Monday, April 5, 2010

qotd: Gaming the individual mandate

The Boston Globe
April 4, 2010
Short-term customers boosting health costs
By Kay Lazar

Thousands of consumers are gaming Massachusetts' 2006 health insurance law by buying insurance when they need to cover pricey medical care, such as fertility treatments and knee surgery, and then swiftly dropping coverage, a practice that insurance executives say is driving up costs for other people and small businesses.

In 2009 alone, 936 people signed up for coverage with Blue Cross and Blue Shield of Massachusetts for three months or less and ran up claims of more than $1,000 per month while in the plan. Their medical spending while insured was more than four times the average for consumers who buy coverage on their own and retain it in a normal fashion, according to data the state's largest private insurer provided the Globe.

The typical monthly premium for these short-term members was $400, but their average claims exceeded $2,200 per month.

The problem is, it is less expensive for consumers — especially young and healthy people — to pay the monthly penalty of as much as $93 imposed under the state law for not having insurance, than to buy the coverage year-round. This is also the case under the federal health care overhaul legislation signed by the president, insurers say.

Comment:  Health policy science told us ahead of time that a mandate for individuals to buy private health insurance would not work if the penalties for not doing so were quite modest. Yet Massachusetts enacted such a plan, and now very similar policies have been enacted into federal law.

The Massachusetts experience has demonstrated that health care consumers will act in their own financial interest. Individuals who perceive themselves to be in good health will elect to pay the much lower penalty for being uninsured. If they then develop expensive medical problems, they will sign up for a health plan, but then will drop their coverage after their medical needs are met. It means little to them that this drives up premiums for those who remain in the insurance pools.

There are legitimate reasons that state and federal legislators have been reluctant to assign greater penalties for not being insured. The most important is that insurance premiums are simply not affordable for moderate income individuals who do not receive adequate public or employer assistance. Even the modest penalties create a financial hardship for some. Pushing the penalties higher would compound the financial stresses that too many middle income families are already experiencing.

There are policy interventions available, but those under consideration are based on leaving the private insurance industry in charge. One suggestion is to close enrollment except for a short period of open enrollment once or twice a year. This would leave already financially strapped individuals without a safety valve should problems arise during closed enrollment periods. Another suggestion would be to reinstitute (Massachusetts) or expand (federal) the waiting period before preexisting disorders are covered, even if of very recent onset, again preventing coverage for more urgent, serious problems.

Though some might suggest that these individuals would be getting what they deserve for not being insured, the real fault is with policies inherent in the design of a financing system based on private insurance plans. Individuals are forced to choose between private insurance coverage that they may not be able to afford, or exposing themselves to the potential of greater financial insecurity by remaining uninsured. If solving problems in a system creates new problems, then we should question the system itself.

We can do this far better. We can separate the financing from the delivery of health care. With a single payer, improved Medicare for all, everyone would be automatically covered, for life. The financing of the system would not be through premiums tagged to private plans, but rather would be through progressive tax policies in which each person would pay an equitable share, and no one would face a financial hardship.

Gaming the individual mandate is not a very fun game. Let's shut it down, and change to a system that works for everyone.

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