Sunday, April 18, 2010

Adverse Selection Death Spiral

In New York State, insurance regulations require insurers to cover people with preexisting conditions and expensive healthcare needs at the same rates as healthy people who don't have such conditions. The result has been a very large increase in health insurance premiums for all.

It did not take long for healthy people to realize that they were subsidizing the others. Many healthy people dropped their insurance because, for them, the option of paying for all of their health care costs directly was much less expensive.

Individual health care insurance premiums for self-pay HMOs have gone from $250 monthly in 2001 to $700 in 2008. During the same time, the number of insured individuals dropped from 128,000 to 31,000.

The insurance pool shrank as more people with preexisting conditions signed on and more healthy people dropped their coverage. This has led to what health insurance specialists call an Adverse Selection Death Spiral.

An executive for Empire Blue Cross Blue Shield told the NYT that of the approximately 6 million New Yorkers in the 18-to-26 year old group, most of them healthy, only 88 had purchased individual plans from his company.

New York Times.

Preventing a national Adverse Selection Death Spiral is the reasoning behind the ObamaCare "insurance mandate": healthy people must be compelled to purchase insurance, even if it greatly exceeds their annual out-of-pocket costs for remaining uninsured.

The insurance mandate is likely to be challenged in court as soon as it becomes effective. And there is a good chance that it will be found to be unconstitutional. That will leave the rest of the ObamaCare law intact, but with no way to pay for all of it. Even legal gimmicks like "tax credits" are unlikely to close the gap.

A likely result is that many healthy people will opt to have no health insurance at all; only people with expensive pre-existing conditions will find that health insurance is a bargain. Fewer people will have health insurance, and those who do will tend to have expensive chronic conditions.


Old NFO said...

That pretty much says it all...

WV- dones

Mark Alger said...

But you'll have been paying taxes for all those years, with no way to get the money back.

That can't be deliberate, can it?