An interesting experiment is about to be unleashed in one of our neighbors to the north–Maine. The newly Republican controlled House and Senate are moving quickly (too quickly for some) to
strip away state regulations and mandates that were put in place over the past two decades and open up the individual and small group insurance market to more competition.
The bill, among many things, will allow individuals to purchase insurance from companies licensed in other states (including Massachusetts.) And it will permit the price differential that insurers can charge sicker residents when compared to healthier residents to grow. Maine currently only allows a very narrow ratio of 1.5 to 1.
The current law translates into healthier (mostly younger) folks paying significantly more for insurance in order to cross-subsidize the cost of insurance for sicker (mostly older) people. The result is that many younger folks simply don’t buy insurance in the first place, further driving up the price even more for everyone else purchasing insurance.
The bill “would expand the ratio next year to 3 to 1 and by 2015 to 5 to 1.” This is more in line with another blue state–Minnesota, which has a ratio of 5: 1. Massachusetts maximum rate bands are 2:1 for age and 1.5:1 for geography, and we have seen the struggle for small businesses under this regulation. It also limits the value for small companies from setting up wellness programs, and other innovative plan designs.
While liberal folks often complain about the unfairness of wider rate ratios, they must acknowledge that there is a legitimate claim of unfairness in the status quo. Younger and healthier individuals (just beginning their careers and at their lowest net worth) are forced to subsidize the cost of insurance for those who are older and sicker but at their wealthiest. What about poor seniors you may ask? That is why we have Medicaid and Medicare.
While the legislative process in Maine may leave something to be desired, the results will be very interesting to watch. A rural state, like Maine has many challenges in providing affordable insurance to its residents (hence the recent waiver it was granted by the federal government), and its state legislature historically has followed the Massachusetts model of significant layers of regulation on insurance companies.
The beauty of state experimentation is the possibility of meaningful policy reform. The federal government must empower states to experiment instead of handing down cookie cutter models designed under the federal law, or simply granting waivers on an individual (and possibly political) basis.