NCPA - National Center for Policy Analysis


April 19, 2007

Massachusetts' highly regulated health insurance market makes private coverage more expensive.  The inability to pay premiums is one of the primary reasons people lack health insurance, says Devon M. Herrick, a senior fellow with the National Center for Policy Analysis.

Two costly regulations are guaranteed issue and community rating:

  • Guaranteed issue requires insurers to sell policies to all state residents who apply, regardless of their health status or pre-existing medical conditions. 
  • While guaranteed issue sounds like a way to protect consumers, it actually harms them by driving up prices. 
  • When insurance companies are forced to accept all applicants, they raise premiums to guard against the increased risk of losses. 
  • As a result, insurance is a poor value for everyone except those with serious health conditions.

In Massachusetts and other states, guaranteed issue is combined with a modified form of community rating:

  • Community rating forces insurers to charge every policyholder similar prices, allowing very little adjustment for age, sex or any other indicator of health risk. 
  • For example, although medical costs are typically three to four times as high for a 60-year-old male as for a 25-year-old male, both pay the same premium. 
  • Under community rating, therefore, healthy people must be charged more so sick people can be charged less.

As premiums rise, lower-income and healthy people are driven out of the individual market.  The pool of insured people grows smaller and less healthy, driving up premiums even more.  While proponents claim this cannot happen when everyone is required to have insurance, a tax penalty of $200 is unlikely to entice young, healthy people into buying expensive coverage.

Massachusetts should establish a state-subsidized, high-risk pool to help high-cost individuals obtain affordable coverage.  Instead of community rating and guaranteed issue, it should allow insurers to charge risk-based premiums, says Herrick.

Source: Devon M. Herrick, "Insuring the Uninsured: Five Steps to Improve the Massachusetts Plan," National Center for Policy Analysis, Brief Analysis No. 585, April 19, 2007.

For text:


Browse more articles on Health Issues