Our story begins in 1992, during the third term of Gov. Mario Cuomo, the liberal lion of his day. In July of that year, Gov. Cuomo signed into law the most draconian health insurance regulations drafted in recent times. Insurers were barred from charging different rates based on age, gender, or health or smoking status, what wonks will call pure community rating. In addition, insurers were not allowed to deny coverage based on pre-existing conditions, a.k.a. guaranteed issue. The state mandated that all plans cover a specified set of benefits, and restricted certain cost-sharing practices.
Within four years, these changes resulted in a mass exodus of health insurers from the individual market, for all the reasons that will be familiar to regular readers of this blog. If you charge the same amount to healthy and sick people, and to young and old people, young and healthy people suddenly find themselves paying thousands of dollars for insurance they don’t need. They recognize this as a bad deal, and drop out of the market. Only the sickest people, who need the insurance, stay in the pool, leading prices to go up and up in an adverse selection death spiral.