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Why health reform without a mandate doesn’t work: Lessons from Washington state

From the Washington Post:

Photo: Sathish Jothikumar

If the Supreme Court overturns the health reform law’s individual mandate — a decision that could come as soon as Monday — it won’t be totally unknown territory. For Washington state, it would be quite familiar.

In 1993, Washington also passed a law both guaranteeing all residents access to private health insurance, regardless of their health status, and requiring Washingtonians to purchase coverage.

The state legislature, however, repealed that last provision two years later. With the guaranteed access provisions still standing, the state saw premiums rise and enrollment drop, as residents only purchased coverage when they needed it. Health insurers fled the state and, by 1999, it was impossible to buy an individual plan in Washington — no company was selling.

Washington state is among a handful of states that have pursued universal access to health insurance. The challenges they have faced could give some clues about the federal overhaul’s fate should the mandate get struck down.

“There are seven states that tried this in the mid-1990s and, in every case, it was a disaster,” said M.I.T. health care economist Jonathan Gruber, who worked on both Massachusetts’ reform law and the Affordable Care Act. “It became pretty clear that, if you want a market to work, you need a mandate.”

Washington state began pursuing health reform in 1990, when the state legislature created a commission to study how best to provide universal coverage for its 5 million residents. The commission weighed a single-payer scheme, where state would create and run its own health plan. It ultimately settled on a “managed competition” model, where the state would play a greater role in regulating the insurance market.

“There were essentially three goals of the law: To cover everybody, to reduce the rate of health-care cost growth by managing competition better and to improve health care outcomes,” says Aaron Katz, a University of Washington health policy professor who served on the commission.

Starting on July 1, 1993, health insurance companies were required to accept all state residents who applied for coverage. The new law also barred health plans from charging sick subscribers more, a practice known as underwriting. The requirement to purchase coverage, meanwhile, was not slated to take effect until five years later, in 1998.

That never came to be. After Republicans took control of the Washington state House in 1994, the state repealed its individual mandate. The guaranteed issue provision, however, remained on the books.

“The legislature was loath to repeal the insurance reforms because those were very popular,” says Aaron Katz, a health policy professor at the University of Washington, who advised the legislature on the issue. “That put the insurance companies in a bind.”

The bind they were in was this: The only people buying health insurance were those who foresaw having high medical costs. That drove health insurance premiums up. As premiums went up, and insurance became less affordable, enrollment decreased significantly.

As one report from the Washington state Insurance Commissioner’s Office described it, the insurance market has entered a “death spiral,” with customers only buying coverage “when they needed it.”

Jonathan Hensley, who then served as the president of local health plan Premera Blue Cross, recalls one letter he got from a healthy woman cancelling her insurance policy.

“She wrote in her letter that she very much appreciated our excellent service [and] that she would certainly pick our plan again when she became pregnant,” says Hensley, who now works for another health insurer in Washington, Cambia.

Big premium spikes indicated that many Washingtonians were making similar decisions: Premera Blue Cross increased premiums on its most popular product by 78 percent over the course of three years.

Health insurance companies, meanwhile, were losing money — and leaving the state. Between 1993 and 1998, 17 health insurance carriers had left the state’s individual market. The two remaining plans — Regence Blue Shield and Group Health, a health maintenance organization — stopped writing policies in 1999. Washington state’s individual market was essentially dead.

“What effectively happened was you got to this tipping point, where we couldn’t afford to do business, and individual coverage was simply not available,” says Hensley.

Hensley, along with other health-care stakeholders, met with then-Gov. Gary Locke to discuss new legislation to fix the insurance market. In 2000, the Washington state legislature significantly modified its guaranteed issue policy. Insurers would still have to cover most residents, but those with pre-existing conditions could be required to wait nine months for the policy to kick in. The very sickest applicants would, meanwhile, would be eligible for coverage in a high-risk insurance pool administered by the state.

Washington state’s insurance market now has nine companies selling individual policies, compared to the 19 that participated in 1993. Thirteen percent of Washington state residents currently lack health coverage, the same number as when the health reform experiment started.

Washington state’s experience does not make a perfect analogy for what would happen to the federal law, should its individual mandate get struck down. The Affordable Care Act has premium subsidies, for example, that could encourage more individuals to purchase coverage. It also allows insurance companies to charge older subscribers three times as much as young enrollees; in Washington, everyone had to receive the same rate.

Some, however, do see parallels between the role that the individual mandate played in Washington state’s law — and could play in the law passed in Washington, D.C.

“Washington state’s experience demonstrated that passing market reforms without requiring broad participation in the system does not work,” said Karen Ignagni, President of America’s Health Insurance Plans. “The linkage is essential.”

Washington state, for its part, filed an amicus brief with the Supreme Court on the health reform law, that drew heavily from its own experience.

“We also know, from Washington state’s own experience, that insurance coverage for pre-existing medical conditions must go hand in hand with the minimum insurance coverage requirements,” Washington Gov. Christine Gregoire, a Democrat, said in a statement accompanying her filing.

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