Washington state serves as health-care mandate case study

If the Supreme Court overturns the health care reform law’s individual mandate – a decision that could come as soon as this week – it won’t be totally unknown territory. For Washington state, it would be quite familiar.

In 1993, Washington state passed a law guaranteeing all residents access to private health care insurance, regardless of their health, and requiring them to purchase coverage.

The Legislature, however, repealed that last provision two years later. With the guaranteed-access provisions still standing, the state saw premiums rise and enrollment drop, as residents purchased coverage only when they needed it. Health insurers fled the state and, by 1999, it was impossible to buy an individual plan in Washington – no company was selling.

Washington is among a handful of states that have pursued universal access to health insurance. The challenges they have faced could give some clues about the federal overhaul’s fate should the individual mandate get struck down.

“There are seven states that tried this in the mid-1990s and, in every case, it was a disaster,” said MIT health care economist Jonathan Gruber, who worked on Massachusetts’ health insurance law and the Affordable Care Act. “It became pretty clear that, if you want a market to work, you need a mandate.”

Washington state began pursuing health care reform in 1990, when the Legislature created a commission to study how best to provide universal coverage for the state’s 5 million residents. The commission weighed a single-payer scheme in which the state would create and run its own health insurance plan, but it settled on a “managed competition” model in which the state would play a greater role in regulating the insurance market.

“There were essentially three goals of the law: to cover everybody, to reduce the rate of health care cost growth by managing competition better, and to improve health care outcomes,” said Aaron Katz, a University of Washington health policy professor who served on the commission.

Starting on July 1, 1993, health insurance companies were required to accept all state residents who applied for coverage – and it barred health plans from charging sick subscribers more, a practice known as underwriting. The requirement to purchase coverage, meanwhile, was not slated to take effect until five years later, in 1998.

That didn’t happen. Republicans took control of the Legislature in 1994 and repealed the individual mandate. The guaranteed-issue provision, however, remained on the books.

“The Legislature was loath to repeal the insurance reforms because those were very popular,” said Katz, 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 themselves incurring 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 entered a “death spiral,” with customers buying coverage only “when they needed it.”

Jonathan Hensley, who then served as president of local health plan Premera Blue Cross, recalls one letter he got from a healthy woman canceling 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,” said Hensley, who now works for Cambia, another health insurer in Washington.

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 three years.

Health insurance companies, meanwhile, were losing money – and leaving the state. Between 1993 and 1998, 17 health insurance carriers had left Washington’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.

“What effectively happened was you got to this tipping point, where we couldn’t afford to do business and individual coverage was simply not available,” Hensley said.

Hensley, along with other health care stakeholders, met with then-Gov. Gary Locke to discuss new legislation to fix the insurance market. In 2000, the Legislature significantly modified its guaranteed-issue policy. Insurers still had to cover most residents, but those with pre-existing conditions could be required to wait nine months for the policy to kick in. The very sickest applicants would, meanwhile, be eligible for coverage in a high-risk insurance pool administered by the state.

Washington state’s insurance market now has nine companies selling individual policies, compared with the 19 that participated in 1993. Thirteen percent of Washington state residents currently lack health coverage, the same proportion as when the health reform experiment started.

Washington state’s experience does not make a perfect analogy for what would happen to the federal law, should its individual mandate get struck down. The Affordable Care Act has premium subsidies, for example, that could encourage more individuals to purchase coverage. It also allows insurance companies to charge older subscribers three times as much as young enrollees; in Washington, everyone had to pay the same rate.

Some, however, do see parallels.

“Washington state’s experience demonstrated that passing market reforms without requiring broad participation in the system does not work,” said Karen Ignagni, president of America’s Health Insurance Plans. “The linkage is essential.”

Washington state, for its part, filed a friend-of-the-court brief with the Supreme Court on the federal health care reform law, drawing heavily from its own experience.