Washington state provides case study on effects of
heath-care reform
If the Supreme Court overturns the health-care 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 state passed a law guaranteeing all residents access to private
health-care insurance, regardless of their health, and requiring them 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The state legislature, however, repealed that last provision two years later.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 purchased coverage only 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 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 individual mandate get struck down.
“There are seven states that tried this in the mid-1990s and, in every case,
it was a disaster,” said MIT health-care economist Jonathan Gruber, who worked
on Massachusetts’ health-insurance 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-care reform in 1990, when its
legislature created a commission to study how best to provide universal coverage
for the state’s 5 million residents. The commission weighed a single-payer
scheme in which the state would create and run its own health-insurance plan,
but it settled on a “managed competition” model in which 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 — and it 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 didn’t happen. Republicans took control of the state legislature in 1994
and repealed the individual mandate.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 Katz, 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 themselves incurring 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 entered a “death
spiral,” with customers buying coverage only “when they needed it.”
Jonathan Hensley, who then served as president of local health plan Premera
Blue Cross, recalls one letter he got from a healthy woman canceling 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 Cambia, another health insurer in
Washington.
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 three years.
Health insurance companies, meanwhile, were losing money — and leaving the
state. Between 1993 and 1998, 17 health insurance carriers had left Washington’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,” Hensley says.
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 state
legislature significantly modified its guaranteed-issue policy. Insurers still
had to cover most residents, but those with preexisting conditions could be
required to wait nine months for the policy to kick in. The very sickest
applicants would, meanwhile, 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 with the 19 that participated in 1993. Thirteen percent of
Washington state residents currently lack health coverage, the same proportion
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 pay 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 the
District.
“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 a friend-of-the-court brief with the Supreme Court on the
federal health-care reform law, drawing heavily from its own experience.
“We also know, from Washington state’s own experience, that insurance
coverage for preexisting medical conditions must go hand in hand with the
minimum insurance coverage requirements,” Gov. Chris Gregoire (D) said in a
statement accompanying her filing.
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