Maine deregulates health insurance market, premiums fall
During the debate over health care reform, President Barack Obama said that they only way to lower health insurance premiums and costs was to pass the Patient Protection and Affordable Care Act, which would bring more regulation and intervention in markets. We know the experiment in Massachusetts, which provided the blueprint for ObamaCare, has had the opposite effect as health insurance premiums continue to rise. And unsurprisingly, we’re seeing the same thing with ObamaCare.
With the Supreme Court’s decision looming in the legal challenge against the law (it’s expected later this month), Republicans are scrambling to find a way to deal with the health care issue as it may play a prominent role in the fall, perhaps they need only look to the recent reforms in Maine, where deregulation of the market has caused health insurance premiums to fall:
In 1993, Augusta passed coverage laws that resemble those that ObamaCare is about to impose nationwide: Insurers could only vary premiums within narrow bands regardless of age or health status, a regulation known as community rating. Four of Maine’s five insurers in the individual market stopped offering coverage and fled, and the state entered an insurance “death spiral” in which premiums don’t cover underlying medical costs. That leads to higher premiums, consumers dropping coverage as a result, and still higher premiums in turn.
Then the 2010 electoral wave carried in Republican Governor Paul LePage and a GOP legislature, and they took modest steps to deregulate the insurance market. Insurers are now allowed to sell policies for premiums that range from 3 to 1 on the basis of age, rather than the prior 1.5 to 1, and to offer incentives or discounts for consumers to choose high-value providers.
The state also created a reinsurance fund that taxes all health plans by $4 a month. If someone ends up requiring extremely expensive care, the fund picks up some of the costs, which means insurers can better manage their future liabilities and pass the savings on to individuals.
The returns are now rolling in for the new coverage that can be offered starting on July 1, and premiums are falling by as much as 69% for Maine’s dominant insurer, Anthem.
According to the Maine Bureau of Insurance, a married couple age 40 to 44 with one child will pay $1,919 a month for a policy with a $2,250 deductible in 2013 if they choose to re-up their current policy. If the same family switches to the new health plan, or buys the plan for the first time, their premium will fall to $920, a 52% decrease. A couple over 60 could buy the same policy for $1,290, down from $2,466 under the old system. Or a young adult 25 to 29 could buy a high $10,000 deductible plan for catastrophic expenses for $232, previously $665.
Maine learned the hard way that the most heavily regulated insurance markets are the most expensive. But the more ominous lesson out of Vacationland is for the 33 states that had the wit never to make the Maine-ObamaCare mistake. They’re the ones that are about to see premiums spike under the Affordable Care Act—perhaps by as much as 69%, and likely by far more.
Unfortunately, further deregulation of health insurance markets in Maine have been blocked by ObamaCare. If the Supreme Court doesn’t throw out the law, we may never know what the end result of this experiment could be. But it does throw a wrench in the idea that a heavily regulated market is the path to bringing down premiums. And if Republicans in Congress were smart, they’d follow the example set here.