A year and a half ago, the Whitman-Walker Clinic, a nonprofit health care organization here, paid $142 a month in health insurance premiums for each of its employ- ees.
But then, as several workers at the clinic became sick with AIDS, the organization's insurance costs began to rise. First they went up by 98 percent, then by another 76 percent, and finally by 50 percent until by this summer Whitman-Walker's monthly premiums per employee had more than quadrupled, from $142 to over $600.
In the language of the U.S. health insurance industry, this is called actuarial fairness, the principle that the most equitable way to provide medical coverage is to make those who use the health care system pay the most for their insurance.
But for the Whitman-Walker Clinic -- and for thousands of other small businesses with seriously ill employees -- this definition of "fairness" means they can no longer afford health insurance. Indeed, the seemingly common-sense insistence by insurance companies that those who lead riskier lives, work in riskier professions or have a history of higher medical bills should pay more for health coverage has pushed medical insurance out of the price range of millions of working Americans and opened the private insurance industry to some of the most severe criticism in its history.
At issue, say public policy experts, is what kind of values the U.S. health insurance system should embody. Because a person's job or lifestyle is largely a matter of choice, should each individual be asked to take some responsibility for the cost of his or her health coverage? Or is the right to medical care so basic that every person and company deserves the same basic insurance at the same price?
"This is a question of equity and efficiency," said Carl Schramm, president of the Health Insurance Industry Association (HIAA). He argued that if health insurance were not based on a particular group's estimated costs, there would be no incentive for employers to provide safer working conditions and no way for insurance companies to fairly and profitably set premiums.
The HIAA favors separate measures to solve the problem of the uninsured, but says the principle of risk-based premiums is not to blame.
For many health policy experts, however, no solution to the plight of groups like Whitman-Walker is possible without a complete revision of the system by which health insurance premiums are set.
"When people say they crave a fair insurance premium, they say, 'I don't want to be my brother's keeper,' " said Princeton University health economist Uwe Rinehart, a leading critic of the U.S. insurance system. "I say that's a cop-out. This country is moving to an ethic which says, 'God bless me and to hell with you.' "
Group medical insurance didn't always work this way. In the 1950s, the dominant insurance companies set their premiums using what was known as community rating, in which an insurer divided its total annual health care bill evenly among all the people it covered. An insurer with 1,000 people and $1 million in hospital bills, in other words, would charge each of its enrollees the "community rate" of $1,000 a year in premiums, regardless of how much their health care cost individually.
Gradually, however, this system began to break apart. Community rating depends on a large number of younger, healthy people -- who might have only several hundred dollars a year in bills -- subsidizing a small number of older or sicker patients who might have hospital bills running into the thousands of dollars.
But faced with rapidly rising health care costs, many employers began to insist this kind of subsidy wasn't fair. Firms whose employees sat behind desks argued, for example, that they shouldn't be paying the same rates as mining companies or steel mills.
The major commercial insurers agreed, and in a trend that started in the 1960s and accelerated sharply through the 1980s, they began to pay careful individualized attention to their customers' premiums. Health care premiums are now calculated from a company's own health care bills, not the community's, allowing companies to save if their costs are less than average.
Within the past few years, many insurers also have begun fine-tuning their estimates of expected costs by using medical tests. According to a 1988 report by the Office of Technology Assessment, 75 percent of insurers for small companies (under 25 employees) and more than 50 percent of commercial insurers of large groups were either screening or planning to screen applicants for medical problems that might push up health care bills -- cardiovascular diseases, liver and kidney conditions and diabetes.
In the name of fairness, commercial insurers also have won the right in many states to screen applicants for the HIV virus to adjust premiums to reflect the high cost of AIDS treatment.
Selling this approach, a recent health insurance industry advertisement aimed at the public shows a construction worker high on a scaffold and states: "If you don't take risks, why should you pay for someone else's?"
"Insurance companies need to group people who have similar risk factors such as age, health problems, gender and dangerous jobs, which have a direct effect on rates," the ad says. "If insurance companies didn't put people into risk groups, it would mean that low-risk people would be arbitrarily mixed in with high-risk people and would have to pay higher rates. That would be unfair to everyone."
This move to tie rates to risk has had little impact on major companies. Because of the cost of screening large numbers of employees, only some insurers bother to do it. Even when they do, the effect is minimal when a group policy has a large number of members.
For example, if an insurance company estimated -- after testing several workers in a company of 1,000 employees -- that the firm's medical bills would be $200,000 higher than expected, raising premiums to cover that cost would result in an extra $200 in annual payments per employee -- a large but not unmanageable burden.
But in a company employing, say, 50 people, the rise in premiums needed to pay for a $200,000 increase in medical bills would come to $4,000 per employee, making the insurance unaffordable.
That is what happened at Whitman-Walker, where the insurance ramifications of a few employees' high medical bills were spread over a staff too small to absorb them. Nationally, an estimated 20 million working Americans are in the same predicament.
Some, like Whitman-Walker, are offered insurance but can't afford it. Others, particularly in industries with high or unpredictable costs, are found to present so daunting a financial risk to insurers that they can't get coverage at all.
Under community rating, an insurer could insure even the highest-risk companies because losses on one group could be covered with high profits from another. But with premiums tied to individual groups, a health insurer that cannot price premiums predictably to cover medical expenses often finds it makes no sense to write a policy at all.
"Insurers are literally excluding certain industries -- like restaurants, gas stations and construction companies -- from getting insurance," said Henry Miller, president of the Center for Health Policy Studies in Columbia, Md. "These are industries with a history of high claims. They're being blacklisted."
In the past few years the insurance industry has proposed several solutions. In a plan introduced last February, for example, the Blue Cross-Blue Shield program of California pledged to offer insurance to virtually any small employer that asks for it, and to charge premiums no more than 30 percent higher to groups identified as high-risk. But Blue Cross will take only one high-risk group for every four low-risk groups, in order to enroll a sufficient number of healthy people to subsidize the high-cost workers.
Another approach backed by many insurance companies and recently espoused in a new Connecticut law is to set up what are known as risk pools. Insurers pledge to take all applicants and to limit the premiums they charge high-risk groups. They have the option, however, of transferring responsibilty for very sick or high-cost individuals to a centrally administered pool, which is then subsidized by all participating insurance companies.
Both strategies are projected to expand greatly the number of people covered by health insurance. But industry officials say they cannot abandon rating health risks because as medical costs continue to rise, insurers must have a clear picture of how much the people they cover will cost in order to stay solvent.
Skeptics say these suggestions offer only a partial solution. The California plan, for example, depends on a substantial number of healthy people signing up to subsidize high-risk workers. But what incentive do truly low-risk people have to sign up for a program where their premiums will pay for high-risk groups, particularly since they could cut a better deal on their own?
Similarly, risk pools are criticized by some experts because the burden of supporting them falls disproportionately on smaller firms. For example, most large firms, in effect, run their own internal health insurance companies, using bonafide insurance companies only as claims administrators. That makes these large firms exempt from laws that require insurance companies, such as Blue Cross and others, to contribute to industry-wide plans like high-risk pools.
Some critics maintain that the only solution is to drop the concept of risk-based premiums entirely, either by legislating a return to community rating or taking as radical a step as adopting a national health insurance system. Health insurance, they argue, is not like auto insurance. How safely or what kind of car someone drives is a function of choice, and premiums can fairly be based on those decisions.
They maintain that health -- which depends not just on lifestyle, but on genetics and to some degree on pure chance -- is not in the same category. Even in cases where health risks can be considered voluntary -- like smoking or working in a coal mine -- some experts argue that setting rates based on behavior is not fair.
"Access to medical care is the minimal thing that a civilized society should provide," said Deborah Stone, a professor of law and social policy at Brandeis University. "We should use all kinds of policies to deter people from unhealthy practices. But once they are sick, compassion and morality should dictate that they get medical care. Health insurance is not the social vehicle we should be using for punishing or rewarding people. Its only function is to ensure that people get medical care."