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Guaranteed Issue Policies Not the Cheapest Health Insurance Posted: March 15th, 2010

By Joe Taylor Jr.

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

States that Mandate Guaranteed Issue Health Insurance

If you're shopping for an individual health insurance policy and you have a pre-exisiting, you could easily be denied insurance, depending on where you live. The health reform law will put the kibosh on this situation in 2014, when health insurers will no longer be able to deny applicants who have medical conditions. But until then, insurance shoppers face potential rejection.

There are some safety zones. A handful of states have laws that require health insurance companies to extend "guaranteed issue" coverage to all residents, or at least to residents meeting certain guidelines.

Cheap Medical Insurance Harder to Find in Guaranteed Issue States

Forcing insurance companies to guarantee acceptance doesn't result in less expensive health insurance. So far, six states have enacted guaranteed issue rules, with mixed results. Research by the Kaiser Family Foundation charted some of the differences between these states' guaranteed issue requirements.

  • Maine: One of the state's largest insurers recently requested a price hike of over 23 percent, underscoring some concerns about requiring insurance companies to accept all applicants.
  • Massachusetts: State legislation requires insurers to offer guaranteed issue policies, but also penalizes residents who do not maintain adequate health coverage.
  • New Jersey: Health insurance companies must offer guaranteed issue policies to individuals not already covered by Medicare or by employer-based programs. In addition, state law requires companies to offer guaranteed issue group policies to small businesses with fewer than 50 employees.
  • New York: Residents here pay some of the highest health insurance premiums in the United States, in exchange for the security of mandatory acceptance by insurers.
  • Vermont: In a move similar to the much-debated "public option," the Vermont legislature created a new health care company to compete with private insurers. Providers must offer guaranteed issue policies, with the state-backed company helping to keep all insurers' prices low.
  • Washington: Unlike other states, Washington requires applicants to answer a questionnaire about their health status. Applicants meeting minimum guidelines must be accepted for new policies. Applicants falling below a designated risk threshold participate in a state-sponsored high-risk health insurance pool.

Experiments in each of these states helped fuel the national debate about whether to require nationwide guaranteed issue health insurance or, like Vermont, to inject more competition into the marketplace. Healthier residents in each of these states may complain about paying relatively higher premiums, but policyholders with pre-existing conditions might not qualify for coverage outside of their home states.

Health Insurance Comparison Gets Tougher when Guaranteed Issue Becomes Optional

As of March 2010, seven states have split the difference between forcing guaranteed issue health insurance and letting the market decide how to handle high-risk applicants. Many of these states use open enrollment periods or high-risk quotas to enforce coverage for at least some of their residents. The Kaiser Family Foundation discovered that these guaranteed issue plans look very different from state to state.

  • Idaho: State regulators require insurers to maintain "high risk pools," allowing lower risk residents to qualify for cheap health insurance.
  • Michigan: HMOs must participate in an annual, month-long, open enrollment process. During the enrollment period, state regulators require HMOs that have done business in Michigan for two years or more to accept a pre-selected number of applicants with pre-existing conditions.
  • Ohio: Like Michigan, state regulators require HMOs to participate in an annual open enrollment period for high-risk candidates.

However, the state may extend the enrollment period until a pre-selected number of applicants have been placed in guaranteed issue plans.

  • Oregon: Residents who can verify six months of continuous health care coverage from another insurer cannot be turned down due to pre-existing conditions.
  • Rhode Island: Applicants who do not already qualify for free health insurance from state or federal agencies must be guaranteed acceptance by insurers if they can show 12 months of continuous coverage.
  • Utah: Insurers who have not met state quotas for high-risk pool acceptance must designate at least one guaranteed issue policy.
  • West Virginia: After doing business within the state for five years or reaching a total customer base of 50,000, insurers must participate in an annual open enrollment period.

In addition to the states listed, a handful of other states provide funding to an "insurer of last resort" to help offset the costs of covering consumers with pre-existing conditions. However, residents in more than half of the United States must rely on market pressures to determine whether an insurer may offer them policies.

As consumers in New York discovered, forcing insurance providers to spread coverage equally across all risk categories causes rates to rise. Proponents of guaranteed issue health insurance policies note that few Americans remain in "low risk" categories for very long.

Joe Taylor Jr.