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Less Choice, Higher Costs

Maine’s Experience Should Give Connecticut Pause in Pursuing Politicized Health Insurance Rate Approval ProcessSB 194 – An Act Concerning Rate Approvals For Individual Health Insurance Policies purports to be responding to real concerns about the impact of health insurance premium increases. However, it is a flawed response, as best illustrated by Maine’s experience, which has a similar politicized process.
Connecticut’s Robust Individual Market
First, it is important to appreciate how dynamic, affordable and choice-rich the individual insurance market in Connecticut already is. In comparisons of health premiums and options among various Northeast states, Connecticut always rises to the top. Using ehealthinsurance.com, the largest online broker of individual insurance plans, consider the plans available to the author – a 34-year-old male. Given that the average uninsured male in Connecticut is 35-years-old, this comparison is particularly relevant. As shown below, Connecticut has one of the most affordable and choice-rich individual insurance markets in the Northeast.Consider two extremes – the cost of getting any coverage (the cost of entry) and the worst case scenario (premiums plus maximum out of pocket limit for the plan). In Connecticut, the lowest cost plan is just $48 a month, less than a typical cell phone bill. In Maine, with its politicized rate approval process, the lowest cost plan is 217 percent higher at $152 a month for a plan with a $15,000 deductible. Maine’s deductible is $5,000 higher than the referenced Connecticut plan and is higher than the deductible associated with any product sold in Connecticut.
According to ehealthinsurance.com, one of the 10 most popular Connecticut plans costs just $117 a month for a $5,000 deductible with no cost-sharing beyond the deductible. The most popular comparable Maine plan features a $5,000 deductible with a monthly cost of $318 – almost three times more expensive than the Connecticut plan.
The worst case scenario for the Connecticut plan is an out-of-pocket expense of $6,404 a year (12 months of premium plus the entire out-of-pocket cost-sharing). In Maine, that worst case figure is $8,816, 40 percent higher than in Connecticut.
In short, Connecticut has a healthy, affordable, choice-rich individual insurance market. As shown in the table, most Northeast states do not have as competitive of a market. Therefore, Connecticut lawmakers should be particularly wary of making changes that would jeopardize the current health insurance market by likely raising costs and restricting choices for patients.
The Unintended Consequences of Politicized Rate Approval
Maine has a much politicized “file and approve” process like the one being proposed by SB 194, with Maine’s Attorney General playing an aggressive role. Yet, Maine’s “file and approve” process has had a very negative impact on consumers:

  1. Carriers leave the market resulting in less choice for consumers. Maine has just six carriers selling in the individual market with only three carriers with more than 20 covered lives and only one major carrier accepting new business.  Connecticut has ten.  New Hampshire, with the same population as Maine, has nine.   In the early 1990s, before Maine created a more politicized and restrictive regulatory environment, there were eleven carriers in the individual market.
  2. The individual market shrinks. In 1993, before major reforms establishing a guarantee issue mandate, restrictive rating and a politicized “file and approve” process, there were almost 90,000 people in Maine’s individual insurance market. Today, there are less than 29,000 people with traditional health insurance purchased in the individual market.  Despite the fact that the individual market has been growing nationally and growing even in this recession as people lose employer-sponsored coverage, the market in Maine is in a death spiral.
  3. New subscribers can’t access HSA-eligible plans. Because the Maine Bureau of Insurance approved a premium increase that was below trend in Maine’s individual market, the HSA product had to be pulled off of the market, so that costs for small business and other individual plans would not have to increase to subsidize it. The approved rate was not adequate and was approved in a way that charged different premiums for new and renewing customers. This means that today Maine patients are stuck with high deductible plans with no pre-tax savings option. This is all because of the politicized process that ultimately took away choices for the consumer and increased their tax bill for their out-of-pocket expenses.4. Carriers are unable to introduce new products and lower cost plans. Because of the lengthy, unpredictable process, effectively carriers are unable to create new plans until they go through the approval process for current plans. This means new, more affordable options are not on the table. Consider a plan with a $1,000 deductible and a requested premium increase. Until that increase is acted upon, the carrier is not able to then analyze and consider offering a plan with a slightly higher deductible before requesting a similar premium increase – for this example, a plan with a $1,200 deductible. What this has meant in Maine is that consumers are left with one choice: the current plan with whatever approved premium increase and NO ability to trade off a slightly higher deductible for a lower premium. In Maine’s individual market, the deductibles increase in $1,000 or $5,000 increments. Those aren’t real choices. This limits choices and forces patients into higher cost or higher deductible plans than what they may want or what may be ideal for their situation.
    5. The approval process is very long, creating uncertainty for consumers with little impact on overall premiums. In 2009, a Maine carrier announced in January a premium increase to be effective May 1. The average increase was 14.5 percent, with an upper increase of 8 to 34 percent, depending on the plan. Because of delays in the hearing process and revised filings, the actual approved rate was effective on July 1 with an average increase 10.9 percent, below trend. The difference for a typical plan between the original requested monthly premium and the final approved premium was $11 a month. That is a long, contentious process for not a significant difference in cost to the patient.
    In summary, based on the proposal in SB 194 and the experience of Maine with a politicized “file and approve” process, Connecticut should keep its current effective rate approval process.
    Maine and most other Northeast states want Connecticut’s choice-rich, affordable and competitive individual market.
    Don’t be like Maine. Don’t drive carriers from the market, shrink the market, reduce consumer choice, eliminate HSA-eligible plans for new subscribers, inhibit carriers from introducing new innovative and more affordable products, and create more uncertainty. SB 194 may be well- intentioned but it will set up a destructive politicized “file and approve” process like Maine’s. 
    About the AuthorTarren Bragdon is the chief executive officer of The Maine Heritage Policy Center, a non-profit, non-partisan free-market think tank based in Portland, Maine. He has provided health policy analysis for almost 14 years, since first serving in the Maine House of Representatives from 1996-2000 on the Health and Human Services committee, through working for the Maine Senate and within the public policy think tank community since 2002.
    His work has appeared in the Wall Street Journal, New York Post, Boston Globe, and the New York Times; on Fox News, National Public Radio and National Public Television; and in numerous other publications and media outlets. Bragdon has testified on health insurance reform issues before the U.S. Senate Small Business and Entrepreneurship Committee and before relevant committees of the Illinois Legislature, New York Legislature, and Maine Legislature. He has also have provided analysisvii on the impact of a “file and approve” proposal for New York, which has not passed despite being discussed every year. He is available at [email protected]

Yankee Staff

Yankee Institute is a 501(c)(3) research and citizen education organization that does not accept government funding. Yankee Institute develops and advances free-market, limited-government solutions in Connecticut. As one of America’s oldest state-based think tanks, Yankee is a leading advocate for smart, limited government; fairness for taxpayers; and an open road to opportunity.

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