From the beginning of the health care reform debate, cost has been the primary issue.  Plenty of focus has been aimed at how to control health care costs (which nobody seems to have figured out yet), along with CBO estimates of what each piece of proposed legislation would cost taxpayers.  But we haven’t seen much in the way of determining how the proposed legislation would impact health insurance premiums.  We know that in states where health insurance is guaranteed issue but coverage is not mandatory, premiums on individual policies are far higher than in states like Colorado, where policies are underwritten.  But what would happen to premiums in states that use medical underwriting (all but five states) if the current versions of health care reform become law?

Wellpoint actuaries – the people who are responsible for setting premiums – have crunched the numbers and come up with their best estimates as to how premiums would be impacted in the 14 states where Wellpoint operates.  Colorado is one of those states, and for the first time we’re able to see a detailed analysis of what would likely happen to premiums for people here, both the old and the young, the sick and the healthy.  All health insurance providers operating in Colorado have to follow the same rules as far as state mandates and regulations, and they all have to compete with each other.  So it’s reasonable to assume that the data is also indicative of what would happen to premiums on policies offered by most of the health insurance carriers in Colorado.

With the current proposed legislation, it looks like we would see a huge premium increase for young, healthy people in the individual market in Colorado (about 140%).  For average age policyholders in average health, premiums would likely increase by 52%.  Older, sicker individuals would get a break though, and would see a premium decrease of about 22%.

The bulk of the increase in premiums stems from the fact that the requirement that everyone carry health insurance has been greatly eroded over the last several weeks.  If the penalty for not having health insurance is dramatically less than the cost of coverage, it makes sense that healthy people who are trying to save money might opt for the penalty instead of the premiums.  And if health insurance is guaranteed issue anyway, why wouldn’t they?  If they started to feel sick, they could sign up for health insurance at that point, knowing that their pre-existing conditions would be covered.  The obvious result would be ever-increasing loss ratios for health insurance companies, followed by even higher premiums to try to make up the difference.  Higher premiums would mean more healthy people – who otherwise would still like to have health insurance coverage – being forced to drop their policies.  There is no possible way that guaranteed issue health insurance is sustainable unless everyone is required to be in the health insurance system.

The penalty for opting to not carry health insurance is currently proposed to start at $200/year in 2014, and would gradually increase to $750/year in 2017.  This is not even close to what health insurance actually costs, which means that people who are healthy might very well choose to pay the penalty rather than buy health insurance.   Another problem with the proposed method for enforcing the mandate is that is would work via the tax system.  That leaves millions of Americans – those who don’t file taxes, or who have no tax liability – outside of the mandate-enforcement system.  If we truly want to make sure that all Americans are insured, we need to have a better way of enforcing the mandate.  We need penalties that are approximately equal to the cost of premiums, an enforcement system that is more broad than the IRS (perhaps a combination of schools, the DMV, hospitals and clinics, and any government office), and increased subsidies for lower income families.

Health insurance for everyone, regardless of pre-existing conditions, is possible.  But it’s not possible if the system is essentially set up to encourage only unhealthy people to buy health insurance.  Insurance works by spreading risk.  We need to make sure that young, healthy people are paying into the insurance pool in order to offset the claims made by older, sicker individuals.  Without a strong, widely enforced mandate, guaranteed issue health insurance isn’t a  sustainable proposal.