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Children face an unfortunate side effect of health reform

Stripped of the ability to deny individual policies to kids with preexisting conditions, some insurers respond by barring any new individual policies for children. A bill could help mitigate the practice in California.

September 23, 2010

Congress passed a healthcare reform law this year in part to curb a series of abuses by insurance companies, particularly in the market for individual health policies. Some of its provisions take effect Thursday, providing more safeguards and benefits for consumers but also raising insurers' cost of doing business.

One of the new mandates is having an alarming effect on the insurance market. As of Thursday, insurers may not deny individual policies to children with preexisting conditions. The rule could affect more than 80,000 minors in California who aren't covered by their parents' policies or by state programs. In response, at least two major insurers — Anthem Blue Cross and Aetna — have announced that they won't offer individual policies in California to any children who don't already have coverage. Other companies are doing the same in states across the country.

It's a very unfortunate — but entirely predictable — reaction. Insurers argued throughout the healthcare reform debate that forcing them to make coverage available to all Americans without restrictions would lead consumers to go without coverage until they required expensive medical care — a form of "adverse risk selection" that would cause premiums to skyrocket. Lawmakers tried to guard against that by requiring all adults to obtain coverage, starting in 2014. But no such requirement applies to the individual insurance market for children.

Assemblyman Mike Feuer (D-Los Angeles) addressed those concerns in a bill, AB 2244, that would bar California insurers from denying coverage to children with preexisting conditions, but would let them charge significantly higher premiums to those who don't sign up during open enrollment periods each year and impose surcharges on those who try to game the system by dropping coverage when they're healthy. It also would limit how much extra children with preexisting conditions would have to pay if they signed up during open enrollment. And to give insurers an incentive to keep offering individual coverage for kids, those that don't would be hit with the same penalty that insurers currently face for refusing to cover dependents: a five-year ban on offering individual policies to any Californian.

Feuer's bill, which the Legislature recently passed, is a reasonable compromise, and Gov. Arnold Schwarzenegger should sign it. The measure may not persuade Anthem and Aetna to reverse course, but it gives their competitors a good reason not to join them on the sidelines.

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