Still wondering how President Clinton's health-care reform plan proposes to cover 39 million uninsured Americans--a task estimated to cost $60 billion or more a year--with only minor tax increases? Look no further than "community rating," the notion that everyone in an area should pay the same insurance premium, regardless of age, sex, or medical history.
Virtually all health insurance was community-rated when coverage became widespread after World War II. But commercial insurers grabbed business away from the nonprofit Blue Cross & Blue Shield plans by offering lower rates for healthy groups. That "cherry-picking" raised the premiums for those remaining, turning community-rated plans into high-cost, high-risk pools. Reversing that trend appeals to health reformers, who favor community rating to spread costs evenly and eliminate cherry-picking. Under Clinton's plan, 71% of the population would be enrolled in vast regional insurance pools. Within those pools, insurers could set only one price for each type of policy (individual, couple, one-parent family, and two-parent family). Community rating would make insurance cheaper for the old and the sick--albeit at the expense of the young and the healthy.
For government, community rating has another appeal: It's a financial bonanza. Under Clinton's plan, government has responsibility for covering nonworkers--the unemployed and early retirees--whose medical bills run twice as high as the tabs for workers and their dependents. Health economists at Lewin-VHI Inc. of Fairfax, Va., calculate that pooling nonworkers with workers through community rating would cut the average monthly premiums for nonworkers from $319 to $182 (table). The difference would be made up by businesses and workers, whose premiums would climb 14%. The result: $45.2 billion in costs shifted from government to the private sector.
Businesses trying to fight this hidden tax have few places to turn. Corporate America's favorite health-reform alternative, written by Representative Jim Cooper (D-Tenn.), also embraces community rating. Indeed, Cooper's smaller insurance pools may be worse than Clinton's. Cooper would put the burden of subsidizing nonworkers entirely on small businesses that choose to insure their workers. That added burden could result in small companies'--especially those with healthy workers--refusing to buy insurance, thus shrinking the pools even further and re-creating the spiraling premiums that eventually killed community rating in the 1960s.