The debate over pre-PPACA (Obamacare) nongroup health insurance has heated up again recently, particularly on the issue of rescissions (cancellations of policies). John Goodman claims that before the PPACA, rescissions almost never happened except in cases of fraud.
Nevertheless, one problem with the nongroup market in many states was denial of applications for coverage from those who had prior health problems. Denial of coverage happened frequently even in states without onerous community rating provisions that gave health insurers a clear incentive to deny coverage to high risks. Why did health insurers choose to deny coverage altogether to these applicants rather than charge them a higher rate or offer more restricted coverage?
In some cases, government regulation was to blame. The “managed care” revolution of the 1990s introduced certain innovations designed to control health care costs, such as “elimination riders,” which would remove coverage from pre-existing conditions, and requirements to obtain referrals from primary-care physicians for access to specialist care. Managed care apparently worked to control health care costs, up to about 1-1.5% of U.S. GDP had it been allowed to take its long-run course. But it was unpopular, as constraints always are, and many states passed laws banning elimination riders and mandating direct specialist access.
Even without government regulation, however, social pressure caused the disappearance of some of these practices. On this point, there are two fascinating, complementary pieces of research: “The Death of Managed Care: A Regulatory Autopsy” by Mark Hall of Wake Forest University and “Risk Pooling and Regulation: Policy and Reality in Today’s Individual Health Insurance Market” by Mark Pauly of the Wharton School at the University of Pennsylvania and Bradley Herring of Emory University.
Hall investigates (more…)