Originally written in Sept. 2000 - now with an update at the end...

A great deal of political hay is being made by the Shaheen campaign over her supposed fight to make health insurance affordable in New Hampshire. In her first campaign for Governor in 1995, we heard the ringside announcement that “she fought the big insurance companies and won.” Now, we are being told that she fought the “big HMO's” and is providing affordable health insurance to poor New Hampshire children.

This is far from the truth.

To delve into the reality of the health insurance market in New Hampshire, one must first look back to the administration of President Franklin Roosevelt. It was under his institution of utterly socialistic and unconstitutional wage and price controls that companies began to look for other ways in which to attract productive employees. They did this, in part, by offering health insurance coverage, purchased through “group” insurers, rather than what was typically known as “individual insurers”, who covered individual clients.

Thus was established the popular notion that large companies would supply insurance coverage to their employees, and, when the wage and price controls were lifted, the precedent had been set, and had become part of the business landscape for many large employers. It also popularized the erroneous belief that the money being paid for this insurance was coming from the company, rather than the employee. In fact, the paycheck of the employee would have been just that much larger if the had not had to pay for his insurance coverage.

Then, in the early 1970's Congress passed a law providing a tax discount to large employers that purchased “group” or HMO coverage for their employees. Seen as a beneficent stroke by the federal government to encourage group insurance coverage throughout the country, the law had the real-world effect of tilting the tax balance in favor of HMO's rather than individuals purchasing their own individual policies. If an employee had the option to either accept a company HMO plan or take the money in his paycheck and buy his own non-tax-free policy, he would obviously recognize the financial advantages to accepting the company plan.

Thus, the power of HMO's began to grow...

Then, in 1993, Bill Clinton went to the airwaves to pronounce that the state of health insurance in the US was abysmal. It was too expensive, he claimed, though, in reality, inflation rates in health insurance were about equal to the inflation rate generally. It was only in the government controlled programs of Medicare and Medicaid that one saw double-digit inflation, over-use by the “recipients”, and attempts at price controls. He pronounced that the health insurance industry was callous to those with pre-existing conditions, and told us in his loving way that was too bureaucratic.

So, Mr. Clinton's answer was to nationalize the health insurance industry in one fell swoop. He assigned Hillary Clinton to head up his Health Care Task Force, which held organizational meetings behind closed doors, an act which later cost the White House $300,000 when it was determined to have been illegal. The goal of the Clinton plan was, of course, a real bureaucratization of the health insurance industry in the US, to place it under the control of those wonderfully efficient and incredibly responsive dis-functionaries in Washington.

And if Bill and Hillary couldn't nationalize the health insurance industry with one stroke of the pen, they had plans to do so incrementally, via the states, and via stand-alone Congressional legislation.

This began on a national basis with the Kennedy-Kassebaum Insurance Portability Act, which forced businesses with twenty or more employees to have to pay for the insurance plans of their employees even after they had left their jobs, for a period of up to eleven months (just long enough for these people to qualify for federal insurance). Later, in 1997, the Kennedy-Hatch “CHIPS”, or “Kiddie-care” plan was passed, which taxed cigarettes an extra 15 Cents per pack and funneled this plunder to the states in order to create their own bureaucracies which would administer health insurance to supposedly “poor” children. At the time, it was predicted by the Congressional Budget Office that 40% of those children who would be placed on this plan in their home states would be children who already had insurance coverage, thanks to their parents, or their parents' employers, but would be shifted over to the new tax-funded plan after those who paid for the original insurance plans recognized the fact that they could get health insurance for the kids on someone else's buck.

And, in New Hampshire, Senator Jeanne Shaheen proposed SB711, which has gone on to decimate the individual health insurance market in the state, just as she had been warned it would.

But before we get into the insurance miasma created by Shaheen, let's participate in a quick overview of the dynamics of health insurance.

Obviously, health insurance is a business, not a charity. No one has the right to force a person in this business to give him insurance, just as no one has a right to force a supermarket owner to give him food. Such impositions are infringements upon one's right to his own property, and create a social system in which order, justice, and mutual respect are replaced by chaos, injustice, and perpetual coercion. It is no more just for a government, through the mechanism of majority rule, to seize private property than it is a robber or a gang of thugs. Even if it is to serve a supposedly altruistic motive.

An easy way to imagine how the insurance business works is to consider Ben Franklin's famous adage: “A stitch in time saves nine.” From the perspective of the client, his regular premium payments are his “stitches”. He knows that life always presents risks, and that insurance is a hedge against future loss. He pays his “stitches” to a business owner willing to accept him as a client. In return for this financial obligation, the insurer agrees to pay out “nine stitches” should some injury or calamity occur. The insurer stays in business, and turns a profit, as long as he has more clients paying “stitches” than he expends for claims. This is true for all types of insurance, home, health, fire, auto, life, on down the line to the policy taken out for Mary Hart's legs. If the client is worried that something really, truly, horribly rotten could happen to him (and what sensible person isn't ?) he will try to buy some insurance. The insurer will decide to accept the client based on the risk he presents -- the risk that the company will have to expend a lot of  “stitches” for claims.

It only makes sense, then, that insurance companies accept or deny coverage, decrease or increase premiums, based on the health and lifestyle of the individual interested in buying its insurance. If the insurance company feels that the potential client -- say a junkie, skydiving, secret agent who enjoys weekends playing Russian Roulette with Andrew Kunanin -- represents too much of a risk to accept, the insurance company has the right to say “sorry!” Likewise if the potential client has diabetes, or any disease that, statistically, means the insurer will be more likely to have to pay claims in the future, the insurer has the right to not accept him as a client, or ask for a higher premium, so that the amount the company takes in premiums will offset the amount the company expects to pay out for claims. The more old, ill, risky clients an insurance company insures, the more claims will have to be paid. As a result, in order to keep afloat, the company will have to raise premiums for everyone. It sounds harsh, but so is life, and insurance is based on the clear and important risks presented by life.

But some people, usually those in the Federal and State governments (and usually those with big “D”s next to their names, but increasingly they have “R”s as well), believe that recognizing those risks is unfair. They think that through the machine of government, all can be made “fair and equal”.  Of course, it can be empirically observed that they are wrong. And in their efforts to equalize the existences of all they have infringed upon private property, damaged our principles of charity, damaged the charitable institutions that rely on us, warped the true meaning of natural rights, and destroyed the very definition of insurance.

Now, let's look at the state. New Hampshire... Home of the brave... The Granite State... Rock solid... Jeanne Shaheen, its Governor...

Let me tell you about Jeanne Shaheen. In 1994, then State Senator Jeanne Shaheen co-sponsored a bill called SB711 (RSA 420-G), which passed both houses and was later allowed to become law by the supposedly “conservative” Steve Merrill. SB711 essentially forced private insurance companies issuing individual, or “non-group”, policies in the state to accept people with pre-existing conditions. It also forced them to place their clients into “Community Rating Pools”, in which age categories would be set up, and in which the younger policy holders in these categories would pay artificially high premiums in order to help lower the premiums of the older members. The fact that older people should pay higher premiums because they represent higher risks never seemed to register with her.

Of course, the effects of this kind of nonsense could be predicted. With “guaranteed issue” of insurance (the elimination of pre-existing condition clauses in policies) there is no incentive for someone to purchase health insurance while he is healthy. He will wait until he gets sick, then get his insurance. (Kind of like one's family getting a life insurance policy after one dies.) This not only corrupts the very definition of insurance, it has the secondary effect of leaving only the sick with policies, which then forces the insurance company to increase premiums to stay in business.  The added feature of forcing younger insureds to subsidize the older members of their “pools” increases the incentive for young people to drop their insurance, again raising the price of premiums for those still holding policies. In 1994, the results could not only be predicted, they could be seen, in states such as New York, which lost a huge percentage of younger, healthy individuals who formerly had policies, forcing up the prices of  premiums for those still being insured. One could see at the time that New York would be lucky if any of the companies doing business there continued to issue policies. Why bother, when all they would end up doing is subsidizing people who were already sick? That's not insurance, that's state coerced redistribution.

I gave the State House a call to contact Senator Shaheen about the issue back in 1994. But the committee office was empty of members, and I was told I should try her at her home. I was assured this would be okay... It was far from “okay”. When I asked Mrs. Shaheen if she was aware of the statistics that had been put together in states such as New York, when I asked if she had considered what people would do if they could get their insurance after they got sick, she became very angry. When I asked her if she thought she had the right to impose her ideals on individuals and businesses making contracts with one another for insurance here in the state, she hung up the phone.

Well, I've been keeping my eye on the effects of SB711, and Mrs. Shaheen should have stayed on the line. In 1994, there were ten companies issuing “non-group” health insurance policies. As of January 1, 1995, the date SB711 went into effect, four of those companies stopped issuing policies in the state. They knew what would happen to their bottom lines under such a system of state coercion. Now, what happens when there is less competition in any field? Prices rise. What happens when those companies still issuing policies are faced with potential clients who are already sick, or high risks? Prices rise. What happens when those companies that have stopped issuing policies, but retain their previous clients, see their clients getting older, making more claims, while younger, healthier clients are no longer entering their pool of insureds? PRICES RISE! What happens when prices rise? Healthy people drop their insurance policies because they are too expensive. What happens when healthy people drop their insurance policies? PRICES RISE for those still holding their policies! HELLO!  It's a never-ending cycle: government manipulation leads to changes in the behavior of clients and potential clients, or to pre-emptory changes in the policies of companies, which leads to less competition, which leads to higher prices, which leads to more clients and potential clients changing their behavior which leads to... And so on.

 If you are the charitable kind, you might believe that Jeanne Shaheen was simply daft or naive. I am not that charitable. She was presented with mountains of information, researched by very highly regarded firms, that warned her of just this kind of effect. For example, in 1994, the Council for Affordable Health Insurance stated:

“Community rating, as mandated in this bill, will result in significant premium increases for young families and small employers.”

A letter dated April 1, 1994, from GoldenRule Insurance stated:

“When New York passed similar legislation (in 1993), rates increased 170% for 30-year-old insureds.”

Jeanne Shaheen was about as open to this information as she was to mine.

We've seen that those money-grubbing, nasty, evil insurance companies left the state after Shaheen tried to dictate to them the operation of their businesses, despite the fact that the New Hampshire constitution only allows regulation of monopolies and consortiums that are attempting to collusively control prices... But what happened economically? Did her attempt to make insurance more readily available to people achieve success? Did rates go down? Did more people have individual policies?

The answers to these questions can be found in a report issued by the state called: “The Effects of RSA 420-G” (Which was the House version of SB711 that was eventually passed into law.)

The report clearly states that, not only did four of the ten businesses issuing individual policies in NH leave the state on the day Shaheen's brainchild became law, by December of 1997, we had 42% FEWER people holding individual insurance policies than we did prior to the passage of her bill. (See p. 36.) This decline occurred despite higher employment in the state.

Additionally, insurance rates for those in the younger “Rating Pools” have increased nearly 100%, just as it was predicted, just as Jeanne Shaheen was told.

But the detrimental results of her absurd creation could be seen in other areas as well. There was a domino effect, extending into the “group” market, and, specifically, Blue Cross -- Blue Shield.

In 1977, BCBS's charter was recodified, as a 501-C-4, Non-profit Service Corporation. Under this status, BCBS was given a special 2% Premium Tax deduction for accepting people with pre-existing conditions. Other companies that did not accept people with pre-existing conditions did not enjoy such favors. As a result, BCBS of NH existed as the “insurer of last resort”, or the company to which people with pre-existing conditions would turn if they could not buy coverage from other companies, or found the premiums of other companies too expensive.

But once the other companies were forced by Jeanne Shaheen, through SB711, to accept people with pre-existing conditions, they cried foul that they did not receive the same 2% Premium Tax discount that BCBS received. So what did the state do in 1995? It revoked BCBS's 2% Premium Tax discount. What did BCBS have to do in return? It decided to drop all its clients holding “non-group” (or individual) health insurance policies, and not accept any more! Why? The amount of money it lost in the year between losing its tax discount and dropping its high risk clients was almost exactly the same as the amount of its prior tax discount... Gee, go figure.

And, as a result of SB 711, we have seen the power of the HMO's increase. After all, their competition from individual issuers has been nearly cut in half.

What has the state done to curtail the “faceless, heartless” monolithic HMO industry here in NH? Has Jeanne Shaheen proposed a revocation of SB711 and invited those individual issuers she drove out of the state back into her embrace?

Not at all. She's merely pandered to the public, painting the HMO's as evil giants who are disinclined to give their clients a fair shake, who continually deny coverage for simple procedures, who deny coverage for those in need. Yet, she never states that the real client of the HMO is usually the business that purchased the plan for its employee, not the employee himself. She's paraded herself as a champion of the little guy, the important woman who helped pass the HMO Accountability Act in 1999, which is merely another level of state control over the insurance market, even though it has been state intervention in the insurance market that has caused this continuing stream of problems in the first place.

And today, we see commercials with Jeanne Shaheen sitting behind her desk, popping on her glasses while a dulcet-voiced announcer tells us she's got a quiet style, but she gets results.

Well, if the results of her actions are typified by the insurance debacle she's commanded in the past few years, perhaps it would be better is she stayed out of politics all together.

 
Editor's note & update: With the beginning of the Craig Benson Administration in NH, changes were proposed to the NH health insurance laws. Under Senate Bill 110, companies could once more check for pre-existing conditions, and rate according to risk factors like age, smoking, etc. Unfortunately, part of SB 110 prohibited policy holders from dropping their policies and going to new companies until a year had passed. This being the case, the companies already doing business in NH, and who had clients who could not move to new competition entering the state, increased their prices. This caused a clamor among voters, and was used a lever to revoke the positive provisions of SB110. Senator Ted Gatsas then proposed, in early 2005, a new health insurance bill that would eliminate once more the ability of companies to actually look at the risks posed by potential clients, and to charge accordingly. Instead, Gatsas' bill forced these companies to accept people with pre-existing conditions, without being able in any way to look at their health history - an interesting prospect for what are supposed to be HEALTH insurance companies. Only AFTER the companies accepted the clients could they look at the risk factors, and then, if their actuaries thought a client posed too high a risk, Gatsas' bill gave the insurances businesses the ability to move these clients into “high risk” pools - which, of course, are paid for with money taken by the state from the very health insurance companies being forced to accept the clients in the first place. We have not only returned to the pernicious situation of Shaheen's SB 711, we have made things worse, more coercive, and, eventually, more expensive for insurance companies, and the people who would like to buy policies. Socialism never works, no matter how altruistic the motive, and no matter if the policy is proposed by a Democrat or Republican. Keep it in mind next time you visit a doctor.