Tag: adverse selection

WSJ Debate: Should the Government Require You to Purchase Health Insurance?

In today’s Wall Street Journal, I debate ObamaCare’s individual mandate. Here’s the teaser:

Should Everyone Be Required to Have Health Insurance?

Yes, says Karen Davenport of George Washington University, because it’s the key to making health care more affordable and accessible. No, says Michael F. Cannon from the Cato Institute, because it will make health care more costly and scarce.

I did not write that unfortunate title, which uses the passive voice to conceal who’s doing the requiring. Hint: we ain’t talking about your conscience. I like to say that if we banned the passive voice–e.g., doctors are paid on a fee-for-service basis–it would take two minutes to realize that government creates most of our health care problems, and we would repeal all subsidies, mandates, and regulations within two hours.

Davenport’s article makes one claim to which I was not able to respond: that under ObamaCare, “global payment approaches and other payment changes are designed [gaa! passive voice!] to improve care for patients with chronic illnesses.” Fortunately for humanity, I already dispatched that claim last week in a blog post titled, “Oops, Maybe ObamaCare’s Cost Controls Won’t Work after All.”

So here are your assignments for today. Read both articles. Don’t forget to take the quiz. Then, watch the related 2008 video I posted under the title, “Does Karen Davenport Owe Me $40?”, and decide for yourself whether Karen Davenport does indeed owe me $40. If you think yes, be sure to tell her so in an email to the address provided at the end of her article.

ObamaCare Prods Yet Another Insurer to Flee the Market

First, a dozen insurers said they would stop writing child-only health insurance policies.  Now, according to the Wall Street Journal:

By forcing the exit of Principal Financial Group — which ran a profitable, $1.6 billion health insurance business — ObamaCare has now left 840,000 Americans to find another source of coverage.

According to The New York Times, other insurers may soon follow:

More insurers are likely to follow Principal’s lead, especially as they try to meet the new rules that require plans to spend at least 80 cents of every dollar they collect in premiums on the welfare of their customers…

“It’s just going to drive the little guys out,” said Robert Laszewski, a health policy consultant in Alexandria, Va. Smaller players like Principal in states like Iowa, Missouri and elsewhere will not be able to compete because they do not have the resources and economies of scale of players like UnitedHealth, which is among the nation’s largest health insurers.

Mr. Laszewski is worried that the ensuing concentration is likely to lead to higher prices because large players will no longer face the competition from the smaller plans. “It’s just the UnitedHealthcare full employment act,” he said.

Let’s remember what President Obama told a joint session of Congress just one year ago:

So let me set the record straight here.  My guiding principle is, and always has been, that consumers do better when there is choice and competition.  That’s how the market works… And without competition, the price of insurance goes up and quality goes down.  And it makes it easier for insurance companies to treat their customers badly – by cherry-picking the healthiest individuals and trying to drop the sickest, by overcharging small businesses who have no leverage, and by jacking up rates.

Everybody got that?

ObamaCare: Never Supported by a Majority, Now 10 Points behind with Likely Voters

With the addition of a poll by George Washington University and Politico – completed the day before ObamaCare started sending health insurance premiums higher, making coverage less accessible for children, and destroying health insurance innovations – Pollster.com shows that among likely voters, ObamaCare now suffers a 10-point popularity gap:

(As I’ve noted before, Pollster.com’s local-regression trend estimate will head off in a direction different from public opinion if the latest poll is a fluke.  But these trajectories are consistent with Pollster.com’s trend estimates for polls surveying registered voters and all adults, which incorporate many more data points.)

Also worth noting: ObamaCare has never enjoyed the support of a majority of likely voters or even all adults.  For every poll that put ObamaCare above 50 percent – there have been only a few, and the highest showed only 53-percent support – many more polls clocked support at well below 50 percent.  Thus Pollster.com’s trend estimate shows public support for ObamaCare peaked among all adults at 47 percent just after Obama’s inauguration, and has fallen to just below 40 percent today.  Among likely voters (above), the high water mark was 45 percent in June, 2009, and now stands at just over 42 percent.

If Pollster.com does a fair job of smoothing out the quirkiness of various polls, that means ObamaCare has never enjoyed the support of a majority of Americans.

ObamaCare’s First Adverse-Selection Death Spiral

This is what happens when government price controls limit insurance companies’ ability to set premiums according to risk:

Note that this adverse-selection death spiral happened before ObamaCare’s price controls on child-only coverage even took effect.  (Of course, President Obama never calls them price controls.  He calls them “consumer protections.”  Some protection.)

ObamaCare supporters are in full-blown denial:

“We’re just days away from a new era when insurance companies must stop denying coverage to kids just because they are sick, and now some of the biggest changed their minds,” Ethan Rome, executive director of Health Care for America Now, an advocacy group, said in a statement. “[It] is immoral, and to blame their appalling behavior on the new law is patently dishonest.”

I’d say that brave new world is already here.

ObamaCare supporters can take comfort in this: since it might take healthy people a while to figure out that they’re better off financially if they drop their coverage and pay the individual-mandate penalty, ObamaCare’s health insurance exchanges might not collapse before their January 1, 2014, launch date.  They could last until January 2.

ObamaCare’s Premium Refunds: Bad News for the Sick

USA Today and Politico Pulse report that ObamaCare has prompted BlueCross BlueShield of North Carolina to rebate $156 million to its customers in the individual market.  This may seem like good news.  It’s actually bad news, particularly for BCBS’s sickest customers.

Pre-ObamaCare, BCBS’s customers – whether healthy or sick – had coverage with an insurer that had already pre-funded their future medical needs. Competition protected them from BCBS skimping on care: if BCBS got a reputation for skimping, it would have a hard time enrolling new customers.

Post-ObamaCare, BCBS no longer needs that pile of cash, so they’re returning it to their customers. That hurts sick enrollees because BCBS is doling it out to all enrollees – not just the sick enrollees whom that money is supposed to serve. This cash-out is actually a transfer from the sick to the healthy.

Also, every BCBS customer who is sick or becomes sick in the future will have less protection against their insurer skimping on care. Competition used to discourage insurers from providing lousy access to care, but under ObamaCare competition will reward skimping. Under ObamaCare’s price controls, insurers that gain a reputation for providing quality coverage to the sick will attract sick people and go out of business.  Insurers that gain a reputation for providing lousy access to care will drive away sick people and thrive.

RomneyCare Unleashed Adverse Selection, As Will ObamaCare

The Massachusetts health care law that Gov. Mitt Romney signed in 2006, and the nearly identical federal law that President Obama signed this year, create perverse incentives that are causing health insurance costs to rise and could eventually cause health insurance markets to collapse. A report released yesterday by the Massachusetts Division of Insurance shows that process is well underway.

Massachusetts requires health insurance companies to sell to all applicants, and imposes price controls that require insurers to charge all applicants the same premium, regardless of their health status.  ObamaCare would do the same.

Those price controls have two principal effects on healthy people.  First, they increase the premiums that insurers charge healthy people (the additional premium goes to reduce premiums for sick people).  Second, they enable healthy people to wait until they are sick to purchase coverage.  Since insurers must take all applicants, and charge them the same premium, there is little or no downside to waiting until one gets sick to purchase coverage.

Those price controls also guarantee that when healthy people drop out of insurance pools, premiums rise for everyone who remains, which causes more healthy people to drop out, and do on.  Economists and actuaries call this an “adverse selection death spiral.”

The Boston Globe reports that the Massachusetts Division of Insurance found that in the wake of RomneyCare, many more healthy residents are purchasing coverage only when they need it:

The number of people who appear to be gaming the state’s health insurance system by purchasing coverage only when they are sick quadrupled from 2006 to 2008, according to a long-awaited report released yesterday from the Massachusetts Division of Insurance.

The result is that insured residents of Massachusetts wind up paying more for health care…

The number of people engaging in this phenomenon — dumping their coverage within six months — jumped from 3,508 in 2006, when the law was passed, to 17,177 in 2008, the most recent year for which data are available.

In the hope of preventing this sort of gaming behavior, RomneyCare requires Massachusetts residents to purchase health insurance.  Yet that “individual mandate” appears not to be working, probably because the penalties for non-compliance are far less than the cost of the mandatory coverage.  Thus many residents decline to purchase health insurance, pay the penalty (or misrepresent their coverage status), and purchase health insurance only when they need medical care.

ObamaCare contains similar price controls and requires nearly all Americans to purchase health insurance by 2014.  Yet ObamaCare’s penalties for non-compliance are also far less than the cost of the required coverage for most people.

As goes Massachusetts, so goes the nation.

ObamaCare’s Price Controls Threaten HSAs

John Goodman is correct that ObamaCare’s individual mandate – and Kathleen Sebelius’s power to make the mandate more burdensome at whim – threaten the continued existence of health savings accounts (HSAs).  But ObamaCare’s price controls are no less a threat.

The new law requires insurers to charge enrollees of the same age the same average premium, regardless of health status.  That’s a price control, and it will cause premiums for healthy people to rise dramatically and thus lead to massive adverse selection.  Healthy people will gravitate to less-comprehensive insurance – in particular, HSA-compatible high-deductible plans – where the implicit tax is smaller.

As premiums for comprehensive plans spiral upward (ultimately causing comprehensive plans to disappear) and as ObamaCare proves more costly than projected, supporters will be desperate for new revenue.  They will call for the elimination of both HSAs and high-deductible health plans on the grounds that those products – not the price controls, mind you – are causing the market to unravel.

HSAs allow young and healthy consumers to avoid the raw deal that ObamaCare offers them. And that’s precisely why ObamaCare’s supporters will try to kill HSAs. We will end up repealing one or the other.