have coverage may for example be phased in such as starting with children.
+ Provisions must be included to provide financial assistance for those with lower income, through a government based program such as a refundable tax credit or perhaps premium assistance or both.

The health insurance company association also supports dropping health risks and pre existing condition exclusions when there is a requirement to have coverage.

Bottom line – when everyone has coverage rates will be lower.