Republicans Shouldn’t Fall for Guaranteed Issue Mandate

Published July 26, 2012

Every Republican is campaigning on a theme of “repeal and replace” when it comes to President Obama’s health care law. But given recent comments from some Republicans, maybe it should be “repeal and embrace.”

Republicans are considering retaining the most costly of the Obamacare mandates: The requirement that health insurers accept any applicant regardless of health status, known as “guaranteed issue.”

Their newfound fondness for some of Obama’s mandates is reportedly based on the notion that they’re popular, not because they’re good policy—which is the very worst way to try and regulate the health insurance system.

It’s a pattern we have seen before from Republicans with respect to health care legislation. Republicans adamantly denounce and oppose liberal Democratic reforms, but eventually embrace a Democratic-lite version and claim it’s the free market approach. Instead, they should look at what works at the state level—and what doesn’t.

Guaranteed Issue: Proven Failure

When President Bill Clinton and Hillary Clinton attempted to socialize the U.S. health care system in the early 1990s, Democrats in eight states—New Jersey, Massachusetts, Vermont, New York, Maine, New Hampshire, Washington, and Kentucky—imposed guaranteed issue without a coverage mandate in their individual market, where individuals buy their own health insurance. That’s essentially what some Republicans are now suggesting.

New Jersey was the easiest to track because the state published health insurance premium costs for all of the available policies. Between 1994, when guaranteed issue went into effect, and 2004 (when Conrad Meier’s book comparing the changes, Destroying Health Insurance Markets, was published by the Council for Affordable Health Insurance and The Heartland Institute), the monthly premium for a Plan D ($500 deductible) family policy sold by Aetna grew from $769 to $6,025 a month; Blue Cross Blue Shield of New Jersey’s family policy rose from $695 to $5,239 a month; and Fortis’s went from $847 to an unbelievable $17,356 a month.

In order to mitigate some of the gaming, some people are suggesting an annual “open season,” which allows people to obtain coverage or switch health insurers during a designated time. The Federal Employees Health Benefits Plan (FEHBP) has such an annual open season. However, people still gamed the system.

What Successful States Do Right

The better solution—and one that most Republicans and many Democrats support—is a state-based high-risk pool. Thirty-five states had already established such pools, covering about 222,000 uninsurable Americans prior to the passage of President Obama’s health care law.

The pools provide several health insurance options and usually operate through a state insurer, like the Blue Cross Plan. Premiums are higher than a standard policy, and yet all the pools still lose money. They all lose money because these are people with preexisting medical conditions, some very expensive, and the premiums do not cover the costs. In most states the difference is made up by assessing health insurers, though some states use tax money or lottery income.

Wisconsin and Minnesota are considered to have two of the best high risk pools, in part because the pools have allowed premiums in the private sector to remain lower than they otherwise would have been; but pools in Louisiana, Oregon, Utah, Missouri, and Montana also work well.

The successful states keep the premiums in the range of 125 percent to 150 percent of a standard premium. They make coverage available to people who have been denied coverage by an insurer, or to those whose premiums would be significantly higher than a standard premium. And successful states don’t put caps on how many people can participate in the pool or on how long they can participate.

Don’t Embrace Guaranteed Issue

By working with the current state-based high risk pools, Republicans could abandon guaranteed issue while ensuring there is an adequate safety net for those with a preexisting condition, which would help keep private health insurance pools large and more affordable.

If Republicans embrace guaranteed issue instead, they will also have to impose a coverage mandate, which every Republican denounces, or destroy the individual health insurance market, just as Democrats in those eight states did.