Health insurance typically get debated in terms of dollars and cents. Proponents of recently passed "community rating" legislation claim it will not increase the cost of health insurance, while those opposed argue it will.

But an issue like health insurance involves a difference over more than just economic models. Requiring health insurers to use "community rating" to set premiums reflects the belief that government’s role is to foster more equal outcomes among its citizens. Opposition to this mandate reflects the view that it is wrong for government to sacrifice individual liberty for equal outcomes.

"Community rating" in its purest form is intended to assure that everyone pays the same amount for the same benefits. To achieve this result, insurers are not allowed to use characteristics such as age or health status to set rates. New Hampshire’s law involves "modified community rating." Health insurers are forbidden from considering health status. Although premiums are not equalized, the differences are reduced. Healthier persons pay more for health insurance, so that less healthy persons can pay less.

Opponents of "community rating" argue that it raises premiums because healthier persons and smaller employers drop health insurance coverage in order to avoid paying higher premiums, which leaves less policyholders available to subsidize the premiums of less healthy persons. They also argue that "community rating" drives smaller insurers out of the market because they cannot spread the higher risk of insuring less healthy persons over as large a pool of policyholders as large insurers. The result is less competition for large insurers, which then results in higher premiums.

The empirical evidence appears to support these arguments. After "community rating" was instituted in 1994, the state’s health insurance costs jumped from among the nation’s lowest to among the highest, and most health insurers left the state. After "community rating" was eliminated in 2003, several insurers reentered the state.

But whether or not "community rating" drives up the overall cost of health insurance, it is undeniable that it forces the more healthy to subsidize the less healthy. Which makes the more healthy less free, as government forces them to spend their money in a way they wouldn’t choose. Money that would be used to buy a nicer house or for an extra vacation or invested for retirement, must instead be used to pay for someone else’s health insurance.

The rejoinder from the advocates of "community rating" is that government often tells us how to spend our money. But while government does tell us how to spend our money when it taxes us to build roads and to provide police and fire protection, the difference is that these types of activities benefit the general interest and cannot be done individually. In other words, to borrow a phrase from Supreme Court Justice Oliver Wendell Holmes, this loss of freedom is the price we pay for living in a civilized society. Equally priced or similarly priced health insurance coverage, on the other hand, is not necessary to maintain a civilized society.

What’s more, like most government regulation, "community rating" while making us less free fails to produce the intended result. Since healthier people tend to be younger, "community rating" transfers wealth from the young and less affluent to the old and more affluent. Twenty and thirty-year-olds have lower salaries and less disposable income than fifty and sixty-year olds. Typically, they are in the early stages of their careers, carry high debt and have children to provide for. Yet they are forced to subsidize the health insurance of affluent empty-nesters with paid off mortgages. Stated more succinctly, "community rating" ultimately makes us less egalitarian.

I don’t believe that individual liberty should be sacrificed for equal outcomes. But even if you disagree, you still shouldn’t welcome the return of "community rating" to New Hampshire

Mr. Mosca is an attorney practicing in New Hampshire. LINK

Posted June 22, 2005

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