In the early 1990s, New Hampshire Gov. Jeanne Shaheen (D) spearheaded an effort to impose “community rating” mandates, which require health insurance companies to charge the same premium to everyone, regardless of age, sex, health history, lifestyle choices, and regional demographics.
The mandates had no track record at the time, and even though many health care experts predicted the effort would result in the dismantling of the state’s small group health insurance market, New Hampshire moved ahead with the experiment.
Under the Democrats’ community rating law, we saw more than 30 health insurance carriers flee the state, and product choice was eliminated. We got HMOs, HMOs, and more HMOs. Most importantly, New Hampshire’s health insurance rates for families went from being some of the lowest in the country to being second-highest in the nation.
After eight years of watching New Hampshire’s health insurance market experience what health care experts called “a death spiral” under community rating, and seeing small businesses endure premium increases of 20 percent to 60 percent year after year, the small business community called on the state legislature to act. (See “New Hampshire: Valiantly Seeking Market Reform,” Health Care News, September 2004.)
Looking back, we now can see that in every state where community rating was implemented, it resulted in massive insurance company defections, rising premium rates, and fewer health care choices for small businesses. Even at the height of the policy’s popularity, only 16 states implemented community rating. That number is now down to 10. Most recently, Colorado abandoned community rating after experiencing similar effects on its market.
State Tries Free-Market Approach
In 2004, the New Hampshire legislature and Gov. Craig Benson (R) reformed the state’s small group insurance market by enacting model laws currently in place in approximately 40 states. Those model laws aren’t new or something cooked up by a think tank in Washington, DC, but instead are insurance laws that have been shown over time to result in competitive, cost-sensitive health insurance markets.
The reforms were not enacted without local input and support. In fact, the reforms received the support of many small business groups, including the National Federation of Independent Business, Retail Merchants Association of New Hampshire, New Hampshire Business Council, and New Hampshire Lodging and Restaurant Association.
Reversing Years of Destruction
You can’t flip a switch and go overnight from one of the worst insurance markets in the country to one of the best. It is impossible to reverse eight years of destruction in seven months. That said, in the seven months since the small group reforms have been in place, many positive trends have emerged.
As recently reported by the New Hampshire Insurance Department (NHID), in the past seven months the state has gone from having three insurance carriers to seven, and new products, such as health savings accounts, are being introduced. Most importantly, preliminary data show the cost of insurance for a large majority of small businesses has gone down.
Data compiled by the NHID (http://www.state.nh.us/insurance/News/Analysis2ndQtrRenewals.pdf.) show the reforms are working to keep premium rate increases below the rate of increase for medical expenses.
Meanwhile, two of the state’s largest insurance carriers (Anthem and CIGNA) used the enactment of reform as an opportunity to significantly change the way they determine rates internally. For some groups, this internal change had a larger impact on premiums than the reforms did.
In an effort to hide from the problems they created, supporters of the previous state policies are attempting to confuse the issue by providing misinformation. For example, New Hampshire’s reforms do not allow “cherry picking,” as State Sen. Burt Cohen (D-New Castle) has alleged. As he knows, or at least should know, so-called “cherry picking” is illegal under federal law (the Health Insurance Portability and Accountability Act of 1996).
Clearly, more work needs to be done to fix the state’s health care system, but many New Hampshire legislators are committed to working with small business to fix the problems created by previous administrations and legislative sessions.
Senator Robert Clegg (R-Hudson) ([email protected]) is majority leader of the New Hampshire Senate.
For more information …
on the impact of community rating and other mandates on the insurance climates of eight states, see the monthly series of articles in Health Care News, collected on The Heartland Institute’s Web site at http://www.heartland.org/Article.cfm?artId=15675.