Despite a new government study showing that the rising cost of premiums is the main reason a growing number of people don’t have health insurance, more than 200 members of Congress have cosponsored legislation that would make health insurance even more expensive.

“The Patient Access to Responsible Care Act” (PARCA), introduced by Sen. Alfonse D’Amato (R-NY) and Rep. Charlie Norwood (R-GA), claims to be a consumer protection bill. It is supposed to improve the access to and quality of American health care, while making health plans, health insurers and self-insured employers more accountable and responsible. But a new analysis by the actuarial firm Milliman & Robertson demonstrates that PARCA will make health insurance more expensive — for some people, prohibitively expensive. Based on many prior studies, we know that as premiums increase so will the number of uninsured.

PARCA is intended to address some of the problems patients encounter under managed care. Milliman & Robertson analyzed seven of the provisions, as well as other elements of the bill. According to the sponsors, PARCA would: Assure access to emergency room and urgent care services; permit greater access to specialists; prohibit direct and indirect payments that might induce a health care provider or group to deliver fewer services; require health maintenance organizations (HMOs) to offer patients the option of going to physicians who are not part of the HMO’s network, known as a “point-of-service” option; reimburse all providers at the same rate; speed up administrative responses to ensure “timely access” to health care services; allow patients greater access to nontraditional providers such as chiropractors and acupuncturists.

The Milliman & Robertson study analyzed the impact of these, as well as such other provisions as adverse selection (the phenomenon in which healthy people drop coverage so a health plan is skewed toward sicker people) and guaranteed issue (which prohibits insurers from denying coverage on the basis of age, gender or health status).

Milliman & Robertson did not evaluate one of the most costly provisions in the legislation, which relates to malpractice suits. Currently, when patients receive inappropriate care, health care providers such as physicians and hospitals may be sued for malpractice. Under PARCA, the legal liability could be extended to health plans, insurers, and even employers.

How much would PARCA cost? That answer could depend on the type of insurance a person has and where the person lives. For example, since most of PARCA’s reforms are targeted at managed care plans, people who have traditional fee-for-service policies might see little or no increase. In addition, many state legislatures and managed care organizations have already implemented some of PARCA’s provisions, which might reduce the impact for some people.

According to Milliman & Robinson, under PARCA, health insurance premiums likely would increase an average of 23 percent nationally. Though the Milliman & Robertson analysis estimates only percentage increases, not dollar amounts, the National Center for Policy Analysis (NCPA) has calculated that since the average cost for a family HMO membership was $5,304 in 1996, PARCA could drive up the cost to about $6,524 a year. For an individual policy, the increase would be from $1,848 to $2,273.

Of course, some premium increases would be higher than the average and some would be lower. The study estimates a variation between 7 to 39 percent, which the NCPA has determined would increase the cost of a family’s HMO to $7,373. An employer of 25 employees with the standard mix of individual and family policies could pay an additional $30,000 per year to keep them insured.

Explaining the Growing Number of Uninsured

As employers and people with individual policies began to face such high premium increases, many likely would cancel their coverage. Some employers simply may not be able to sustain the cost, while healthy people would conclude that their premium was higher than their risk of illness.

According to a recent analysis by the Congressional Budget Office (CBO), a 1 percent increase in the cost of health insurance increases the number of uninsured people by 200,000. Thus, using Milliman & Robertson’s estimates of a 23 percent premium increase nationwide, the NCPA has concluded that PARCA would lead to an additional 4.6 million uninsured people — an increase of more than 10 percent in the uninsured population. If the study’s upper-range estimate proves more accurate, nearly 8 million people would become uninsured — about a 20 percent increase.

Even without the PARCA Bill, the number of people without health insurance is growing. The most recent U.S. Census Bureau estimate places the number at 41.4 million people, or 17.7 percent of the nonelderly population — up from 35.7 million, or 16.6 percent in 1990.

Why is the number of uninsured growing at a time when unemployment is at its lowest level in decades and national income is growing?  Blame government policies.

Government is the source of the problem. Many believe that government has not yet done enough to ensure universal access to health insurance at affordable prices. The truth is that the growth in health care costs and the uninsured is a direct result of government intervention at the federal and state levels. For example:

• A standard family health insurance policy in New Jersey purchased by the family itself (i.e., not employer-provided) costs about $18,000 a year.

• 45 of Kentucky’s insurers have left the state, leaving only Anthem Blue Cross, which lost $60 million in 1996, and Kentucky Kare, the state-run program that lost more than $30 million between August 1995 and March 1997.

• The General Accounting Office (GAO) reports that the Kassebaum-Kennedy health insurance reform bill that passed in 1996 is driving up premiums for some people by 125 percent.

One wonders how much more government help people can afford.

The common denominator among the health care policy failures is a government that tries to make health insurance available to anyone regardless of their health, a practice known as “guaranteed issue.”

Guaranteed Issue in the Kassebaum-Kennedy Health Insurance Reform Law

 The Kassebaum-Kennedy law created guaranteed issue for small businesses. Thus small employers who might have been denied a group health insurance policy because one or more employees had a costly medical condition must be accepted. In addition, those with group health insurance who leave their jobs and need to purchase individual health insurance cannot be denied coverage.

The New York legislature passed a bill in 1993 that required both guaranteed issue and “community rating,” in which everyone is charged the same premium. To achieve a level premium for everyone, healthy people have to be charged more so that sick people can be charged less. And because most people are healthy, most people see their premiums rise.

Consider the impact on policies sold by Mutual of Omaha, one of the largest sellers of individual health insurance policies in the state:

• Before community rating was instituted in New York, a 25-year-old male on Long Island paid $81.64 a month for health insurance, and a 55-year-old paid $179.60.

• After community rating, both paid $135.95, a 67 percent increase for the 25-year-old and a 25 percent decrease for the 55-year-old.

• Because young, healthy people began cancelling policies, by 1994 both paid $183.79 - more than the 55-year-old was paying before community rating was implemented — and by 1997 that community-rated premium had risen to $217.59 a month.

As a result of the departure of thousands, the uninsured population in New York City grew from 20.9 percent in 1990 to 24.8 percent in 1995, according to one report, while the national rate grew from 16.6 percent to 17.4 percent over that same period.

Yet, the most astonishing case is that of New Jersey, where guaranteed issue and community rating laws resulted in:

• A standard family health insurance policy ($500 deductible, 20 percent copayment) averages $1,559 per month, or $18,708 a year, as of June 1997 — with the lowest rate being $830 and the highest $2,930 per month, or $35,160 a year.

• In April 1995 that same plan cost on average about $750 per month — less than half the current amount.

• Even the state’s most restrictive HMOs cost more than $700 a month for family coverage — nearly twice the national average.

By contrast, neighboring Pennsylvania, which has not implemented guaranteed issue and community rating, has relatively low premiums — about $300 per month for a 37-year-old head of family in Reading, Pa. — for a policy similar to that in New Jersey.

As a result of New Jersey’s intervention in the health insurance marketplace, coverage in the individual health insurance market has declined by about 15 percent since the end of 1994.

New Hampshire passed guaranteed issue in 1995. Now Blue Cross Blue-Shield of New Hampshire, the state’s largest provider of individual policies, is pulling out after millions of dollars in losses. And the five remaining insurers are losing money as people transfer from Blue Cross policies to the other insurers. According to the state’s insurance commissioner, “individual health insurance is not readily available in New Hampshire.”

To halt the deterioration of the individual health insurance market, health insurers in the group market will be assessed $2.16 per covered person. Of course, that action will raise the cost of group insurance and may lead some employers to cancel their policies immediately or as the assessment grows.

Usually, only individual and small group markets are affected because of the way the health insurance marketplace has evolved, so that a relatively small percentage of people bear the brunt of these increases. Companies that self-insure under the federal Employee Retirement Income Security Act (ERISA) are exempt from state laws creating guaranteed issue and community rating, as well as many other state laws and taxes, and so avoid the health insurance price increases that small groups and individuals experience. Thus the latter must pick up all of the costs of guaranteed issue. And these are the people most likely to cancel their coverage if the costs become prohibitive. For example, in 1996, only 5.2 percent of New Jersey’s population and

4.5 percent of New York’s had individually purchased private health insurance. Worse yet, PARCA has a guaranteed issue provision. As a result, this bill, if passed, could impose guaranteed issue nationwide, even on ERISA companies.

If Congress really wants to address the problem of the uninsured, it should:

• Change the tax system so that it encourages everyone to obtain a basic health insurance policy.

• Avoid imposing mandates that make health insurance and managed care more expensive.

• Expand the availability of Medical Savings Accounts.

Each of these reforms would reduce the cost of health insurance and health care and encourage more people to become insured.

In conclusion, if Congress is really concerned about protecting consumers from the practices of managed care, it should not try to micromanage health plans. Rather, it should consider reforms that would reduce government control and oversight and increase consumers’ choices. One way to achieve this goal would be to let workers dissatisfied with their employers’ health insurance purchase whatever they want, including MSAs, without losing their tax benefit. When quality is a concern, consumer choice, not consumer protection, is almost always the best solution.

There is no mystery as to why the number of uninsured as well as health care costs are growing: Congress and several state legislatures keep trying to make health insurance more accessible and affordable. If they would quit trying to help, the growth in health insurance premiums would decline — as they did in the early ‘90s when national health care reform failed —and so would the number of uninsured.

Dr. Matthews is Vice President of Domestic Policy at the National Center for Policy Analysis in Dallas, Texas. His address is National Center for Policy Analysis, 12655 N. Central Expressway, Suite 720, Dallas, TX 75243-1739. E-mail: ncpa@public-policy.org.

Originally published in the Medical Sentinel 1998;3(3):89-91. Copyright © 1998 Association of American Physicians and Surgeons (AAPS).