They’re gambling with your money

In Capitol Review, Notes by Mark Hillman

Legislators and lobbyists too often take chances with other people’s money.  That’s because the real world impact of legislation is often vastly different from the bravado that punctuates debate at the State Capitol.

Not long after I was elected, I began to hear a relentless drumbeat of complaints from business-owners about the skyrocketing costs of health insurance.  Years of tedious research helped me wrap my mind around the complicated web of federal and state health insurance regulations that make controlling costs so frustratingly difficult.

When I cautiously moved forward in 2003 with legislation that gave consumers more choices and forced insurance companies to compete based on relevant risk factors, like the health status and claims experience, I was careful not to make rash promises.

In fact, I wrote at that time:  "While everyone would like to see insurance prices go down, the more immediate goal is to stabilize costs and offer consumers choice."

That legislation gave small business the potential to receive a 25 percent discount off the basic premium that each insurance company files publicly with the state’s insurance commissioner.  Further, it protected groups with severe health care needs by capping their premium at no more than 10 percent above the basic rate.

This "rating flexibility" certainly wasn’t something I concocted while plowing my fields one summer.  Data from the federal Government Accountability Office indicated that premiums were six percent lower on average in the 38 states that allow rating flexibility than in the 12 states, including Colorado, that did not.

Also, the National Association of Insurance Commissioners — who regulate the insurance industry – advocated rating flexibility of plus or minus 25 percent to promote a more stable market.

When skeptics later wanted a report on exactly how these changes worked in Colorado, I agreed.  Now initial reports are showing positive results since 2005, the first full calendar year in which these changes were effective:

• Nearly 65 percent of groups with 2 to 50 employees received discounts; barely 30 percent were "rated up."
• Average premiums, which were growing by 15 to 30 percent, increased by just two to five percent.
• For the first time in five years, the number of businesses and employees covered in the small group market increased.

Compare that to Colorado’s previous experience with "modified community rating," when premiums soared every year and the number of people covered dropped in three of the last four years.

Ignoring that experience, some legislators and lobbyists want to reverse those changes by passing House Bill 1355.  They argue that it’s not fair for a group with one or two severely ill employees to pay a higher premium than a group with a history of good health or few claims.

That shortsightedness ignores the economic reality that buying insurance is always a better deal than paying your own way if you’re already sick.

Let’s take two similar groups: Healthy Group and Sick Group.  Healthy Group gets the maximum discount, pays $20,000 a year for insurance coverage, and submits claims of $10,000.  Sick Group is "rated up" and pays the maximum premium of $29,400, but it submits claims of $60,000.

Sick Group essentially gets $30,600 of health care at someone else’s expense.  Healthy Group subsidizes $10,000 of Sick Group’s costs, but needs two more Healthy Groups just to break even.

If HB 1355 passes, all of those groups will be charged the exact same premium next year.  How is that fair to businesses that work hard to control costs?

HB 1355’s proponents claim that the current system penalizes business for hiring older employees.

Colorado has always included age as a rating factor.  However, if this bill passes, Colorado will be one of just 13 states that allow insurers to treat all older employees as if they are severely ill, rather than reward those who are healthy.

Proponents of the bill are audaciously willing to gamble with your money, but I wonder if they are ready to put their own money where their mouth is.

I’ll wager $1,000 with any of the bill’s sponsors that if HB 1355 passes, within three years, Colorado will return to the bad old days of double-digit premium increases and fewer people insured.

I’ll let you know if I get any takers.