Algunos ejemplos de la arquitectura gubernamental del

While the desire to right the wrongs perceived in health plan underwriting was at the forefront, the factors and motives that led to the bill’s passage after a six-month bare-knuckled legislative brawl were

complex and manifold. The simple shorthand staffers developed for the decision facing the legislature — to “make the Blues like the commercials or the commercials like the Blues” — belied the complex policy and political issues lawmakers and regulators faced. The real prospect of an insolvency at Empire Blue Cross lent tremendous urgency to the debate; a key strategic decision by state regulators to tie passage of the bill to future rate increases for Empire subscribers put legislators who might otherwise have opposed the bill in a real vise.

As was the case in other states that adopted individual and Small Group reforms at the time,7_{Empire — with 10.5 million}

customers the state’s largest insurer — was in trouble. The company had watched its losses mount in its individual business, the steady migration of its Small Group customers to commercial insurers (400,000 from

1988 to 1990 alone),8and steadily declining reserves. Rate increases of 14 percent in 1990 and 19 percent in 1991 generated public outrage but failed to stem its hemorrhaging reserves, which had dwindled to just $295 million at year-end 1990.9

State regulators attributed at least some of Empire’s financial problems to disturbing signs of the implosion of a bifurcated insurance system in which commercial insurers used underwriting to recruit Empire’s better customers, and dumped their costly insured on Empire. The carefully crafted informal agreement for the market — Empire would use competitive advantages stemming from the state’s hospital rate-setting system to subsidize high-risk customers — seemed unsustainable, and increasingly aggressive commercial underwriting practices drew concern. “They were experience-rating groups of ten and fifteen,” one former state regulator recalls. Empire’s solvency, at the same time that a major life insurer, Executive Life, had become insolvent, was at the forefront of the Insurance Department’s concerns.

State Medicaid officials shared insurance regulators’ fears of an Empire insolvency. Empire’s failure could mean that the state Medicaid program — already reeling from cuts — would replace Empire as the “insurer of last resort” for hundreds of thousands of enrollees with medical conditions that made them “uninsurable” with commercial plans.

In the boom and bust cycle that began shortly after Empire’s creation and characterized its complicated relationship with state regulators,10Empire again went before state regulators, in July 1991, with a bombshell to drop: not only would it seek another sharp rate increase, but it would

5 _{Cuomo MM [Governor]. July 28, 1994. Letter to the editor, Washington Post.}

6 _{Stone D. Summer 1993.The struggle for the soul of health insurance. Journal of Health Politics, Policy and Law 18(2): 287-317.} 7 _{Nichols LM. February 2000. State regulation:What have we learned so far? Journal of Health Politics, Policy and Law 25(1): 175-196.} 8 _{Health insurer plans to seek big rate rise. New York Times, July 25, 1991.}

9 _{Blue Cross asks 26% rise for some customers. New York Times, January 17, 1992.}

10 _{Marmor TR.Winter 1991. New York’s Blue Cross and Blue Shield, 1934-1990:The complicated politics of nonprofit regulation.}

also split its individual and Small Group customers into high- and low-risk categories, upping rates by as much as 50 percent for over 400,000 high-risk customers.

The proposed retrenchment from its commitment to community rating — while embraced by many other Blue Cross plans nationally — caused a firestorm in New York and galvanized consumers. Once largely the province of senior citizens protesting Medigap rate increases, the State Insurance Department public hearing this time, on Empire’s new rate plan, was a barn burner. Senior citizens joined gay activists on picket lines in front of the hearing hall, and what later became known as “the illness groups” — nonprofit organizations gathered under the new umbrella of New Yorkers for Accessible Health Coverage, to advocate for people with chronic illnesses such as MS, cancer, and hemophilia — turned out in force to testify at the hearing.

As New York confronted the growing public health crisis of HIV infection, highly motivated AIDS advocacy groups such as Gay Men’s Health Crisis (GMHC) and AIDS Coalition to Unleash Power (ACT UP) joined the coalition, bringing more militant tactics and an edgy energy to the fray. Protestors at the hearing unfurled a giant sign saying “Discrimination Kills People with AIDS.” Facing the testifying Empire officials, a street theater group, the “Faceless Bureaucrats,” wore signs bearing the Empire logo and officials’ names and salaries, and wore paper-plate faces stamped with the slogan “Empire — We Don’t Care, We Don’t Have To.”11

State officials rejected the entire proposal out of hand, and promised a more comprehensive solution. When, the following January, Empire applied for another rate increase for 1.2 million Small Group and individual customers, Insurance

Superintendent Curiale hit on a new strategy

to move the community rating/open enroll- ment legislation proposed by the Cuomo Administration the year before, but largely ignored: unless the Legislature approved the bill by April 1, 1992, the rate increase would be granted.

Two camps were joined. Assembly Democrats lined up with the Cuomo Administration; groups like the New Yorkers for Accessible Health Coverage coalition, represented by a small lobbying firm specializing in nonprofit clients, Act-Up, and GMHC provided the ground troops; and lobbyists from the Albany law firm that represented the state’s Blue Cross plans prowled the halls of the Capitol tirelessly talking up the bill. On the other side, Senate Republicans, traditionally more receptive to the insurance industry, lined up with national and New York-based commercial insurance trade groups such as the Life Insurance Council of New York and the Health Insurance Association of America; lobbyists for a handful of commercial health insurers, including MetLife, Prudential, The Guardian, Chubb Life, and Mutual of Omaha; insurance agents’ groups; and some small business interests.

At the outset, the commercials and their allies painted Empire’s financial troubles as the byproduct of poor management (particularly of Large Group accounts), warned of the stiff rate increase younger, healthier customers would face, and

threatened to pull their products — and jobs — from the state if the bill were to pass.

Meanwhile, supporters of the bill railed against commercial insurers’ underwriting practices, papering legislative offices with details about occupational groups that the insurers “blacklisted” (including landscapers, construction workers, police and fire fighters, hairdressers, and florists), and the impact of commercial insurers’ rating practices on women and older New Yorkers. With careful

use of language and a relentless barrage of newspaper articles and background pieces about commercial insurers’ “discriminatory” practices, the bill’s proponents changed the debate from a discussion about assessing and pricing risk to a virtual civil rights showdown. As the months wore on, legislators’ offices were flooded with tens of thousands of postcards, preprinted but hand-signed, from Empire subscribers, generated through a direct mail campaign organized by a veteran political campaign consultant. Consumer group activists worked to magnify their presence by leafleting suburban shopping malls and train stations, targeting downstate districts represented by Senate Republicans.

When the Assembly approved the

legislation, sponsored by Insurance Committee Chair Pete Grannis, by the April 1 deadline, Superintendent Curiale granted a portion of the increase Empire sought and warned that more would follow unless the state Senate acted on the bill in its chamber. Governor Cuomo equated the Senate’s failure to act with “voting for a tax increase on Blue Cross subscribers,” and continued, “Tax increases are the bane of a politician’s existence. Well, they just voted for them.” Senate Insurance Chairman Guy Velella, who with Senate Health Committee Chairman Michael Tully led negotiations for the Senate, complained Cuomo was employing “political blackmail.”12

In the following months, Senate Republicans continued to float a range of alternative proposals that restricted or moderated the most unsavory commercial insurer practices (banning cancellations of Small Group policies due to claims experience, eliminating commercials’ ability to reject members of a group for coverage, limiting rate differentials based on age, sex, occupation, and claims experience),13and

proposed a new high-risk pool for individuals rejected for coverage.14 But again the proposals failed to gain traction; consumer groups vociferously rejected the establishment of a high-risk pool, and Blue Cross plans painted it as a “tax increase.”

Advocates on both sides stepped up the heat — and the rhetoric. An insurer- sponsored group, New York Citizens for Health Care, bused an insurer’s employees to Albany and staged a march down a street in front of the Capital; the group also issued a running series of memos with the boldface heading, “Why Does Blue Cross Lie?” Proponents, in turn, vowed that “the sick and aging will never be treated as lepers in a system where community rating and true open enrollment is the rule.”

In the waning days of the session “everything just seemed to come together,” says a former Cuomo Administration official. With Assembly Insurance Committee Chairman Pete Grannis warning in a floor debate that “this is the only thing that will prevent a rate increase due to go into effect for 1,200,000 Empire Blue Cross Blue Shield subscribers in the downstate region,” the Assembly approved the measure for the second time. A few days later, the state Senate, unwilling to face the political consequences of being held responsible for the rate increase and appearing to side with insurers and against senior citizen supporters of the bill, followed suit.

As it scrambled to implement the complex legislation, Cuomo Administration officials had to contend with a tumultuous two years. A senior Empire executive was convicted of perjury before a U.S. Senate committee investigating Blue Cross plans nationally. While most subscribers saw their rates increase nominally or decrease, the impact

12 _{The insurance challenge: By granting rate increase, aides to Cuomo put Senate Republican leaders on the spot. New York Times,}

April 3, 1992.

13 _{S.8272 of 1992.} 14 _{S.8273 of 1992.}

on rates for young subscribers was significant — as much as 170 percent. Some health plans withdrew from New York’s market as a result of the change, but the predicted mass exodus did not occur.

Perhaps the most difficult challenge to the law came against the backdrop of federal health insurance reform discussions. Commercial insurers issued a damning study in August 1994, claiming that individual and Small Group enrollment had dropped by over 500,000 in the year following the adoption of the reforms.15

A month later, New York’s State Insurance Department challenged both the report’s conclusions and its methodology, pointing out, for example, that the authors had used Current Population Survey data to develop their estimates of pre-reform enrollment, but used policy counts from individual insurers to develop their post-reform count.16 The insurers’ report was typical of early evaluations of the law, focusing on enrollment and morbidity figures that other critics of it also found flawed.17 But despite those appraisals, considerable damage had been done, with the 500,000 figure circulated widely in the national media. Then-U.S. Representative Dick Armey, of Texas, during an appearance on the McNeil-Lehrer NewsHour, took it to a new level by asserting, unchallenged, that “New York State passes some insurance reform, results in 500 people — 500 million people dropping their

insurance,” as another critic of the study reported.18

More recent analyses found mixed and more measured impacts; “tradeoff” is the term that almost invariably crops up. In an exhaustive review of analyses of the legislation’s impact on Small Group reforms, one researcher found that “Small Group reforms have not caused havoc in the market for small-firm health insurance, but neither have these laws brought about a quantifiable benefit.”19 Others came to similar conclu- sions, finding that, in one sense, the law “worked” because it made high-risk people relatively more likely to obtain coverage and pay lower premiums, without “overly large adverse consequences” on the markets as a whole — but with some loss of enrollment of low-risk people. The key question for policymakers, these authors argue, is “the extent to which an increase in coverage for high-risk people is worth a slightly larger corresponding decrease in coverage for low- risk people.”20

Another analyst found that the law had failed in its immediate goals because it failed to stem huge losses at Empire, and the “combination of individual and Small Group reforms had failed to expand coverage or reduce costs,” achieving only “more limited goals” by preserving access for high-risk individuals.21