How to lower Maine’s high health insurance rates?

Maine has some of the highest health insurance rates in the country. In 2004, a family of four with parents age 40 living in Fargo, N.D., could buy a $1,000 deductible policy for $459 a month (www.ehealthinsurance.com). In Waterville, Maine, a similar policy would cost them $1,395 a month (www.anthem.com). North Dakota is one of more than 40 states with rates a fraction of Maine’s.

In the 1990s, Maine enacted community rating and guaranty issue for individuals. Today, five states have guaranteed issue for individuals and strict community rating; a few states use less strict rating bonds. These regulations give a competitive advantage to the largest insurer in the market.

After they passed, 11 health insurers left our market and Blue Cross became a near monopoly. Maine’s high rates are the result of too much government regulation and not enough competition.

According to a study by William Congdon of Princeton, Anna Kowalski of MIT and Mark Showalter of BYU, guaranteed issue raises rates by 94 percent and community raising rates by 27 percent for the average family (www.me-ri.org, click on “increasing health care costs”). They also noted that not only is insurance cheaper in states without these laws, but also the coverage is better. Guaranteed issue is a way of guarantying access to insurance.

Another way is a high-risk pool. Currently, 33 states use high-risk pools and that number continues to grow (www.naschip.org). Recently, the Ohio Department of Insurance recommend that Ohio enact a high-risk pool (www.ohioinsurance.gov).

Insurance is a contact whereby the insurer accepts the risk of a bad event happening. Homeowner’s insurance insures against the risk of a home burning and other risks. The price you pay to get the insurance company to assume that risk is the premium.

Premiums are set by looking at the risk; the probability of the event occurring and the cost of the event. The risk is not the same for everybody.

Young men pay more for auto insurance because they are more likely to have an accident. Women pay less for life insurance because they live longer.

In Maine, for every insurance product except health insurance, the premiums are set by looking at the risk. In most states, health insurance premiums are set by looking at the risk. Community rating says the insurer cannot take risk into account when setting premiums.

When you force insurers to take risk with no questions asked, rates go up. More young healthy people become uninsured and insurance goes into a death spiral. The highly respected American Academy of Actuaries calls allowing insurers to classify and select risk a consumer protection which stabilizes insurance rates (www.actuary.org/pdf/health/risk.pdf). Maine has chosen not to allow health insurers to engage in this consumer protection.

In 2004, a 20-year-old in Louisville, Ky., could buy a $1,000 deductible policy for $64 a month (www.ehealth-insurance.com). In Waterville, he would pay $421 a month for a similar policy (www.anthem.com). In Kentucky, the insurer charges a rate that reflects the risk.

Some say community rating protects the sick and the elderly. The trouble with that argument is the sick and elderly pay less in states without community rating.

In Louisville, a 60-year-old man can get a $1,000 deductible policy for $225 a month (www.ehealthinsurance.com). In Waterville, he would pay $631 a month for a similar policy (www.anthem.com) after 65 people go on Medicare. Some claim that repealing guaranteed issue will allow insurers to dump people when they get sick.

Almost every state in the country has a law called guaranteed renewability which says if you become sick your insurance carrier must continue to renew your policy and cannot change your premiums based on your getting sick; as opposed to guaranteed insurance which says you can wait until you get sick to buy health insurance. People who do that make health insurance very expensive for everyone else.

A very small group of people, at the time they apply for insurance, are sick enough that if their rates were based on their risk, the rate would be astronomical. Many states create a subsidized product for these people called a high-risk pool. Congress, with bipartisan support, is even offering states money to create high-risk pools (HR 3204).

Critics say that high-risk pools charge high rates. Most high-risk pools actually charge lower rates than Maine’s. A 40-year-old female who ends up in the North Dakota high-risk pool would pay $292 a month for a $1,000 deductible policy (www.naschip.org). She would pay $526 a month for a similar policy in Waterville (www.anthem.com).

A perfectly healthy 40-year-old in Waterville would pay $526 a month.

In other words, the 40-year-old female who lives in North Dakota, but has cancer and diabetes at the time she applies for health insurance, pays less than the 40-year-old in Waterville who just ran the Boston Marathon.

After destroying our health insurance market, Maine began expanding its Medicaid program. In 1987, Maine’s uninsured rate was 8.5 percent with only 9.9 percent of Mainers on Medi-caid. In 2003, Maine’s uninsured rate was 10.3 percent with 18 percent of Mainers on Medicaid.

Medicaid now squeezes our state’s finances; funding for education, universities and parks all suffer. Maine is cutting the quality of Medicaid benefits for the truly needy so we can afford more people on Medicaid.

When Maine adopted community rating and guaranteed issue, Maine launched an experiment. Today we know these laws do not work.

Several of the studies are posted at www.me-ri.org; click on “increasing health care costs.”

The question going forward is, will the people of Maine have to continue to struggle under some of the highest health insurance rates in the country?

Daniel J. Bernier is a Waterville attorney.