WITH HEALTH INSURANCE REFORMS In 1993, Washington adopted what then was one of the most extensive health-care reforms ever enacted by a state. The law promised the grail of near-universal coverage while controlling costs. Waiting periods for pre-existing conditions were effectively abolished and insurers were required to sell policies to anyone who could pay. To attempt to control costs, the law provided for premium caps to be phased in only if competition among insurers failed to moderate increases. It also included mandates that uninsured individuals buy their own policies and that employers pay at least 50 percent of the cost of insuring their workers, and that uninsured individuals buy their own policies. But the law was not implemented as originally intended, and as Washington residents soon discovered, unless these types of insurance market reforms are paired with an effective requirement for everyone to purchase coverage, serious market disruption is likely, creating real problems for employers, families and individuals. Critically, key features of Washington’s Health Services Act of 1993 were repealed within 18 months, including provisions that individuals be required to purchase coverage and that employers be required to offer it to their employees. At the same time, legislators left in force new consumer protection provisions, such as eliminating waiting periods for pre-existing conditions and guaranteeing that an insurance policy would be issued to anyone who could pay. Well-intentioned as these protections were, keeping them in force without strong, effective mechanisms to get everyone in the insurance pool, produced a “death spiral” in the individual market. Higher-risk individuals bought policies that were previously unavailable to them causing premiums to rise, and some healthy people took their chances and dropped their coverage. 2 3 The Fallout: By 1999, Reduced Access to Individual Insurance Ultimately, as premiums failed to keep pace with their costs, many insurers found it financially infeasible to offer individual policies or, in some cases, to operate in the state at all. Soon it was impossible for an individual to buy a health insurance policy in 31 of Washington’s 39 counties, including in the major population centers around Seattle, Tacoma, Bellevue and Everett. The small-group insurance market that many small businesses relied on also was seriously undermined, according to media accounts. out of 39 Washington Counties had access to individual insurance Jefferson Kitsap Mason Asotin Garfield Clark Skagit Whatcom And that could mean serious damage to the insurance market nationwide. One of the state’s basic assumptions, that it could obtain a federal waiver from provisions of the Federal Employee Retirement Security Act (ERISA), did not come to fruition. Employees of large, self-insured employers were not included under the state reform plan because these companies’ health benefits are governed by ERISA. As a result, more than one-third of the state’s residents would not participate in the potential insurance pool the reforms were designed to create. Then, spurred by concerns about the cost impact, the newly elected legislature repealed the individual mandate as well as the employer coverage requirement in the state law, along with the premium cap, and most of the other major provisions. This left in place only a few insurancemarket reforms popular with voters, including guaranteed coverage and no waiting periods. Optimism as State Addresses Higher Costs, Uninsured… How this happened, and why, offers both a cautionary tale and a vivid picture of the realworld damage that unintended consequences can inflict. It also provides an object lesson in what could happen nationally if the U.S. Supreme Court rules that the individual mandate in the federal Patient Protection and Affordable Care Act is unconstitutional, but allows other parts of the legislation aimed at changing the market for health insurance to stand. “If you don’t have a mandate, you have significantly fewer covered — those who are covered are older with more problems — and premiums will be significantly higher.” health insurance policy sold in Washington. Those recommendations were ready for the 1995 legislature, but by then a shift in the political landscape had rendered many of them moot. “It will be much harder if there is no mandate,” says Karen Merrikin, a senior policy adviser for Seattle’s Group Health Cooperative. “… If that plays out, it would look exactly like Washington in the 1990s.” Though health care reform in Washington state was intended to reduce costs and cover more people, the number of uninsured rose nearly 30 percent between enactment of the initial reform law in 1993 and the turn of the new century. 8 “If you don’t have a mandate,” says Aaron Katz, principal lecturer at the University of Washington’s School of Public Health, “you have significantly fewer covered — those who are covered are older with more problems — and premiums will be significantly higher.” The 1993 Washington law was born out of rising concern through the late 1980s and early 1990s at the rapidly increasing cost of health care and the large number of uninsured residents (around 600,000 people, or about 11 percent of the state’s population). The law was to be phased in over six years. One of the first major tasks was for a five-member Health Services Commission appointed by the governor to create an outline for implementation, including development of a basic menu of services that would have to be included in any …But Problems Quickly Emerge It soon became apparent that abandoning the commitment to universal coverage while leaving certain insurance market reforms in place would have significant unintended consequences. Uninsured in Washington State in the 1990s* only two individual insurers left in the state** by Percent of Population Health Services Act Enacted 15% 14% 13 % 11% 10% 10% 1991 1992 13 % 12% 11% 12% Source: Seattle Times, September 1, 1999 4 Aaron Katz, principal lecturer at the University of Washington’s School of Public Health, 1990 *Source: U.S. Census Bureau **Source: Washington Policy Center, January 2011 1993 1994 1995 1996 1997 1998 1999 The Depth of the Access Crisis: Access to Individual Insurance in Washington State in 1999 5,756,361 total WA Population 934,968 4,821,393 Population of eight counties with individual insurance Population of 31 counties without individual insurance Source: U.S. Census Bureau Two Years Later: Partial Repeal, Higher Costs, & Premium Hikes In the months and years ahead, the individual insurance market in Washington steadily deteriorated. By 1995, just two years after the Health Services Act was passed, some insurers found it financially impractical to continue writing individual policies. Repeal of the requirements that everyone carry insurance undercut one of the most important resources at the state’s disposal to control health care costs, a broad, stable, guaranteed pool of insured people — including the healthy, who otherwise might be disinclined to buy a policy. So right away the state’s ability to address the cost problem — one of the critical assumptions of the 6 legislation — was seriously damaged. But this was not the only problem. At the same time, a three-month open-enrollment period, no waiting period for pre-existing conditions, and guaranteed issue encouraged consumers who most needed insurance to sign up. Many who had previously lacked insurance coverage either had to forego needed care or pay potentially thousands of dollars out-of-pocket for doctor visits, hospital stays, or prescription drugs. The new rules, though they had adverse effects on the insurance market, gave the uninsured a welcome access point to the system. A June 20, 1995, letter to the Spokane office of Medical Service Corporation of Eastern Washington (MSC), a Blue Shield affiliate, underscored some of the unintended consequences with the landmark legislation. The writer, a young mother, effusively thanked the insurance company for the maternity benefits that had covered most of the costs of her baby’s delivery. Now she was canceling her policy — but wrote that she’d be sure to reenroll if she got pregnant again. Similarly, some desperate consumers moved to the state to obtain insurance. According to several articles in The Seattle Times and other media outlets, a number of very sick, high-cost patients who needed expensive drugs, moved to Washington to benefit from the state’s open-door health-care policies. One company that offered a particularly generous individual plan found itself overwhelmed by Washington residents and newcomers, and after a legal dispute decided to leave the state. The downward “death spiral” was now on full display. Faced with otherwise ruinous costs, sick people who badly needed health insurance rushed to buy it. Premiums rose to meet the higher costs of insuring them, and the number of plans offered was reduced. Many healthy people decided to take their chances and dropped their coverage, further reducing the number of insured and feeding the spiral. Premium increases of 35 percent or more were inevitable and soon made insurance unaffordable for many. About the same time, Pierce County Medical, founded in 1917 and the oldest prepaid health-insurance plan in the country, which served about one-third of the individual market in its area, asked the Office of the Insurance Commissioner to approve a 34 percent rate increase. In order to make coverage more affordable and accessible in Washington state, everyone — young, old, healthy and sick — had been asked to obtain coverage, to keep the market more stable and predictable. So it is not surprising that eliminating the coverage requirement while keeping the state’s new market reforms intact resulted in significant marketplace disruptions. “In 2000, a higher percentage of residents was uninsured than before the 1993 reform act, and our state’s three largest issuers in the market stopped writing new individual policies.” Source: Office of the Insurance Commissioner, December 2011 7 In 1993, 19 insurance carriers wrote policies for individuals in Washington state. By 1999, only two did, and as the new century dawned even they weren’t accepting new applicants. This left individuals, families and businesses with fewer options for coverage and higher premiums. Ted Sullivan, who relocated to Seattle from Idaho in 1998, found himself completely shut out of the individual insurance market. “I was employed at a very small consulting firm at the time — there were only three of us — and completely unable to get health insurance,” Sullivan said. “This wasn’t a problem in Idaho — in fact it never occurred to me before I moved that it would be a problem. I couldn’t find anyone to sell me a policy.” Marie McCaffrey, then a graphic designer, and her late husband Walt Crowley, a writer, political commentator, and with his wife founder of HistoryLink.org, a free online encyclopedia of Washington state history, arguably had an equally worrisome problem. They had a good basic policy, but premiums began to increase dramatically. “Eventually we said to heck with it,” McCaffrey recalls. “It was unaffordable.” As a result they were without insurance for several years. “There was just no option that worked for us.” While the collapse of the individual insurance market attracted the most attention, small businesses also were experiencing difficulties with the changed health-care landscape. 8 The number of small-group insurance plans also declined as insurers pulled out of the state, leaving fewer choices for small businesses. And premiums rose. Kay Martens, owner of Colville Travel in Colville, Washington, had provided health insurance for her employees as a matter of course. But, in the mid-1990s the changing health-care situation made her reassess, eventually forcing her in 2001 to drop her group policy, which had become too expensive. Until 2005 she provided her employees with a stipend to defer the cost of individual insurance because it was less expensive overall, but she ultimately dropped that as well. Premiums continued to rise and the choices in the small-group market continued to shrink. “We’re dying out here,” one business owner complained in 2004. “Look, in a democracy you’re supposed to have choices. The state of Washington has eliminated all our choices.” Lessons Learned Fast forward to 2012. Long after the legislature reinstated waiting periods for pre-existing conditions and created a special program for higher-risk patients (the sickest 8 percent), nine companies have waded back into the market and provide individual coverage in Washington. The experience of Washington state is powerful evidence of the fact that well-intentioned market reforms such as guarantee issue will have significant unintended consequences unless everyone is covered. The state Office of the Insurance Commissioner said in an analysis by Barbara Flye, senior health policy adviser, released in December 2011 that policies in the mid-1990s “allowed consumers to purchase coverage when they needed it. The result was a death spiral … Consumers who desperately needed coverage faced unaffordable premium increases…. In 2000, a higher percentage of residents was uninsured than before the 1993 reform act, and our state’s three largest issuers in the market stopped writing new individual policies.” Similarly, a 1999 study for the Association for Health Services Research by J.D. Malkin found that implementation of the health insurance reforms in 1996 without the requirements to have insurance “was followed by substantial increases in the premiums charged for individually purchased policies, a 25 percent reduction in aggregate enrollment, and a decline in the number of comprehensive plans offered. ... In January 1999, none of the three major carriers offered a plan that included maternity coverage; only one major carrier offered a plan that covered more than $500 per year in prescription drug benefits; two major carriers offered plans that covered mental health.” The insurance market for individuals had utterly collapsed. As the U.S. Supreme Court prepares to consider the constitutionality of the individual mandate in the federal Patient Protection and Affordable Care Act, many analysts in Washington state are mindful of the parallels with the Health Services Act of 1993. While the exact damage done by imposing insurance market reforms in the absence of enforcing requirements to maintain insurance coverage in the state act is impossible to quantify, it is clear that it made coverage less affordable “I was employed at a very small consulting firm at the time — there were only three of us — and completely unable to get health insurance. This wasn’t a problem in Idaho — in fact it never occurred to me before I moved that it would be a problem. I couldn’t find anyone to sell me a policy.” Ted Sullivan, Relocated to Seattle from Idaho 9 Companies Offering Individual Health Insurance in Washington State 19 19 16 1992 1993 1995 2 3 1999 2000 9 2012 Source: Washington Policy Center, January 2011 and accessible for individuals and businesses. The citizens of Washington are still struggling with the aftermath 19 years later. “Comprehensive health-care reform represents a tenuous tethering of a whole bunch of different interventions and stakeholders,” says the University of Washington’s Katz. “If you pull out one major intervention — removing a mandate is an example — you may have a mechanism that no longer works. And you may not have a coalition that still works either.” “If you pull out one major intervention — removing a mandate is an example — you may have a mechanism that no longer works. And you may not have a coalition that still works either.” Aaron Katz principal lecturer at the University of 10 Washington’s School of Public Health 11 www.ahip.org Tom Brown, Author AHIP engaged Tom Brown, a former newspaper reporter and editor to develop this case study. With more than 45 years in journalism, Tom was politics and government editor at Washington’s largest daily newspaper during the early years of Washington’s experiment with health-care reform.