One Premium Fits All?

By Jill Smolowe

Love 'em or hate 'em, Harry and Louise were at least plainspoken. The fictional TV critics of Clinton's health-care plan legitimized the frustration many Americans feel when they try to make sense of the debate over the intricacies of health care. Now Harry and Louise have been quietly shelved, the victims of a deal involving one of the thornier issues in the battle. In what was probably one of his last acts as chairman of the House Ways and Means Committee, Dan Rostenkowski and the fictitious couple's sponsor, the Health Insurance Association of America, agreed to soften one of the planks in the Clinton plan, a concept called community rating. That piece of jargon, which refers to the averaging of health-insurance premiums across a community, has just the sort of wonkish ring that would have made Harry and Louise grimace.

Yet it may reassure consumers to know that community rating is an old idea whose time has come around again. At the moment, health-insurance premiums vary wildly. The healthiest and the youngest customers enjoy the lowest costs, while those most in need of care are socked with steep and often unaffordable costs. Clinton's plan would equalize premiums so that no one is priced out of insurance by a sudden health problem or the loss of a job. Most legislators agree that some leveling of premiums is required, but Republicans and some conservative Democrats are shifting into stronger opposition to what they call socialized medicine. Instead, they champion what they describe as relatively simple reforms to make health insurance more secure and less expensive. Clinton's supporters argue that halfway measures will throw the system even further out of whack.

As originally conceived by Blue Cross 60 years ago, community rating aimed to spread the risk of medical costs by charging a single premium, regardless of age, gender, income or medical condition. Over the past two decades, however, "experience rating" has become more popular. It enables insurance companies to "cream skim" low-risk groups and offer them modest premiums, then "cherry pick" the people within that group who pose high health risks and either raise their policy costs or deny them coverage. The result is so unfair that 40 states have restricted or prohibited the practice. "What you end up with," says Henry Bachofer, chief lobbyist for the Blue Cross and Blue Shield Association, "is that people with very high risk can't afford their premiums."

How, then, to level premiums without overburdening the healthy with the costs of the infirm? Some reformers want to set rates by gender or age, while others want to focus on life-style or income disparities. Clinton's own favored variation is along geographic lines, to account for the variation of health costs in different locales. Like many of the President's health proposals, this idea draws on experiments at the state level. Last year New York State homogenized premiums, permitting rates to vary only along an upstate-downstate divide.

The upshot has been a furious explosion -- over age, not geography. Thirty- year-old males watched their premiums soar 170%, according to the Council for Affordable Health Insurance, while men aged 60 enjoyed a 45% cut. The rate hike for 30-year-old women was 82%, and women twice their age saw rates slashed by a quarter. Mutual of Omaha, the only insurer to continue extending coverage to New York individuals after the plan went into effect, watched with frustration as 43% of its customers dropped their health coverage and the average age of its clientele edged upwards from 41.5 years to 45.

Cecil Bykerk, Mutual of Omaha's chief actuary, regards the outcome as inherently unfair. "A younger person might be paying twice or more, as a percentage of income, as a mature person," he says. Salvatore Curiale, New York State's superintendent of insurance, counters that the new scheme is "an unqualified success."

New York's experience so chilled industry analysts that the Health Insurance Association of America agreed to shut down the Harry and Louise commercials when Rostenkowski agreed to permit insurers to factor in some variations in premiums according to age. The New York model has also persuaded analysts that community rating without universal coverage is a recipe for disaster. They can foresee a mass exodus by young people, which in turn will nudge up prices for older Americans -- and lead to more havoc.

Republicans maintain that costs can be held down without compelling all Americans to jump into the health pool. But premium leveling, the one component of health-care reform that enjoys almost universal support, cannot be addressed in a vacuum. Much like anatomy, all the pieces connect: the aging and the sick are connected to the young, who need employers to ease their new burden, who need the cooperation of other employers to spread the costs. Otherwise, the healthiest and the wealthiest will forgo insurance -- and America's health-care system could get even sicker.

With reporting by Dick Thompson/Washington