Pence Measure Would Repeal Guaranteed Issue Mandate

Published October 1, 2003

Legislation introduced on July 24 by Rep. Mike Pence (R-Indiana) would lift from the Health Insurance Portability and Accountability Act (HIPAA) a “guaranteed issue”mandate that requires insurance companies offering coverage in the small group market to accept every small employer that applies for coverage.

Pence’s H.R. 2851, the Small Business Health Insurance Act, has attracted 18 cosponsors. He says the measure would make health insurance more affordable for small businesses.

“Most small businesses simply cannot afford to purchase insurance at the current rates,” Pence noted in a news release announcing the introduction of his bill. “Guaranteed issue in the small group market means that all small employers can get health insurance at any time. While this sounds good, it provides an incentive for healthy employer groups to take their money out of the health insurance system and sit on the sidelines.

“The Small Business Health Insurance Act will eliminate the guaranteed issue mandate, bringing healthy groups back into the system and bringing down the overall cost of health insurance in the small group market.”

Pence’s measure attracted praise from the Coalition Against Guaranteed Issue (CAGI).

“The Pence initiative will strike down the leading cause of high health insurance premiums for small employers,” predicted Greg Kelly, CAGI executive director.

Guaranteed Distortions

“Under guaranteed issue,” Kelly explained to Health Care News, “an individual who has no insurance and becomes ill may apply and be guaranteed insurance benefits. This is comparable to buying auto insurance for a car wreck after the wreck, or buying homeowners insurance while your house is burning down.”

CAGI, a coalition of more than 30 companies and organizations, was established in 2002 in response to a guaranteed issue provision built into the trade bill. The group educated members of Congress about how guaranteed issue has disrupted the small group insurance market and is directly related to the rise in the number of uninsured Americans. The guaranteed issue provision was removed before the trade bill passed.

As CAGI points out, states that have passed guaranteed issue mandates now suffer from some of the highest premium costs in the nation, and their populations have higher uninsurance rates than elsewhere in the country. For example:

  • A family living in Portland, Maine pays a minimum of $1,176 a month for a preferred provider (PPO) policy with a $500 deductible. In Trenton, New Jersey, a family would pay at least $3,576 a month for comparable coverage. In New York, PPO or indemnity plans (where patients pay the providers themselves and then are reimbursed by their insurance companies) are not even available, so a family living in Ithaca would have the choice of just one policy, a health maintenance organization (HMO) more restrictive than the other plans, costing $1,113 a month.
  • In states without guaranteed issue mandates, health insurance is much more affordable. Average families can purchase a $500 deductible PPO policy for $410 a month in Arlington, Virginia; $427 a month in Indianapolis, Indiana; or $479 a month in Chicago, Illinois.

Federal Mandate Even More Dangerous

The growing number of Americans without insurance has become a rallying point for the advocates of single-payer health care, including a host of Democratic Presidential candidates. (See “Single-Payer Proposal Called ‘Politically Impractical,'” “Lieberman Proposes New Health Insurance Programs,” and “Who’s Offering What” in this issue.)

But guaranteed issue, according to Kelly, is not the way to address that problem.

When people know they are guaranteed to qualify for health insurance even after they get sick, Kelly explains, they will cancel current policies or stay out of the insurance market entirely, so long as they are healthy. As a result, the “health insurance risk pool” gets smaller and sicker. As the risk pool shrinks, premiums rise, eventually driving out the population that can least afford the increase yet often have the greatest need for health insurance.

“Many insurers reach the point at which they are no longer able to offer insurance in such a chaotic and economically hostile environment,” Kelly observes. “The end results are inordinately high prices for insurance, considerably reduced choices for coverage, a greater number of uninsured and, ultimately, a health insurance market wherein many, if not all, insurers stop offering coverage.

“We cannot afford to enact federal guaranteed issue reforms that would ruin the health insurance market for everyone,” warns Kelly.

“Many in Congress believe the only way to assure health insurance coverage and choice is to require guaranteed issue. On the contrary, guaranteed issue will destroy the basic risk classification principles of insurance and only exacerbate the problem of the uninsured.”

Conrad F. Meier is managing editor of Health Care News. His email address is [email protected].

For more information …

on the Pence legislation go to You can also download the bill, in Adobe Acrobat’s PDF format, from The Heartland Institute’s online research database, PolicyBot. Go to, click on the PolicyBot icon, and search for document #12881.

A May 2002 Issues and Answers paper prepared by the Council for Affordable Health Insurance addresses state guaranteed issue mandates. See “What Were These State Thinking,” at