Wash. Health Insurers Freeze New Policies : Medical care: New residents, the self-employed and the temporarily jobless can’t buy private coverage in most cases. The pullout is blamed on state reforms.

Hit with spiraling costs, major health insurance providers in Washington state have halted sales of nearly all new individual policies, stranding patients who do not have an existing policy or membership in a group health plan.

The announcement this week by Regence BlueShield and Group Health Cooperative--the last two providers of private health insurance policies in the state--means that new residents, the temporarily unemployed and self-employed people who do not already have policies will be unable to purchase insurance except through a state pool or private cooperative.

The announcement affects a portion of the estimated 550,000 people (including children) in Washington who do not have health insurance.

No Insurance Market for Major Urban Areas

Residents throughout rural America have seen sharp declines in the availability of individual policies in recent years, but the Washington announcement marks the first time residents in major urban areas--including Seattle, Tacoma and Spokane--have found themselves without a private health insurance market.

State officials immediately stepped in with a state-funded pool for the uninsured, but analysts warned that its premiums could be prohibitive to older, middle-class subscribers. About 200,000 existing private policyholders will not be affected unless they leave their plans and try to buy a new policy.

Insurance companies blamed the pullout on a series of 1994 reforms in Washington that required the industry to sell policies to anyone who wanted them and established a maximum three-month waiting period for coverage of patients with expensive preexisting conditions such as heart disease, rheumatoid arthritis and AIDS.

Offering mandatory coverage to those subscribers was causing substantial losses and requiring healthy plan members to subsidize the others, industry officials said.

Washington has not been alone in witnessing industry crises in response to reforms designed to widen medical care access to the uninsured. But it is the only one so far to have seen the market on new private policies close in major urban areas.

“The situation is not common. Most states realize that if you impose this kind of regulation, you will have an exodus of carriers,” said Richard Coorsh, spokesman for the Health Insurance Assn. of America.

A 1998 study of private health insurance policies in 10 states conducted by the Kaiser Family Foundation for the U.S. Department of Health and Human Services found that 6 of the 10 states, including California, allowed insurers to deny coverage to applicants with a history of health problems, such as heart disease, kidney stones, chronic headaches and stroke.

“Washington has the shortest preexisting condition waiting period in the nation,” said John Carlson, Regence BlueShield’s senior vice president. “Individuals can purchase health coverage when they know they need care and drop coverage as soon as they obtain that care. This cycle has caused the cost of individual coverage to rise dramatically over the last five years, while carriers have continued to lose millions of dollars.

“It’s like allowing someone to purchase fire insurance when the flames are going through the roof of their house, and that isn’t fair to those people who keep coverage all year round. . . . We’re no longer willing to do that to our current members.”

State officials said Washington’s insurance reforms, which are similar to those adopted in a number of states in recent years, were supposed to have been accompanied by reforms that would have rolled back medical costs in the state and allowed insurance companies to pool costs for high-cost patients. But the associated reforms were never implemented, and insurance companies that enrolled large numbers of individual subscribers were left vulnerable.

Overall, the state’s six largest carriers lost more than $106 million on individual coverage from 1994 to 1997, according to a survey by the Puget Sound Business Journal. Premera Blue Cross, the largest provider of individual health policies in the state, lost more than $70 million on the plans since 1994. It was the first to pull out, announcing in November it would no longer sell new policies.

That left companies like Group Health highly exposed, since state law required them to sell policies to anyone who wanted them as long as they were marketing the health plans.

Move Follows Trend in Rural Communities

Washington, a predominantly rural state outside the metropolitan Seattle region, has been particularly hard hit by the national transition to managed care, which is economically difficult to provide in small towns without a large patient base.

As a result, many companies already were not offering new policies in rural counties. This week’s announcement spreads the burden to urban counties as well and leaves only eight counties in Washington, with negligible population, offering new private health policies. Group Health, a managed care network, has said it will no longer operate at all in 14 rural counties in Washington and Idaho after Jan. 1.

“It’s a crying shame that it’s come to this, especially for us,” said Group Health spokesman Don Glickstein. “We’re a nonprofit, consumer-governed organization. This is what we were founded for: to provide health care for people who needed it. But we have to take acts of self-preservation as well.”

The company provided a 24-hour window for new enrollments after its announcement, and the entire sales and marketing department worked through a long line of prospective enrollees Thursday. Nearly 300 applications had been processed by the 5 p.m. deadline, Glickstein said.

Robert Harkins, chief deputy insurance commissioner in Washington, said some of the losses the industry has reported on private policies do not take into account money the companies earned on private subscribers’ premiums. Many companies actually lose more money on group policies but have elected to keep them in effect because of large investment earnings, he said.

Overall, the 1994 reforms in Washington have been a success, Harkins said, pointing out that the state has one of the lowest uninsured rates in the country and premium rates are well below the national average.

The new state insurance pool will offer policies to subscribers at rates no more than 50% above the average of existing private policy rates. Older subscribers likely will see the biggest price increase. Some older, high-risk patients would have to pay up to $500 a month for coverage, with a $1,500 deductible. Most younger patients would pay rates comparable to private policy rates, Harkins said.

Small business cooperatives and companies such as Costco also offer insurance packages to those who can’t buy into a company-sponsored group plan, he said.