CAHI Issues: Underwriting and Rates
Underwriting is the process whereby an insurance company assesses how much risk an applicant brings to the health insurance pool, and assists them in setting appropriate rates for their products. Several states effectively eliminated underwriting by imposing "guaranteed issue" and "community rating" laws. In every case, these laws have destroyed the state's individual health insurance market.
Guaranteed issue obligates insurers in the individual market to accept all applicants regardless of their health status and allows buyers to acquire health insurance at any time (although some guaranteed issue provisions may include certain restrictions). As a result, people forego insurance coverage when they are in good health and purchase it when they are sick. As healthy people drop out of the pool, it gets smaller and the insurance more expensive.
Community rating laws are price controls which restrict the ability of an insurer to price health insurance based on the risk an applicant brings to the pool. In community-rated states, everyone in the "community," or pool, can get a health insurance policy at roughly the same price. The resulting high premiums lessen the value of insurance to younger, healthier people, who drop out of the pool. As the pool becomes smaller and contains a disproportionate number of older and sicker individuals, premiums escalate further, forcing even more people out of the health insurance market.
The coupling of guaranteed issue with community rating cripples insurers’ ability to create consumer–oriented plans at market-driven prices.
As an alternative, The Council for Affordable Health Insurance (CAHI) advocates the elimination of price controls and the establishment of state high-risk pools for the medically uninsurable. Removing or modifying rate restrictions on insurers will increase their ability to create consumer-oriented plans at market-driven prices.
CAHI Solutions
States that have adopted community rating must return to risk-rated premiums in order to make insurance affordable and accessible. Additionally, state-sponsored high-risk pools are the best way to make coverage accessible to the 1% to 2% of the population who are medically uninsurable. In 2004, CAHI was instrumental in drafting legislative language in the House of Representatives and the U.S. Senate (S.2283/H.R.5341) that would extend and expand federal operational grant money to state high-risk pools.
Legislative Resources
Legislation to Repeal Guaranteed Issue in the Small Group Market – H.R. 2851
CAHI Letter of Support for H.R. 2851
Q&A About H.R. 2851
The State High Risk Pool Funding Extension Act of 2004 – S.2283/H.R.5341
CAHI’s “Cover the Uninsured Week” Solution #5, May 14, 2004
Health Insurance Safety Nets
For More Information
"What Were These States Thinking? The Pitfalls of Guaranteed Issue" - CAHI's Issues & Answers n.104
The Coalition Against Guaranteed Issue - A nonprofit, nonpartisan organization dedicated to ensuring that working families have access to affordable health coverage
CAHI Issues & Advocacy: High-Risk Pools
Consumer Information on High-Risk Pools - includes background information on state risk pools and state contact information
"Getting Started: A State Checklist for Creating High-Risk Pools" - CAHI's Issues & Answers n.111
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