SPEECH BY GOVERNOR PATTON TO THE JOINT SESSION
OF THE GENERAL ASSEMBLY
TUESDAY, SEPTEMBER 30, 1997


Speaker Richards, President Saunders and members of the General Assembly, Justice Stephens and members of the Judiciary, Governor Henry and other members of the Executive, my fellow Kentuckians. This body's been called into session many times to consider issues which were important, perhaps even vital, to the well-being of our people. But never have you been asked to consider a subject more important than the issue we're here to address again, the health of Kentucky's citizens. That's been the dominant issue of the past three regular sessions of the General Assembly and this'll be the second special session on the topic in the past four years. This session won't see the end of the subject because we're dealing with a question for which no one has an answer. That question is, "How can we provide quality healthcare for all Kentuckians at an affordable price? The poorest Kentuckian has access to better healthcare than does the president of Russia! But it costs a lot of money. How can we make it available to more Kentuckians? Through Medicare, the federal government has substantially eased that burden for Americans over 65. Through Medicaid, we're providing quality healthcare for the poorest of our people. But what about the rest, the working poor? The middle class? Even people with substantial means? All could be wiped out by one catastrophic illness or accident. Only the most wealthy among us could sustain the cost of catastrophic illness and not face bankruptcy. When it comes to life, the most precious of all possessions, money cannot measure its value. Whether it's me, you, the child next door or the older person in a distant town, no one is willing to say that their life isn't worth what it'd cost to save it. When we put a human face on any specific situation, not one person in this body, not the most diehard fiscal conservative, not the biggest proponent of cutting taxes, not the strongest opponent of health insurance reform is willing to look that person in the eye and say, "Your life isn't worth what it'd cost to save it. But at the same time, there's not a member of this body, no matter how liberal, no matter how compassionate, no matter how big a tax and spender, that would vote to impose on us the taxes it'd take to say yes to everyone. Our angels of mercy, the dedicated healthcare professionals who've given us the best healthcare system in the world, can perform miracles by the thousands, every day. We'd all like to be able to say yes to every person who could benefit from the treatment that these professionals can give, but we can't. Politicians can't be the ones who say no to individuals so we put that task off on the people delivering the service; the doctors, hospitals, insurance companies - anonymous faces who don't have to answer to the people at election time. Allow me to tell you the story of Alex Wiley. This little four year old boy from Benton, Kentucky is a living miracle today. He wasn't expected to live after he and his mother were involved in a head-on collision in Marshall County this past summer. In the accident, Alex's skull was crushed and his brain severely damaged. Doctors induced a coma for eight days that reduced the swelling of young Alex's brain but even the doctors didn't think the boy would come out of the coma. Alex proved them wrong. He's alert now with a strong appetite and has some limited movement but he faces a long road to recovery as therapists now have to teach him anew to walk, talk and function. Alex's parents don't have health insurance. A state medical card has paid for most of the bills. Several churches and community organizations have held fundraisers to help out with the rest. Alex and his family are going to make it, but what about other children and other families in Kentucky who've faced or may face a similar situation? What about them?

That's the nature of the subject I've called you here to Frankfort to address. For almost a year now, members of the General Assembly have asked me to call this special session . Since the end of the '96 session, people have been working to try to find an answer. I don't have the answers but I'm willing to work with you to do the best that we can and I'll shoulder my part of the responsibility. During the four years preceding my administration, under the leadership of Governor Jones, you struggled with this question and you passed House Bill 250, the Health Reform Act of 1994. This act didn't provide universal coverage for all Kentuckians. It dealt primarily with making health insurance affordable to more Kentuckians. As noble as your goal was, as much as that effort was driven by the most sincere positive motivation, as hard as dedicated people labored to make it a success, it didn't work. Less than two years ago, when I assumed this office, we again labored to preserve what was good about Governor Jones' vision and adjusted what appeared to be the problems; and again, in spite of good intentions and noble purpose, it didn't work. That first effort was against the background of a national debate on America's healthcare delivery system and it appeared that Kentucky might be in the vanguard of a fundamental shift in national policy but the national policy shift never came. And so we were left in the forefront when no one else followed. In retrospect, our efforts in '96 were doomed to failure from the start because we were trying to preserve an ideal in a nation which was not yet ready to embrace it. That, in the big picture, is the situation we face. No one in this country has figured out how to make healthcare available to all our people. That's not what we're here to talk about. We're here to address how we deal with the catastrophic financial burden that serious illness can bring. In this country we've generally dealt with the potential for catastrophic financial loss with either government action or private insurance or, in many cases, a combination of the two. Being a strong proponent of the free-market system, I think most of us would prefer to deal with potential catastrophic-loss situations with insurance. The nature of insurance is that we voluntarily agree to pool our resources in limited and known quantities in advance to share the cost of a catastrophic event which we know can come our way. Fire, automobile accidents or other liabilities to third parties are the kinds of insurance that work well. In these areas insurance companies estimate our individual probability of incurring loss and risk rate us. They can risk rate us as high as they wish. If the cost is too high, we can go uninsured and take the risk ourselves. But risking our health is different because health means life, something none of us can equate to a dollar value.

Few Kentuckians could alone afford the cost of long-term and expensive healthcare services. Most Kentuckians want to join with their fellow citizens to share the risk through insurance. That is the heart of the subject we'll debate during the next several days.

The primary elements of House Bill 250 passed in '94, or at least the elements of it which survived the 1996 session, are: guaranteed renewability, portability, and issue, all without regard to the current status of a person's health. Let me go into those subjects in a little more detail. Guaranteed renewability seems to me to be an issue of basic fairness. It means that your insurance company must renew your insurance every year and they can't cancel your policy or raise the price just because you've become ill. After all, you may've been paying your insurance premium for years and never used it one time. In fact most of us have paid for many kinds of insurance and never filed a claim. Most of us never want to file a claim. We understand that our money may go to pay the cost incurred by our neighbors who were less fortunate than us. What makes health insurance different is that the losses can occur over a period of years and yet health insurance policies are renewed on a yearly basis.

If the insurance company knows that the cost of your healthcare in the future is going to be more than the premiums you're going to be paying and if their primary concern is their profits, they can stop their losses by canceling your policy or raising the price so you can't afford it. I understand profits and losses but at the same time, it's hard for me to understand why an insurance company should be able to cancel my policy or raise my premium just because I got sick, when I've been paying premiums for years and never filed a claim. That's why I buy insurance, to use it if I need it. But we need to remember that before the 1994 Healthcare Act passed in Kentucky that's exactly what could happen to you and it was happening to many Kentuckians every year. That's guaranteed renewability, and I support it. One of the major advantages of the Healthcare Act passed in '94 was the guarantee you could renew your health insurance. Guaranteed portability means that you can't be denied coverage for a pre-existing condition when you change insurance companies. If, for example, you change jobs and therefore your insurance coverage, the waiting period for pre-existing conditions wouldn't apply to your new policy. Many people had been locked into jobs because they had health insurance where they worked but were afraid they would lose it if they changed jobs. That's guaranteed portability. Guaranteed issue means that a person can buy insurance no matter how ill they are even if they've never had insurance before. Something I think all of us could support. That's a summary of the fundamental policy changes adopted in 1994 which are still in effect today. The essence of that policy is that the price or availability of health insurance will not be affected by the status of a person's health, gender or occupation. The only factors which can be considered when determining the price you're to be charged for your health insurance are your age, the size of the family unit and the region of the state in which you live. That's called modified community rating. That's still in effect today in Kentucky. The obvious effect of these changes was that older, sicker people paid less and younger, healthier people paid more. Since any insurer had to sell insurance to any Kentucky resident who wanted it no matter how sick they already were, the entire cost of the system went up as very sick people got insurance for the first time. Add to this the normal increase in the cost of health insurance caused by inflation and the expensive new treatments which come along every year and we had a situation where some people's insurance went up a little bit, some people's insurance went up a whole lot and very few people's insurance went down any. When you add to that the requirements that only five standard plans could be purchased, that providers had to change a lot of the ways they do business, and insurance companies were telling everybody that it was the government's fault, the reaction was swift and furious. The level of feelings on the issue in the early days of the 1996 session was intense. People wanted relief but they still wanted to keep modified community rating. They still didn't think that insurance companies should be able to cancel their insurance or jack up the price just because they got sick. In '96 we made some changes which helped but we still kept that fundamental policy decision to not let your health status affect the price of your health insurance. We kept modified community rating. The '96 changes didn't help enough. Today, a year and a half later, the demand of the people is still that we do something else to control the cost of health insurance and increase the choice to most Kentuckians. There are really very few things we can do. There is no silver bullet. One of the things we can do is restore competition to the market. One of the undeniable effects of our laws has been to cause 45 insurance companies to quit selling health insurance in the Commonwealth. We only have one private company, Anthem Blue Cross-Blue Shield, selling individual health insurance policies in the state. Now some people say that the companies that left don't make any difference, they only represented half the individual market. Well, that half represented 75,000 Kentuckians. I think that does make a difference. In order to get some choice and competition in the market, I directed Kentucky Kare, a state-owned company, to sell individual policies to all Kentuckians. Kentucky Kare, whose purpose is to provide low-cost health insurance to Kentucky State Government employees and retirees, is now losing about $1.5 million a month. Kentucky Kare is going to have to raise its rates 30 percent. If we're going to improve the situation, I believe, and I think most of the members of the legislature believe, that we must restore competition to the market. We must have laws which will induce at least some of the companies to come back to offer our people health insurance. In the long run, the free market is the consumer's best chance to get a quality product at a fair price. To get a competitive market, we simply must change our system of modified community rating. But we don't have to abandon it altogether. Most experts in the field believe if we allow insurance companies to adjust individual premium rates based on the person's health status, insurance companies would return in Kentucky. Over these many months of debate, a general consensus has evolved that insurers can vary rates for individuals, plus or minus 35 percent, based on health. That's the figure that's been reluctantly agreed to by almost all parties involved in the debate, supporters of modified community rating and its opponents. Moreover, a general consensus has been formed that a person who's never had health insurance should be able to purchase it for 50 percent more than the same policy would cost a person with normal health. With these two changes, we'll be able to retain the four basic elements of the 1994 law - guaranteed renewability, guaranteed portability, guaranteed issue, all for people with pre-existing health conditions.

To be sure, these changes in health condition can cause your health insurance to cost more, but no more than 35 percent above the average, and you'll still be able to keep the same kind of insurance you have today. If you don't have insurance now, you'll still be able to buy it with some limitations. There've been two proposals advanced that provide for persons with chronic pre-existing conditions, who currently don't have health insurance, to buy insurance. One choice is called pay or play where an insurance company can either choose to "play - that is to sell insurance to all customers up to their fair share of the market or "pay - that is to reject anyone who has a pre-existing health condition and pay the losses of the companies who do insure them. The other option is a high-risk pool. Under this proposal, sick people who can't get any insurer to sell them insurance can buy it from the state-run, high-risk pool and the extra cost of paying for their health care would be paid by all insurance companies selling health insurance in Kentucky. On the face of it, I, and many others in the General Assembly, like the concept of pay or play over a high-risk pool. But the pay or play system has its problems. Nobody knows exactly how to make it work. The proposed "pay or play system specifically requires the Department of Insurance to write 20 administrative regulations and contains 13 other provisions that may require more regulations. The department questions its ability to administer a program which is so vague. Only one state, New Jersey, is trying it , and with mixed results. And it's doubtful that a pay or play system would restore competition to the market. The best option to restore competition in Kentucky is a high risk plan. This is the method used by twenty-seven states to provide insurance coverage to high-risk individuals.

In my opinion, most of the General Assembly believes that we in Kentucky have experimented enough for the time being. The time has come to stabilize the market, restore competition, and try again later to adjust our program after we've learned a little more about how we can provide more of our people with affordable health insurance. That's one of the reasons I'm supporting the proposal of Senator Tim Shaughnessy. There are some things about it I don't like. One is that it uses General Fund revenue to subsidize private health insurance through the high-risk pool. This government-paid cost of healthcare is how we got both Medicaid and Medicare, both programs I support for our national government, but a path our state government should never take alone. However, our health insurance market is in such disarray that I've compromised and reluctantly agreed with the supporters of the Shaughnessy proposal that a very modest and limited General Fund appropriation of $5 million a year for 3 years is essential to get this new program started without undue hardship on those who need health insurance the most. If we pass a law to address this subject during the next several days, we're all going to have to compromise. We're all going to have to accept some things we don't agree with. I've already done that and most of the people who're supporting the Shaughnessy proposal have done that. It's already a bipartisan proposal that has had input from both the Democrat and Republican leaders of both houses as well as my administration through the Department of Insurance. I must pause to acknowledge the work done by the Department of Insurance and its Commissioner, George Nichols. I know of no one engaged in this debate who doesn't respect Commissioner Nichols and his staff for their knowledge, sincerity, effort and dedication to the welfare of the Kentucky health insurance consumers. Commissioner Nichols stand up and take a bow, along with the rest of your staff here tonight. You've worked hard on this subject for almost two years. You've worked late at night and on weekends. You have some hard days ahead of you. You've got a very difficult job to do after the General Assembly acts. But I know you'll continue to serve above and beyond the call of duty, just like you've done these past trying and tiring 21 months. Thank you. Even though we must leave the day-to-day administration of this law to the professionals, we alone can decide the fundamental issues of public policy. We alone are the elected representatives of the people. We alone are at the crossroads and in the crosshairs of the public debate. We alone must act. I commend Senator Shaughnessy for his untiring effort to develop an effective compromise which I believe is the best we can do right now. I also want to thank Representatives Bob DeWeese and Bob Damron for their bipartisan proposal from the House, many elements of which have been incorporated into the Shaughnessy proposal. Senator Kelly and his staff made valuable contributions to the Shaughnessy proposal. The majority of the combined bipartisan leadership of both the House and the Senate have had input which was taken into account by Senator Shaughnessy and Senator Kelly as they prepared their draft. And let us keep in mind that the proposal introduced in the Senate today is just the starting point. I expect that the public debate which the legislative process demands may reveal weaknesses which can be corrected. I'm willing to consider changes for the better and I certainly expect to take into account, all proposed changes in the light of what is best for the consumers. But Kentuckians must realize that your elected leaders can't do the impossible. We can't satisfy every individual situation. We can only serve you with honesty, integrity, and diligence. I sincerely believe that the vast majority of these members of your Kentucky General Assembly meet that test. I don't agree with them on every subject as they don't agree with me, but I respect them because they represent you, they were elected by you. And they are doing their best to serve you just as I'm doing as your governor.

I urge all leaders to make their first priority the Kentuckians who depend on health insurance to save their lives and protect them from bankrupting medical bills. Now is the time for leadership. Now is the time for compromise. Now is the time for statesmanship.

Now is the time to act! Thank you. Good night. God bless you.