by John McClaughry
Vermont’s twenty year old Robin Hood in Reverse health insurance rating mandate has become an issue in this year’s gubernatorial campaign.
To understand this, let’s start with auto insurance. It protects the driver against the risk of being sued for causing an accident, and for suffering damage to his or her car due to fire, theft, vandalism, flood, and other disasters.
How much should the insurer charge for assuming these risks, marketing and administering the contract, and earning enough profit to stay in business? The company knows the driving records for twenty year old drivers and sixty year old drivers, and for married and single drivers. The older, married, drivers with a clean driving record will get a discount. The young single drivers, especially males, pay more. No rational person expects the insurer to offer the same rate to the high risk customer as to the low risk customer.
Now look at health insurance. A rational insurer attempts to predict the likelihood of incurring medical expenses for each of many classes of customers, based on age, gender, location, and occupation.
Medical expenses are especially age-dependent. Young people have few costly medical expenses; their grandparents have many expensive medical problems. Their risks are higher, and so insurers rationally charge higher premiums to cover those risks. The good news is that although the older people naturally have higher medical expenses, they also have more resources to cover them.
Ah, but this is Vermont. In 1991 and 1992 the Vermont legislature required that all health insurance small group (up to 50 members) and individual policies be “community rated” – charged one single premium rate, regardless of their age, gender, medical history, and so on.
The same legislature required “guaranteed issue” – that every health insurance applicant be accepted and charged the same community rate, even if they stumbled in the agent’s door with terrible injuries or a far-progressed cancer.
Clearly you can run an insurance business on these terms only when the government prevents the better risks from going to another insurer who can offer discounts for youth and other pro-healthy factors.
Contrary to the cock and bull story put forth last month by Gov. Shumlin, who supported mandatory community rating and guaranteed issue when a freshman Representative in the 1991-1992 legislature, those provisions were not any part of Gov. Dick Snelling’s grand vision for the future of health care. They were lobbied through the legislature by Blue Cross Blue Shield of Vermont to prevent its imminent insolvency.
Why Blue Cross was rapidly going broke is another story, but its board realized that Blue Cross, required by law (1944) to operate under community rating and guaranteed issue in return for not paying the two percent premium tax, could not survive if its healthier customers fled to lower cost for-profit insurance companies not burdened by those government mandates.
Imposing community rating and guaranteed issue on all sixteen of the then active for-profit insurers made it impossible for them to price their product rationally. They exited the state, leaving Blue Cross with most of the small group and non-group markets. Blue Cross, already a ward of the state, did whatever the state demanded to stay in business.
The state’s single payer advocates, and Rep. Shumlin, were happy with this deal. Although it didn’t deliver single payer right then, it banished the insurance companies that opposed single payer.
It ought to bother liberals, but it doesn’t, that this is Robin Hood in Reverse. For two decades the state has allowed wealthier Vermonters to enjoy discounted health insurance premiums, while their grandchildren are paying off education debts, starting families, buying homes, climbing the income ladder – and subsidizing grandpa and grandma’s premiums.
Sen. Randy Brock, in his health plan, called for at least backing off Robin Hood in Reverse. Gov. Shumlin, after falsely attributing community rating to Gov. Snelling, exercised his talent for wild exaggeration by blasting Sen. Brock for wanting to make the sick, disabled or individuals with preexisting conditions pay a fantastic 300 times as much as the young and healthy.
This was despite Brock’s position, that Shumlin claimed he had read three times, advocating “protecting the uninsurable or those with serious, high cost preexisting conditions through targeted reinsurance and high risk pools.”
If Gov. Shumlin has his way, the community rating debate will end in five years. Health insurance will disappear altogether. In its place will be single payer Green Mountain Care, universal and efficient, guaranteeing to every Vermonter as much “appropriate health care, at an appropriate time, in an appropriate setting” as the Green Mountain Care Board will approve, and as Vermont’s taxpayers can be made to pay for.
John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org). He was a senator in the 1991-1992 legislature.