New Hampshire: Valiantly Seeking Market Reform
On January 1, 2004, key provisions of a reform measure aimed at deregulating New Hampshire's small group health insurance market went into effect. The new law also affirmed reforms implemented two years earlier to the Granite State's individual medical market, allowing insurers to refuse to write or issue coverage based on an applicant's health status, medical underwriting for individual health coverage, and exclusion of pre-existing conditions for nine months (up from three months under previous law).
In testimony to the House Commerce Committee on April 23, 2003, Governor Craig Benson (R) said, "SB 110 is a great step forward in the health care reform process. It will lower costs and give consumers choice by increasing competition among insurers ...."
How the Granite State came to see deregulation as the solution to the problems of rising health care costs and declining choices for consumers is a story worth telling, if only because policy makers in so many states still seem to think regulations are part of the solution rather than the cause of the problems.
Biggest Insurer Cried for Help
Benson's "great step forward" could also be described as a "great step backward," back to the time before poorly crafted reforms were adopted by New Hampshire and other states during the national debate over the failed Clinton Health Security Act.
In 1993, Blue Cross/Blue Shield (BCBS) of New Hampshire (acquired by Anthem in 1999) began suffering financially from the community rating (CR) and guaranteed issue (GI) practices it was required by law to adopt. BCBS was the "insurer of last resort" in New Hampshire, and as such was more heavily regulated by the state than other insurers. In return, BCBS was exempted from paying the insurance premiums tax levied on the rest of the private health insurance market in the state, currently set at 2 percent of net premiums.
BCBS complained the CR and GI mandates made it unable to compete with firms permitted to use standard health insurance underwriting practices. Rather than seek freedom from the mandates, BCBS lobbied the New Hampshire legislature for rules that would force all state-regulated insurance companies to comply with the CR and GI mandates.
"Despite having provider discounts no other carrier could match and favorable tax treatment to boot, BCBS was losing market share to other carriers," said Lee Tooman, vice president of Golden Rule Insurance Co. "Why? Because we had better products, prices, and service. But Blue Cross prevailed in the legislature, convincing it that the problem was with us 'cherry pickers.'"
During the 1994 session of the New Hampshire legislature, Democrat Jeanne Shaheen, then a state senator, responded to BCBS by sponsoring SB 711. It went into effect January 1, 1995. Among other provisions affecting the state's insurance industry, the measure:
- Required insurance companies to guarantee-issue individual health insurance policies. Companies were prohibited from denying coverage to any person or eligible dependent.
- Imposed price controls, in the form of modified community rating, on individual health insurance premiums. Premiums could be modified or adjusted only for age, not health status.
- Prohibited insurers from increasing premiums by more than 25 percent until January 2000.
Individual Insurance Market Imploded
Aimed primarily at easing the burden on BCBS by encumbering other insurers, Shaheen's SB 711 had little effect on health insurance consumers. According to the U.S. Census Bureau,
- In 1995, when SB 711 went into effect, 10.0 percent of the New Hampshire population was uninsured. In 2002, the uninsured rate stood at 9.9 percent.
- In 1995, 80.1 percent of the New Hampshire population had private health insurance. In 2002, 80.2 percent did.
- In 1995, 9.8 percent of the New Hampshire population "directly purchased" their health insurance, primarily in the individual market. In 2002, 8.9 percent did.
While health insurance coverage was little affected by Shaheen's reforms, consumer choice was badly damaged. By 1997, the number of commercial health insurers serving New Hampshire dwindled to five from a previous high of 12. Those remaining in the market reduced their insurance offerings to cover only high-deductible, catastrophic-type health insurance plans.
In mid-1997, even BCBS threatened to drop out of the individual health insurance market, complaining once again that its losses were unsustainable. The company announced it would quit the state's market altogether and terminate all in-force business in January 1998.
The announcement "that [BCBS] would no longer participate in the individual market that they had done so much to define, heightened the growing concern of the remaining five carriers," testified attorney Paul Rogers on behalf of the Health Insurance Association of America at a hearing before the state insurance department on October 31, 1997.
"Since the Blue Cross/Blue Shield announcement, we have seen our number of new policies issued in New Hampshire increase substantially," testified Cecil Bykerk, executive vice president and chief actuary for Mutual of Omaha. "We have also seen a significant increase in our anticipated loss ratio and this appears directly related to the influx of former Blue Cross/Blue Shield policyholders. Our individual block of business, and indeed the entire remaining individual market in New Hampshire, is not broad based enough to absorb the high claims costs associated with the Blue Cross/Blue Shield block of business."
The New Hampshire Department of Insurance engaged the Washington, DC-based Center for Health Economics Research to investigate the effects of the Shaheen reform. The group's report, submitted on December 17, 1997, warned "Blue Cross and Blue Shield's withdrawal from the nongroup [individual] market could lead to a market collapse if nothing is done to avoid a disorderly migration of this high risk book to other insurers."
Anthony Juliano, executive vice president of the Independent Insurance Agents of New Hampshire (IIANH), shared at the October 31 hearing the results of an IIANH membership poll on the availability of individual health insurance products after SB 711 was implemented. According to Juliano, "There was a significant reduction in the availability, and what was available was coming in with extra-high deductibles. It now appears that circumstances have not changed and are certain to worsen ..." with the withdrawal of BCBS from the market.
Back to the Drawing Board
On November 26, 1997, the department of insurance issued a "Findings and Final Order" with respect to the condition of the state's individual health insurance market. Insurance Commissioner Charles Blossom found, among other things, that "the quality of products available in this market is worsening," "the cost of available products in this market is increasing," and "the loss ratios of the writing carriers has increased."
Blossom imposed a temporary risk-sharing plan, developed by the industry, to subsidize the losses experienced by the individual health insurance carriers. Insurers actively marketing in the individual market were eligible for a subsidy, paid for by assessments on all commercial insurance companies and HMOs.
The plan was widely perceived as necessary, but acceptable only as an interim measure. William Sterling, vice president and senior associate counsel for group insurance carrier John Alden, testified at the October 31 hearing, "The inability of a guaranteed issue, community rated individual health market to provide a sufficient, internal spread of risk and cost is apparent."
"The imposition of a risk sharing plan by regulatory action is an acceptable and necessary solution to the problem at hand," noted Sterling. "However, at the earliest possible opportunity, a permanent solution should be sought through legislation."
Movement toward a legislative solution began in 1998. In legislation that went into effect July 1, 2002, the guaranteed issue requirement was repealed and a high-risk pool for the medically uninsurable launched. The measure also allowed for more flexibility in premium rating:
- Insurers were permitted to use medical underwriting to determine eligibility for insurance coverage and initial determination of rates.
- Premiums could be surcharged up to 50 percent for health status.
- Premiums could be surcharged up to 50 percent for smokers.
- Premiums were permitted to vary for age by a factor of 4 to 1.
The New Hampshire high-risk pool, New Hampshire Health Plan (NHHP), is a cooperative state and private-sector insurance plan for the medically uninsurable. While eligibility under certain state and federal regulations immediately makes one eligible for NHHP, for the most part, enrollees must have been declined for private health insurance coverage and must have been diagnosed with one of 16 "pre-qualifying" medical conditions, among them HIV/AIDS, juvenile diabetes, multiple sclerosis, and paraplegia/quadriplegia.
Two indemnity and two managed care options are offered through NHHP. Rates are higher for tobacco users than for those who do not use tobacco. Coverage is provided through private insurance companies at rates not higher than 150 percent, and not lower than 125 percent, of the standard market rate for the coverage offered.
Scot Zajic, a director for government relations at Assurant Health, said his company is a strong supporter of high-risk pools for persons who cannot get health coverage elsewhere. "Having a risk pool is a good way to provide access to health coverage for those who need it," Zajic said. "We would, however, like to see the funding base broadened to include federal and/or state funding. Finding coverage for medically uninsurable persons warrants a societal solution."
State of the Market Today
Zajic said two companies under the Assurant corporate umbrella serve the individual medical insurance market today: Fortis Insurance Co. and John Alden Life Insurance Co. "The recent reforms have allowed us to re-enter the New Hampshire market, and to offer more products that will benefit more consumers."
Golden Rule Insurance's Tooman disagreed with Zajic's assessment of competition in the state. "In 1994, Golden Rule had a thriving business in New Hampshire. We insured a lot of people and paid millions of dollars of claims expeditiously and accurately. But Blue Cross complained that carriers like Golden Rule were doing great harm in New Hampshire. In fact, the only entity suffering harm was Blue Cross.
"Jeanne Shaheen's 1994 reforms ended up freeing Blue Cross of its money-losing business and handed it a virtual monopoly in the individual market," Tooman continued. "Blue Cross returned to the individual market, able itself now to 'cherry pick.' But it still has the provider discounts no one else can touch.
"Ten years after 'reform,'" he said, "the market has not recovered."
Next month: The individual insurance market in Maine, and a wrapup of our eight-state series.
Conrad F. Meier (email@example.com) is managing editor of Health Care News.