The Great State Experiment with Market Reforms and No Mandate = Higher Premiums, Coverage Disruption, and Loss of Choice

The Rand Corporation released a study examining the impact of the Supreme Court overturning the individual mandate.  The study claims that severing just the mandate, but keeping all of the market reforms such as guarantee issue, community rating, and ending pre-existing condition exclusions, will only increase individuals premiums within the exchanges by 2.4%.  (The study also notes: “We find that the elimination of the individual mandate leads to a 12.5-million–person reduction in the number of newly insured individuals and increases government spending per newly insured individual by a factor of more than two.”)

While the Rand study says repealing the mandate “would not send premiums into a ‘death spiral’”, experience in eight different states that have tried enacting market reforms similar to those in the ACA without a mandate have shown dramatically different results.

The result was as noted in a Center for American Progress study from August 2010: “Several states tried such community rating reforms—offering health insurance policies  within a given territory at the same price to all persons without medical underwriting—in their nongroup markets over the past two decades, and sharp rises in insurance prices ensued along with rapidly shrinking market size.”

For instance, in 1994 the state of Kentucky passed guarantee issue and community rating laws without a mandate.  According to an analysis from Milliman, “The most widely reported result of the…reforms in Kentucky was the flight of insurers from the market.  According to a memorandum by the Kentucky Legislative Research Commission, more than forty insurers have left the individual market by January of 1998.”

Individuals and families purchasing insurance in the individual market in other states such as Maine and Washington saw premium increases in excess of 25% due to adverse selection issues.

In Washington, the uninsured rate in 1992 was 11.5% prior to reforms being passed, significantly lower than the national average of 16.9%.  By 2000, several years after the reforms had been fully implemented, the gap between Washington’s uninsured population (15.3%) and the national average (16.1%) had fallen to 0.8%

As the Kansas City Star editorial board put it in an editorial from August 18, 2010 “…states have tried to ban insurance discrimination based on pre-existing health conditions without requiring participation in insurance plans from healthy consumers. In each instance, the experiment failed miserably”.

To learn more about the experience in the states check out the full Milliman study.

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