A new study released today by The Maine Heritage Policy Center (MHPC) explains how policies enacted in the early 1990′s have driven Maine’s insurance premiums higher and higher, and created the critical need for recently passed health insurance reform to help contain the spiraling cost of health insurance for all Mainers.
The study, “Historical Perspective: Why LD 1333 – Maine’s New Health Insurance Reform?“, authored by MHPC’s Center for Health Reform Initiatives Director Joel Allumbaugh, specifically cites guaranteed issue and community rating as the root causes for Maine’s excessively high insurance premiums.
Guaranteed issue requires health insurance companies to give coverage to anyone who applies, regardless of a person’s health status or the projected amount of health services a person will use. Such a requirement discourages younger, healthier individuals from purchasing coverage until it is needed, which undermines a fundamental principle of insurance to spread costs among many to keep costs down. This results in higher premiums for those who do purchase coverage.
Community rating sets limits regarding how much an insurer can vary rates based on age from one person to another. Maine’s strict community rating law restricts insurers to vary rates by just 150 percent, even though, statistically, a 64 year old adult spends 500 percent more on health can than a 20 year old.
“The combination of these two policies has resulted in a mass exodus of younger, healthier individuals from Maine’s health insurance market, which has driven premiums to levels that are unaffordable for many Mainers,” Allumbaugh explained. “Maine ranks 35th in the nation for percent of individuals under age 65 with private insurance coverage, and guaranteed issue and community rating deserve much of the blame.”
LD 1333, the health insurance reform plan signed into law in May, expands insurance companies’ ability to provide affordable coverage for more Maine families and individuals. While still guaranteeing coverage for any individual who applies for insurance at the same rates, LD 1333 creates a new funding mechanism for applicants projected to require costlier health services, which keep premiums down. The new law also allows insurance companies to vary rates between different aged applicants from 1.5 to1 ratio to a more reasonable 3 to1 ratio. Together, these two reforms will help drive costs down and incentivize more people to join Maine’s private insurance market, further reducing costs for everyone.
“Maine’s new health insurance reform addresses our ailing insurance market by recognizing the basic principles that allow it to operate effectively and affordably,” Allumbaugh said. “This is a long overdue step to create access to affordable private coverage for more Mainers.”
For more information, or for an interview with Joel, please contact Communications Director Chris Cinquemani at email@example.com