Natural Entrepreneur: Health Insurance: So What's the Problem?

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Health Insurance: So What's the Problem?

Legislative tinkering in NH changed the competitive market dynamics

by Sonia Pearsall, Advanced Benefit Design, Hillsboro, NH

With the election season upon us, we are once again hearing plenty about the high cost of health insurance. New Hampshire has some of the highest insurance premiums in the country, which is surprising given our limited population size compared to other states.

This is the first of a two-part article that discusses what led to New Hampshire’s health insurance crisis. The second article I will address the steps now being taken to correct the situation.

Prior to 1995, health insurance in New Hampshire was medically underwritten. Up until that time, there were approximately twenty-two group and individual carriers in the state, with Blue Cross designated the insurer of last resort. Carriers offered plans to individuals as well as groups sized at 2-9, 10-25, 25-50, and 50+ employees. The primary complaints from consumers were that carriers could decline all coverage for a person or “rider-out” (i.e. not cover) certain conditions. Individual carriers were not required to cover maternity, but there were State-mandated requirements to cover certain mental and nervous conditions.

In those days, premium rates were based on age bands that ranged approximately 10-to-1. i.e. the oldest person could pay up to 10 times what the youngest age band would pay. Plan designs were varied and offered many choices for consumers. Admittedly, given the wide range of options, it was difficult to compare apples-to-apples when shopping for a plan without the assistance of a health insurance broker.

With the collapse of "Hillarycare" in 1993-94, we saw an effort by some state legislatures, New Hampshire included, to push for universal health insurance at the state-level. The result? In 1995, NH Senate Bill 711 (SB 711) was signed into law by then Governor Jeanne Shaheen.

SB 711 contained three (3) notable components, any one of which placed a significant burden on private carriers offering plans in the State. Taken as a whole, SB 711 resulted in the near demise of New Hampshire’s private insurance market.

First off, SB 711 called for guaranteed-issue health insurance without the ability to rider-out any conditions. Guaranteed-issue prohibited private insurers from rejecting coverage of a person on the basis of his or her health. Thus, no more pre-existing condition riders or limitations were allowed.

Second, SB 711 redefined small groups as one to 100 employees. This seemingly simple change alone resulted in a mass exodus of numerous insurance carriers from New Hampshire. Why? Insurance carriers were being asked to customize existing plans and write down to one life and up to 100. New Hampshire was too small a market to justify this level of product customization.

Finally, SB 711 instituted community rating. With community rating, the State established controls on the range of premiums charged between the oldest and youngest persons covered by a plan. Prior to 1995, older plan members could pay as much as ten times that of younger members. Under SB 711, this factor changed to 4x with an eventual phase down to 2x. (Somewhere along the line, this figure bottomed out at 3x.)

Adding to this, Governor Shaheen saw to it that all plans offered similar benefits, so that consumers could better understand what they were purchasing, without the use of an insurance broker. Thus, stated-mandated coverage for most conditions became the norm.

There is no doubt that SB 711 made it easier for unhealthy people to obtain health insurance. However, since no pre-existing condition limitations could be imposed, people could forego the purchase of insurance until they absolutely had to buy it. A pregnant woman could purchase insurance in her 8th or 9th month of pregnancy, pay one or two premiums, have her baby, and then cancel her insurance. Groups of one, and small family businesses, would jump in and out of the market as needed. Others would buy high-deductible plans and then switch to lower deductible options just before they had surgery. Rates were published and brokers no longer had to worry about whether a plan would be issued. Rather, they needed only to make sure that a group was a bona fide business operating in the State.

Premiums skyrocketed as a result of SB 711. Younger and healthier employees began dropping their insurance coverage to avoid the higher premium rates, which, in turn, caused the rates to go higher. The remaining carriers complained that there were insufficient insured bodies to cover those using the plans.

With private insurance companies being hurt by SB 711, HMOs started to enter the State armed with great deals to “keep you healthy”. Prior to 1995 HMOs represented only about 12% of the market.

Consumers welcomed the low co-pays of HMOs and the ability to have their routine care covered. Traditional insurance companies, in turn, could not compete. Insurance, by nature, is a feature to guard against unforeseen incidents. HMOs touted well-care, routine, and preventative - all foreseen and pre-planned - care. More and more traditional insurance companies left New Hampshire.

As consumers raced for their HMO-covered physicals, more people came to recognize that, perhaps, they were not as healthy as they thought. Use of the health system rose under HMOs. And consumers began to complain about the limitations imposed by the HMOs especially when they were denied access to care that could save their lives. The battles that ensued forced HMOs to comply with the same regulations that “insurance” companies had to follow.

Case in point, prior to 1995, HMOs had their own specific networks. As more consumers complained about the inability to see their “own” doctor, more legislation was passed that permitted physicians to participate with more than one network. HMOs were now not only being forced to act more like insurance companies, but were losing control of their tight networks and cost-cutting incentive deals arranged with physicians. In 1999, Core Physicians Network of Exeter and Portsmouth threatened to withdraw from Tufts, Cigna, and Harvard unless these HMOs agreed to a 20% hike in fees paid the doctors. Shortly thereafter, Tufts NE was liquidated and Harvard Pilgrim went into receivership. Harvard has since made a complete turnaround and is quite strong now.

New Hampshire Healthy Kids proved a Godsend to those paying high premiums, now for HMOs too. But it also proved a blow to the insured population as a whole. Originally designed to help low-income families, many of the barriers to access have since been eased. Today, eligibility income levels for Healthy Kids are so high that doctors, lawyers, and just plain folk are qualified to have their children covered by NHKIDS thus removing younger people from the insured mix and further impacting premium prices.

Looking back over the last ten years, it is easy to see how some well-intentioned laws succeeded in making a mockery of New Hampshire’s health insurance market. In the next article, I will discuss the efforts by our legislature to resuscitate the private insurance market in the State and improve the choices available to New Hampshire consumers.

Sonia Pearsall is a partner in Advanced Benefit Design located in Hillsboro, New Hampshire. She has been licensed to sell life and health insurance in MA and NH since 1983. She specializes in working with individuals and small businesses to help them access reasonably priced benefits for themselves and their employees. She is a past presented of The New Hampshire Association of Health Underwriters and The Massachusetts Association of Health Underwriters and a former participant in The NH Coalition for Better Health Insurance.Phone: 1-877-228-8138

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