Pre-ACA, patchwork protections worked for the lucky

The pre-ACA individual market was not entirely devoid of protections for people with pre-existing conditions. These varied widely by state, however. Five states -- Maine, Massachusetts, New Jersey, New York, and Vermont -- had guaranteed issue and community rating, meaning that insurers could not deny coverage based on medical history or charge more to people on the basis of their medical history. In New Jersey, an insurer could bar coverage for the applicant's pre-existing condition for up to twelve months, though that period could be reduced or eliminated if the person had maintained continuous coverage prior to applying. In the other 45 states, the rules according to which insurers could ascribe a pre-existing condition to an applicant varied.

HIPAA, the Health Insurance Portability and Accountability Act of 1996, though focused mainly on rules governing employer-sponsored plans, provided some "continuous coverage" protection in the individual market, though the degree of protection varied by state. In some states, if you had maintained continuous coverage in a group health plan or via COBRA for eighteen months, any insurer selling individual coverage in the state had to offer you coverage, though HIPAA did not regulate how much the insurer could charge. Different states offered different degrees of protection, however.

Recently, a well-informed retired attorney in Atlanta, Gary Ratner, recounted to me how HIPAA, enhanced by Georgia state law, enabled him and his wife to maintain good if eventually very expensive coverage...not in the individual market per se, but as individuals without access to conventional group coverage, until they qualified for Medicare. Gary's tale makes an interesting counterfactual for older current enrollees in the individual market who wonder how they may have fared pre-ACA. Gary and his wife fared pretty well -- though if they were in the ACA-compliant individual market today, as his calculations below indicate, they would fare comparably. And they were lucky. They threaded a couple of needles.

In 1992 Gary's wife Barbara, then an architect working for a large firm, struck out on her own to work as an architectural illustrator. She enrolled in an "association" plan offered in Georgia by the American Institute of Architects (AIA), via Aetna. Gary joined the plan three years later.

The AIA coverage was excellent for a while. But the plan was discontinued circa 2001. Here's Gary's explanation, from a post in his tumblr blog:

Although available to any association member, in theory, the plans were medically underwritten, i.e., persons with significant pre-existing conditions were excluded.  Because the plans were available only to a cherry-picked population, premiums in the early years of these plans were affordable.

However, because the plans had guaranteed renewal for association members, the inevitable insurance death spirals kicked in.

Apparently association plans had something of a crisis in the early aughts, then recovered some years later. They were an important part of the coverage landscape in Georgia. A 2006 Health Affairs article about association plans notes, "regulators in Georgia estimate that associations cover 1.5 million residents, in contrast to the state’s traditional small-group market that covers 300,000 people." Gary recalls that the AIA plan was one of the best association plans in the country.

When the AIA plan was terminated, Gary writes, "I had some agonized days. I was not familiar with HIPAA. My first read was that HIPAA might not apply to association plans at all." As Gary had had quintuple bypass surgery in 1999 (total out-of-pocket cost under the association plan: $13.50), he feared he might be uninsurable in the individual market. And even without medical underwriting, individual market rates in Georgia for older enrollees were prohibitively expensive.

Fortunately, he learned, HIPAA offered strong protection to those in association plans, at least to enrollees in those plans that were regulated as group plans*:

HIPAA required insurers to issue policies, at standard rates, to persons who had had eighteen months of continuous adequate coverage and who were leaving group coverage upon either voluntary or involuntary termination of employment or discontinuation by the employer of the plan. In addition, HIPAA required group insurers who themselves terminated group coverage to assure that those insureds had alternative arrangements.

Georgia law made the "alternative arrangements" in this case quite affordable for a spell:

States were free to add additional, more stringent, requirements. When Aetna dropped the AIA around 2001, Georgia had in place "enhanced conversion" which was available where the insurer had dropped an employer or, it seems and fortunately for us, an association.  It was a sort of group plan with the insurer itself taking the place of sponsor/employer/association, with premiums limited to 150% of its standard group rates in the state.

We took it. Annual rates in Georgia's enhanced conversion rose reasonably for a year or two, hitting $7200 (for the couple) in 2003.

In that year, however, Georgia eliminated the 150% "rate tether," and premiums started to climb more rapidly -- spiking 150% to $18,000 for the two of them by 2009.

Gary calculates current marketplace offerings in Atlanta are roughly competitive with the plan that kept him and Barbara insured, as of 2009:

Using a Kaiser tool for our location, I see that for 2017 a couple like us would have a silver plan premium of $15,036 dollars, with an out of pocket maximum of $14,300. Based on the AV of a silver plan, an average couple could expect OOP of $6,444. Total average: $21,500.  Annual max: $29,336.

That compares, again, to an $18,000 premium in 2009, with minimal OOP - a competitive offering, given medical inflation.  In the employer insurance market, by way of comparison, average family plan premiums rose from $13,375 in 2009 to $18,142 this year, according to the Kaiser Family Foundation's annual Employer Health Survey. That increase rate was considerably lower than than that of the years immediately prior.

Gary notes that the comparison has to take account of the fact that "the ACA has guaranteed issue. In 2009, I was insured, despite being a quintuple coronary artery bypass graft survivor, only because of mandated continuation coverage" -- and in many states, that protection would not have extended to the individual market.**

Individual market conditions currently vary widely by state, as do the sharp rate increases of 2017. Gary's story serves as a double reminder: first, that not everyone seeking insurance without benefit of employer in the pre-ACA era fared disastrously, but second, that the availability of coverage was highly uncertain and dependent in large part on luck. ACA guaranteed issue protections have on the whole been purchased at reasonable cost, even for the unsubsidized.

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* The 2006 article linked to above, by Georgetown scholars Mila Kofman, Kevin Lucia, Eliza Bangit Karen Pollitz (now at Kaiser), explains that in some association plans, individuals are policyholders; in others, the association is, the policyholder, with the members receiving certificates of coverage. When individuals are policyholders, the plans are subject to rules of the individual and small group markets; when the association is the policyholder, the plan is regulated as a large group market. I infer from the Georgia requirement that Aetna create a kind group plan of sorts for the former AIA members that the plan was regulated as a group plan.

** Corrected. Gary originally wrote, "... And I was insurable in Georgia only as long as my insurer remained in business in Georgia" but after further read-back in pre-ACA Georgia law he was unsure.  Update, 3/4, 10:50: Gary writes, "After a deep drill, I have discovered that indeed had Aetna left the state, I would have had no insurance, not even access under Georgia's HIPAA compliance plan for individual insurance."