Coverage guarantee can hit young the hardest

Barack Obama's campaign promise should prove irresistible to the millions of uninsured: guaranteed access to affordable health coverage, regardless of illness or condition.

The Democratic presidential nominee is proposing a National Health Insurance Exchange that would be like a government-run shopping mall for health insurance. It would negotiate prices and benefits with private insurers. Among the offerings would be a government-run, Medicare-like plan.

No participating company could turn someone away because he had cancer, heart disease or diabetes. Nor would someone have to pay a higher monthly premium based on those conditions.

The coverage guarantee is not a new concept. But it has had a troubled history in several states that tried it for people seeking coverage through the insurance market. Some states, such as Kentucky and South Dakota, eventually dropped the guarantee after insurers left. In the few states where guaranteed coverage continues, monthly premiums generally are much higher for younger, healthier people than in nearby states.

Among the states with guaranteed coverage, Massachusetts seems to be having the most success at keeping monthly premiums down.

Obama's campaign says his $60 billion plan, paid for mostly by tax increases on the wealthy, really is not comparable to what the states have done.

He is proposing large government subsidies that will pay much of the insurance cost for millions of people. He also would invest in programs, such as electronic health records, that his campaign predicts will lower costs. And the exchange itself should promote competition, among insurers, the campaign contends.

"States are making these insurance reforms in a vacuum. We're looking at this as a systemwide reform effort, so any pressures created are addressed through other elements of his plan," said Neera Tanden, domestic policy director for the Obama campaign.

Health insurance protects people from the cost of an illness or accident by spreading the expense to all of a plan's participants. If Obama's model is to work, he will need to entice younger, healthier people to buy insurance so they will offset the expenses generated by those who are sicker.

At the state level, the guarantee mandate has often had the opposite effect.

"They're very price sensitive. They're healthy. They think they're invincible and getting them to buy coverage is a challenge. If it's expensive, they'll walk away," said Mary Lehnhard, a senior vice president at Blue Cross and Blue Shield Association, a trade group.

The guarantee mandate faltered in states that did not do enough to get healthy, younger people to buy coverage, said Kenneth Thorpe, a health care analyst at Emory University.

"They didn't put up new money," Thorpe said. "So, basically, the people who joined were people who had trouble getting coverage and were therefore sick. What Obama is doing is getting a broader cross-section of people enrolled because he's putting a lot of federal money into it."

Obama's chief Democratic challengers in the primaries proposed requiring everyone to have health insurance, much like car owners are required to have auto insurance. The requirement was aimed primarily at the 19 million uninsured people age 19 to 34.

Obama supports such a mandate for children, but not adults.

The insurance industry is wary, but could support a guarantee mandate if politicians step up and get everyone insured, said Karen Ignagni, president and chief executive of America's Health Insurance Plans, a trade group.

"That (guarantee) will sound appealing to each and every one of us as citizens, but we have a lot of experience at the state level. Unless you get everyone in, that doesn't work," she said.

A few states began requiring insurers to take on all comers in the 1990s after a run at national health insurance failed during the Clinton administration.

South Dakota enacted the guarantee mandate in 1995. By 2001, claims exceeded the premiums collected by $2 million. By 2003, the state was down to only three major insurers; one, American Family Insurance Group, notified state officials that it was about to leave, too.

"We regret having to take this step, but the losses incurred on our individual major medical products in South Dakota are unacceptable," wrote Jack C. Salzwedel, a company vice president, in April 2003. "Most of our losses are directly attributable to the basic and standard policies that we are forced to write."

Within months, the South Dakota Legislature passed a bill that relieved the private insurers of their most costly customers. Those people are still insured, but as part of a high-risk pool. The state pays expenses that are over and above the premiums collected.

A similar situation occurred in Kentucky, which adopted the guarantee mandate in 1994 and put limits on premium rates.

"Kentucky became a national leader, but an unforeseen consequence was the state also became an island where more than 60 health insurance companies abandoned this market for other states due to income, market size, or regulatory and legislative climate," the state's insurance commissioner wrote in 1999.

Both states focused on protecting consumers having trouble getting insurance because of their age and health status. They did not subsidize the cost of insurance in the way that Obama is proposing.

The guarantee mandate still exists for coverage purchased directly from health insurers in New York, New Jersey, Maine, Massachusetts and Vermont. Health analysts say the Obama plan is most comparable to what's used in Massachusetts.

In Massachusetts, a 25-year-old can select health coverage from 23 different plans at rates ranging from $134 a month to $438. The least expensive plans generally require enrollees to pick up more of the upfront medical costs. Lower-income residents can get subsidized coverage at lower costs through a different program.

The latest statistics show about 110,000 additional people in Massachusetts have bought unsubsidized private insurance since April 2006, said Bob Carey, director of planning and development for the Commonwealth Health Insurance Connector Authority. On top of that, about 230,000 were covered through the expansion of Medicaid and a program that subsidizes the cost of insurance for those with incomes below three times the federal poverty level - or $52,800 for a family of three.

The program has cost more than anticipated because considerably more people signed up for subsidized coverage than was anticipated.

"You can't argue with the fact that our uninsured rate is going down, while the rest of the country's is going up," Carey said.

(This version CORRECTS description to 'least expensive plans' instead of more expensive.)