Why the mandate matters: Two states' stories

As we're waiting to learn whether the Affordable Care Act will survive the upcoming Supreme Court decision, it's a good time to remember what's at stake with the individual mandate -- the part of the law that's least popular with the public and that some Supreme Court Justices seem to find objectionable. I've written before about why the mandate, which requires everyone who can afford it to purchase health insurance or pay a penalty, is a necessary part of the healthcare law and is not the same as requiring everyone to buy broccoli. Now, the Washington Post's Sarah Kliff adds to the discussion stories about two states that tried to make it easier for their residents to afford individual nsurance policies, but with different approaches to the mandate issue and very different outcomes.

Washington state, Kliff reports at Wonkblog, passed a law that guaranteed anyone could purchase individual insurance policies without facing higher premiums due to health history. The law also contained a requirement that all residents purchase health insurance, but the state legislature repealed it. The consequences weren't surprising:

“The legislature was loath to repeal the insurance reforms because those were very popular,” says Aaron Katz. a health policy professor at the University of Washington, who advised the legislature on the issue. “That put the insurance companies in a bind.”

The bind they were in was this: The only people buying health insurance were those who foresaw having high medical costs. That drove health insurance premiums up. As premiums went up, and insurance became less affordable, enrollment decreased significantly.

As one report from the Washington state Insurance Commissioner’s Office described it, the insurance market has entered a “death spiral,” with customers only buying coverage “when they needed it.”

Jonathan Hensley, who then served as the president of local health plan Premera Blue Cross, recalls one letter he got from a healthy woman cancelling her insurance policy.

“She wrote in her letter that she very much appreciated our excellent service [and] that she would certainly pick our plan again when she became pregnant,” says Hensley, who now works for another health insurer in Washington, Cambia.

Big premium spikes indicated that many Washingtonians were making similar decisions: Premera Blue Cross, increased premiums on its most popular product by 78 percent over the course of three years.

Health insurance companies, meanwhile, were losing money — and leaving the state. Between 1993 and 1998, 17 health insurance carriers had left the state’s individual market. The two remaining plans — Regence Blue Shield and Group Health, a health maintenance organization — stopped writing policies in 1999. Washington state’s individual market was essentially dead.

The state legislature modified the guaranteed-issue law in 2000, requiring applicants with pre-existing conditions to wait nine months before their policies would apply. The state has half as many insurers selling individual policies as it did before their experiment, and the uninsurance rate is back to 13%.

Kliff notes that the Affordable Care Act differs from Washington's law in some key ways that might make it more likely to have some impact on uninsurance rates if the Court strikes down the individual mandate but leaves the rest of the ACA intact: The law lets insurers charge older enrollees premiums up to three times as high as those for younger customers, and its subsidies may encourage the purchase of insurance among those who'd otherwise go without it.

I also wonder whether having a national law rather than a state one will make insurers more willing to work within the new system rather than fleeing. The companies that stopped offering policies in Washington state could sell them in Oregon and other states instead, whereas it's hard to imagine the US's insurers decamping for other countries. Still, requiring insurers to cover all applicants without giving them a larger risk pool that includes low-risk individuals is a recipe for premium escalation.

Kliff also tells the story of Massachusetts, which is more familiar to those who've been following healthcare coverage. This state also started off with requirements for insurers to issue policies to all who applied and to limit how much higher premiums could be for the highest-risk enrollees. Premiums started rising, and the uninsurance rate followed. In 2006, then-Governor Romney signed into law a combination of an individual mandate and subsidies to make plans more affordable, and enrollment started increasing. The average premium price and the rate of uninsurance both dropped. Kliff considers the factors behind the high rate of compliance with the mandate:

The cost of insurance, also due to a number of other insurance reforms, dropped dramatically, from $8,567 in 2006 to $5,143 the year after the Massachusetts law took effect.

The fine for not carrying insurance wasn’t especially big: for 2007, $219 in 2007. Paying that penalty would have been significantly less expensive than buying a plan. Still, most Bay State residents have opted for the latter, more expensive option.

“If people in Massachusetts were economists, they would have said I’m not going to comply,” [Harvard University’s Amitabh] Chandra said. “But they aren’t economists, and they hate the word penalty. I think Americans generally tend to be law-abiding people, and they hate the idea of not complying with a requirement.”

Massachusetts’ penalty for not carrying coverage has increased over the years; in 2012, it could be as high as $1,206 for an individual. Compliance has tended to be very high. In 2010, the most recent year for which data is available, fewer than 1 percent percent of 6.6 million residents - approximately 44,000 people - were assessed a penalty for not carrying coverage.

I wonder whether people feel differently about complying with a state law as compared to a federal one. Suspicion of the federal government is running high in certain parts of the country, and Texans (for instance) might be more willing to accept a requirement imposed by their state legislators than one that comes from Washington, DC. If the individual mandate provision of the ACA remains intact but large numbers of healthier individuals decide to pay the penalty and run the risks that come with being uninsured, we could still see the kind of jumps in individual-market premiums that sank Washington's health-insurance experiment and pushed Massachusetts to require its residents to buy coverage.