Posted on September 10, 2007

AHIP/Milliman report on guaranteed issue and community rating


New AHIP Report Takes a Ten Year Look at the Unintended Consequences of State Efforts to Change the Insurance Market

America’s Health Insurance Plans (AHIP)
September 7, 2007

As states consider proposals to expand access to health care coverage, a new study assesses the impact of prior efforts in states across the country. The study by Milliman, Inc. on behalf of America’s Health Insurance Plans (AHIP) examined what happened.

Specifically, the report examined eight states that enacted various forms of “guarantee issue” and “community rating” in the 1990’s, including Kentucky, Maine, Massachusetts, New Hampshire, New Jersey, New York, Vermont, and Washington.

Guarantee issue requires insurers to sell an individual health insurance policy without regard to a person’s health and community rating requires that all consumers pay the same or similar premiums without regard to age or gender. According to the report, these initiatives have the potential to cause individuals to wait until they have health problems to buy insurance. This could cause premiums to increase for all policyholders, increasing the likelihood that lower-risk individuals leave the market, which could lead to further rate increases. If this continues, the pool or market could essentially collapse or shrink to include only the high risk population.

Overall, the report found that states that implemented guarantee issue and community rating saw a rise in insurance premiums, a reduction of individual insurance enrollment, and an exodus of health insurers from the individual insurance market. In addition, the report found no significant decrease in the uninsured population in states that implemented these initiatives, often a stated goal of legislators.

Consequently, several states that initially implemented guarantee issue and community rating have since repealed or modified their laws with the intent of stabilizing the insurance marketplace and providing consumers more choice and access to coverage.

AHIP press release:

The Milliman report, “The Impact of Guaranteed Issue and Community Rating Reforms on Individual Insurance Markets:”


By Don McCanne, MD

Everyone in the policy community understands that requiring insurers in the individual market to accept all applicants (guaranteed issue) and moderating the variation in premiums by more effectively pooling risk (community rating) result in higher insurance premiums than would be characteristic of insurance pools that exclude individuals with health care needs. It is also understood that the higher premiums result in both a lower rate of initial enrollment and a lower rate of renewals, further concentrating higher cost individuals in the risk pools. This upward pressure on premiums is known as antiselection or the death spiral since insurers eventually withdraw these unaffordable products from the market.

So why did AHIP decide to commission yet another study of these well understood phenomena? Simply because there is now enough experience with these policies that they could take the study one step further. They show what can happen when these policies are modified or reversed. To no surprise, the upward pressure on premiums diminishes and the private health insurance market improves.

The implicit conclusion presented is that guaranteed issue and community rating should be rejected in order to “stabilize the insurance marketplace and provide consumers more choice and access to coverage.” The problem is that this stabilizes the market only for healthy consumers.

If you’re sick, you’re on your own. If you don’t like that, try for a government handout or look for relief in the bankruptcy courts. But don’t destabilize the insurance marketplace by expecting your health care needs to be met. What do you think private health insurance is for, anyway?