Both supporters and opponents of Kentucky’s health insurance reform law agree that there’s a crisis in the individual market, but they have different opinions on what is to blame for it and how to fix it. Anthem Blue Cross, one of only two carriers remaining in the individual market, says it lost $7 million in the individual market in 1996. The insurer, which blames the law itself and specifically its requirements for guaranteed issue and modified community rating, recently dropped the commission for agents writing new individual policies from 12% to a flat $5 fee. Eighteen agents filed a class-action lawsuit against Anthem in January charging that the changes were "unjustified." Anthem had planned to eliminate agents’ 6% commission on renewals, but backed off in the face of angry opposition. The only other carrier writing individual policies, non-profit Kentucky Kare, lost $12 million in the individual market in the last year and is asking the state for a 28% increase in its rates, a hike the commissioner believes is legitimate. Jerry Philpot, director of Kentucky Kare, attributes the losses to the numbers of high-risk individuals who are coming into the state’s purchasing alliance to buy individual insurance. Kentucky Kare, which offers an indemnity plan, is the only carrier in the state-run alliance writing individual policies. Mr. Philpot, State Rep. Ernesto Scorsone, and Insurance Commissioner George Nichols all cite an exemption from modified community rating won by associations last year as a key cause for the pressure on the individual market. The exemption, approved by the legislature, allows associations to rate high-risk individuals on the basis of health and offer, healthy, young individuals lower rates. While associations cannot deny coverage to high-risk individuals, they can raise rates high enough to dissuade them from enrolling. Commissioner Nichols says there is no question that the exemption has "created two different market segments." Gov. Paul Patton has called the association issue "a serious flaw" that threatens to undermine the reforms. One fix Kentucky officials are considering is establishing a high-risk insurance pool similar to those that now exist in about half the states. With the passage of the Kassebaum-Kennedy insurance law at the federal level, Kentucky officials say the state will be able to cover the cost for the pool by taxing reinsurers of self-insured ERISA plans. While ERISA plans are exempt from such taxes, recent court rulings have established a precedent for the state to tax the reinsurers of these plans. Mr. Philpot and others say that any high risk pool should include managed care to limit the overall cost of the program He adds that it is important that such a pool not become a permanent dumping ground, that people are able to get out of it once they have gotten their health condition under control. Lawrence Ford, Anthem’s director of government relations, believes the insurance pool approach may be "much more effective" than modified community rating for everyone. But Rep. Scorsone is concerned that the pool could end up providing a lower level of care and says many questions remain about distributing the costs of the pool. Other solutions Other solutions are being considered as well. Mr. Philpot suggests the state may need to require any carrier seeking to sell insurance in the group market to sell in the individual market as well. But Ms. Barakauskas, who has been asked by Commissioner Nichols to develop recommendations by early March, says she still hopes to provide a solution that is based on voluntary compliance rather than a penalty. Anthem, which has requested a rate hike, has about 50,000 individual policies, or about 85% of the market Its most popular plan, Option 2000 Advantage, is a preferred provider organization. The monthly premium cost of the plan for a single 42-year-old man or woman in the Louisville area is $170.68 a year. Kentucky Kare, a non-profit program established by the state for its public employees, covers about 9,000 individuals through an indemnity plan. Some 42 other carriers, most with a very small share of the market, have left the individual market, citing hostile market conditions. While Anthem has blamed its losses on the market, others, including Mr. Philpot and Rep. Scorsone, question whether there might be other business reasons for the losses. Rep. Scorsone, a long-time advocate of insurance reform, blames Anthem’s problems on inefficient top-heavy management, coupled with a lack of interest in making the system work. Rep. Scorsone is among those legislators who have charged in the past that insurers have attempted to sabotage reforms in the small group and individual markets by seeking excessive rate hikes. A study under the former commissioner of insurance concluded that rates being charged in the individual and small group markets (2-50) were excessive, but Commissioner Nichols says his review of rates from July 1995 through July 1996 showed that most were acceptable. Helen Barakauskas, executive director of the Kentucky Purchasing Alliance, says almost all the latest rate proposals in the small group market were no more than 3% above the medical CPI. If they fall within that range, no hearing is needed on their rate application. The alliance offers members of small groups a choice of four standardized benefit packages through a dozen different health plans. Fair or not, the rates remain too high to attract much new business from Kentucky’s half-million uninsured residents. According to new figures based on Bureau of Census data, there are about 530,000 uninsured in the Kentucky, higher than some previous estimates. In retrospect, Ms. Barakauskas says, if, the state had staggered implementation by phasing in community rating and standard benefit plans, "the market would have had time to adjust and become educated. I came on board in March 1995 and we had to have the alliance running in July. If we had waited until Jan. 1, 1996 it would have made a big difference." For his part, Commissioner Nichols says his recommendation to other states is to be sure "you have a benchmark in understanding where your marketplace is and where you want it to go." Contact Commissioner Nichols at 502-564-6026; Rep. Scorsone at 606-254-5766; Ms. Barakauskas at 502-564-4747; and Anthem Blue Cross at 502-423-2120.