NCPA

Excerpted From: State Briefing Book on Health Care

September 23, 1994
W34

Guaranteed Renewable Insurance Regulations

Most of the problems in the market for private health insurance do not exist in the market for life insurance, which can easily be taken as a model. Once a person becomes insured, health insurers should be required to continue to offer coverage in the future at reasonable prices. With this reform, the market for small group health insurance would begin to resemble the market for individual life insurance policies. In the latter, insurers cannot selectively raise prices for different policyholders based on last year’s experience. The same premium increase must apply to the entire class of people who purchase a particular type of policy. Thus insurers cannot change the rules of the game for a single policyholder after an illness has occurred.

"Insurers should not be able to change the rules of the game after an illness has occurred."

Good Idea: Collectively Renewable Insurance.

There is some evidence that state regulation is largely responsible for the absence of guaranteed renewable health insurance. Insurers have been unwilling to make long-term commitments to policyholders in the face of arbitrary and unpredictable rate regulations. Even without guaranteed renewability, however, many of the same benefits could be obtained if insurance were required to be collectively renewable. This requirement, which usually applies to individual policies, often is not a feature of policies sold to small groups. Thus insurers can refuse to renew the policy of one employer (because, say, an employee has an expensive illness) while agreeing to renew an identical policy of another employer. If insurance were required to be collectively renewable, insurers would either have to renew all similar policies or none of them. They could not single out healthy clients and discard the unhealthy after policies had been purchased.

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