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Journal of Health Politics, Policy and Law 25.1 (2000) 101-131
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An Evaluation of Vermont's Reform Law
Mark A. Hall *
Introduction and Methods
Content and Purpose of Reform
Vermont implemented comprehensive reform of the individual health insurance market in July 1993, one year after its small-group market reforms took effect. The small-group reforms were initiated by Blue Cross and Blue Shield of Vermont as a consequence of mounting losses that it was incurring in its role as "insurer of last resort," that is, as the only insurer offering open enrollment and community rating. The individual market reforms were a further extension of this initiative, but they occurred in the broader context of Vermont's attempt to achieve universal coverage (Oliver and Paul-Shaheen 1997; Paul-Shaheen 1998). The same legislative session that produced the individual market reforms also established a study commission and deliberative process to craft and adopt a comprehensive health care reform plan, similar to the reform movement that was occurring at the federal level (Leichter 1993). For reasons detailed in Leichter 1994, this larger effort did not succeed, but the individual market reforms remain in place.
[Table 1] The core of the individual market reforms is to require all insurers selling in the individual market to guarantee issue all of their products and to sell at community rates. Vermont adopted nearly pure community rating, which eliminates most conventional rating factors, such as [End Page 101] health status, age, gender, and even geographic location. Vermont's version of community rating is not totally "pure," since rating rules allow commercial indemnity insurers to vary rates ± 20 percent for demographic and other permissible factors but not for individual health status. Initially, the law allowed a ± 40 percent variation, but this was reduced to 20 percent two years later. HMOs and Blue Cross are not allowed to use this rating flexibility, and in August 1999 regulators proposed eliminating this rating flexibility for all insurers. Insurers are allowed to impose a preexisting condition exclusion period of twelve months.
Vermont lacks the administered reinsurance or risk-adjustment mechanisms that exist in most other states. Its law calls for a reinsurance mechanism, but for reasons discussed below, one was never established. In this respect, Vermont is unique as the only state to our knowledge with guaranteed issue (sometimes called open enrollment) and nearly pure community rating of all products, both individual and small group, without any risk-adjustment or reinsurance mechanism.
The article assesses the impact of these reforms with a variety of statistical and descriptive data, none of which are conclusive about the actual and full impact. This degree of certainty is impossible to achieve since a host of other economic and social conditions were changing simultaneously, and the individual market reforms occurred alongside other reforms that impact this market segment. Nevertheless, solid conclusions [End Page 102] can be drawn by comparing Vermont with other states and by using multiple sources of data to corroborate or refute each other.
This is part of an intensive case study funded by the Robert Wood Johnson Foundation of seven states that have enacted varying health insurance reforms. 1 This multiple-case study consists primarily of two rounds of in-depth, open-ended interviews, as well as an analysis of documentary and secondary data. The principal reforms under study are: (1) guaranteed issue, (2) renewability and portability, (3) rating bands and community rating, (4) restrictions on underwriting practices such as risk selection and preexisting condition exclusions, (5) reinsurance and risk adjustment, and (6) public purchasing cooperatives.
The primary sources of information for this study are various components of the insurance industry. In Vermont twenty-nine subjects were interviewed in twenty sessions in the fall of 1997, and an additional round of eighteen interviews was held with twenty-one of these same people in the fall of 1998. Two subjects were with the Vermont Department of Banking, Insurance, Securities, and Health Care Administration (the Insurance Department); six were independent insurance agents; one was a representative of an employer organization...