Journal of Health Politics, Policy and Law 25.1 (2000) 197-204
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A Regulator's Perspective on Other States' Experiences
Alexander K. Feldvebel and David Sky
The purpose of this commentary is to suggest what practical lessons and wisdom a state regulator might glean from the articles and case studies on nongroup insurance market reform contained in this journal issue. 1 New Hampshire initiated fairly aggressive nongroup market reforms in the early 1990s in response to the imminent collapse of the old market structure, which, like many of the states studied in this issue, required the Blue Cross plan to serve as the insurer of last resort. What followed was a market dynamic that bears many interesting similarities to the experiences of the six states that are the subject of the case studies. We draw a number of conclusions as to what the goals of nongroup market reform ought to be, what are the most important reform market dynamics, which regulatory strategies are most feasible and likely to succeed, and how much it is reasonable to expect from the nongroup market.
The New Hampshire Experience
Prior to the enactment of the New Hampshire nongroup market reforms, there were approximately a dozen carriers participating in the market. However, Blue Cross Blue Shield of New Hampshire (BCBSNH) and Golden Rule Insurance Company each accounted for approximately 40 percent of the market.
BCBSNH operated as the carrier of last resort and enjoyed an exemption from the state's premium tax assessment. Until 1993, BCBSNH used [End Page 197] pure community-rating methods to price its business. Golden Rule used a variety of underwriting tools, including exclusion riders and age-rating methodologies.
In 1993, facing increasing losses on its nongroup line as other insurers enrolled the better risks, BCBSNH introduced an age-rating methodology and began to seek changes in the health insurance market rules to level the playing field. 2 In 1994, the New Hampshire legislature passed small group and nongroup market reforms that included guaranteed issue, guaranteed renewability, limits on preexisting-condition clauses and modified community-rating limitations, whose provisions are largely similar to the states studied in this issue. Self-employed individuals were given an option to purchase insurance in the small group market. Finally, the New Hampshire reforms included the most comprehensive portability provisions possible. Individual subscribers were given both group-to-individual and individual-to-individual portability rights.
The New Hampshire Insurance Department ("the department") initially opined that all pre-reform individual policies must be brought into compliance with the reform legislation. However, in response to threats of litigation from Golden Rule, the department reversed its position and allowed policies issued prior to the reforms' effective date to remain. This considerably reduced the size of the reform market.
Golden Rule did not participate in the reform market but continued to maintain its in-force block. BCBSNH was the only carrier to aggressively enter the reform market and the only carrier to convert all of their in-force policies to reform polices. Statistics showed that BCBSNH had the bulk of the reform market and that this was probably due to their decision to convert their pre-reform lives to reform lives.
In fact, there were few new entrants to the individual market, and those that did enter showed themselves to be more adept at utilizing benefit design and marketing practices to avoid the higher-risk subscribers. BCBSNH's individual block continued its pre-reform adverse selection spiral, culminating in their decision to exit the market as of the end of 1997.
The department responded to the BCBSNH decision by implementing a subsidization mechanism whereby carriers writing individual insurance would be eligible for subsidies funded by all group writers (Sky 1998) [End Page 198] This mechanism was adopted by the legislature, along with a few minor changes to the market reforms, effective August 1998.
Today, two foreign indemnity carriers are the only active participants remaining in New Hampshire's individual market. They offer indemnity products with deductibles that do not go below...