Washington state officials scramble to cover shrinking individual health insurance market
Washington state officials want to re-open the state’s high-risk pool to help replace the individual insurance market that’s shrunk in the past year to just nine of the state’s 39 counties.
"There virtually ain’t no individual insurance in this state now," says David Wasser, Washington State Health Care Authority director of communications.
No sooner had Insurance Commissioner Deborah Senn approved new rules to re-open the Washington State Health Insurance Pool than Regence BlueShield and Group Health Cooperative added to her problems.
The companies announced in early September that they, too, were leaving the individual health insurance market, following a similar move by Premera BlueCross last November.
The Premera departure left large areas of rural eastern Washington without individual coverage. With the latest announcement, such coverage is no longer available even in Washington’s urban centers.
Ms. Senn’s announcement suggests that consumer groups, some insurers, and legislators have reached at least a short-term compromise on how to shore up the state’s evaporating market for individual health insurance, but it does not mean that individuals can easily get health insurance in Washington. Adverse selection is threatening to kill the unsubsidized component of Washington State’s Basic Health Plan, another state-sponsored option for individual health insurance.
It’s "clearly at a point where it likely does not exist in a year unless something drastic changes," says Dennis Martin, director of policy and legislative relations for the Washington State Health Care Authority.
In their last session, Washington legislators rejected measures that advocates say would have at least slowed the decline of the 7,000-member unsubsidized Basic Health Plan. Already at 30% of its initial enrollment three years ago, the Basic Health Plan will lose an additional 3,200 members to service area cutbacks Jan. 1. Virtually all of the 3,200 enrollees are in counties where no other insurance options are available, says Mr. Wasser.
The only way the state could get any insurers at all to bid on the unsubsidized Basic Health Plan was to allow them to freeze enrollment to new applicants. All but one of the six plans operating in 2000—a single-county provider-sponsored plan—accepted the offer and closed enrollment effective Sept. 1.
One size does not fit all
While Washington state’s circumstances are unique, its problems with a shrinking market for individual coverage are not, says a health law researcher at Wake Forest University in Winston-Salem, NC.
States can get in trouble when they try to apply reforms that have worked in the small group market, such as restrictions on medical underwriting, to the very different market for individual health insurance, says Mark O. Hall, JD. When such reforms increase the risk of adverse selection, insurers are likely to conclude that the relatively small number of potential customers in the individual market just isn’t worth it, he says.
"There’s been a large number of insurers who have pulled out, and the market has become very tenuous," he says.
State officials are quick to make the distinction between the unsubsidized Basic Health Plan and the companion program for which the state will subsidize premiums on a sliding scale. The Basic Health Plan targeted to low-income individuals has approximately 130,000 members and is a "very viable program," Mr. Martin says.
The unsubsidized program was an "afterthought" to the subsidized portion Basic Health Plan, says Mr. Wasser. It was designed to provide residents an alternative in the individual group market, even for those who would qualify for Medicaid. There are no income or asset limitations, and no medical underwriting.
Over the years, state officials have purposefully sacrificed the unsubsidized plan to maintain the solvency of the low-income program. For the plan year 1998, the state removed the requirement that the unsubsidized plan rates could exceed those in the low-income plan by no more than 5%.
As expected, cost-shifting evaporated and rates for the low-income program declined. The following year, the state removed the requirement that insurers bid on both products—or none at all—when several companies threatened to leave Basic Health altogether rather than take a chance on the unsubsidized plan.
From the very beginning, the unsubsidized Basic Health Plan disproportionately attracted residents who needed or knew they were going to need health care services, with utilization rates several times that of a comparable population. In 1997, the unsubsidized Basic Health Plan had 66.4 obstetrical admissions per 1,000 enrollees; a similar enrollee group, active state employees, had 8.2 obstetrical admissions per 1,000.
The state’s design of both its own product and the regulation of other individual health plans help explain the adverse selection plaguing the Basic Health Plan. For example, the Basic Health Plan had a three-month waiting period before pre-existing conditions had to be covered. Three months is short by industry standards and effectively offered maternity coverage in return for a few months of premiums.
Adverse selection inevitable
At the same time, private insurers were allowed to offer individual health products that excluded high cost—and some say more discretionary—services such as maternity, prescription drugs, and mental health.
"Given that situation, you would have had to have adverse selection somewhere," notes Adele M. Kirk, a senior associate at the Alpha Center who has analyzed Washington state’s individual insurance market. She says individual market reforms in other states, Maine and New York, for example, "very carefully" avoided "segmentation of the market" and subsequent death spiral afflicting Washington state.
"It’s not that people are gaming the system," says Mr. Martin. "People are coming to us because they’ve got nowhere else to go. They are doing what makes good economic sense for them."
For the year ending July 2000, the full monthly premium for a single person from 19 to 39 ranged from $145.42 to $244.00. Existing rates reflect back-to-back rate hikes of 50% in the plan’s first two renewal periods.
While state officials are struggling to accommodate enrollees disrupted by the latest changes in the Basic Health Plan, they also wonder what happened to the 17,000 people who have left the program since its inception.
"We can’t target where all these people went, but it probably would not be accurate to say the individual insurance market in the state has improved," says Mr. Martin. "If anything, it would be just the opposite."
Contact Ms. Senn’s office at (360) 586-4422, Mr. Wasser at (360) 923-2711, Ms. Kirk at (202) 296-1818, and Mr. Hall at (336) 758-4476.
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