The individual mandate portion of the ACA has been on everyone’s radar lately following the Supreme Court arguments last week about whether it’s constitutional or not. It remains to be seen how the Supreme Court will rule – we have to wait a few months for that. But both sides of the debate have been discussing and predicting the possibilities that could arise if the individual mandate is overturned.
This article from Jason Shafrin, aka The Healthcare Economist, details an option that definitely warrants a second look. Nearly everyone acknowledges that adverse selection will be a serious problem if we simply keep the ACA rules requiring individual health insurance to be guaranteed issue but do away with the mandate. If the individual mandate is found to be unconstitutional, other adjustments will have to be made to prevent adverse selection and keep health insurance premiums from skyrocketing (as they would if people could simply wait until they are sick to purchase guaranteed issue health insurance).
If people can opt to go without health insurance while they are well and then just enroll in a health insurance policy when they become ill, it’s reasonable to expect that the insured population would start to shift towards the less healthy end of the spectrum. We know that claims expenses for insureds on guaranteed-issue high risk pool coverage is far higher than the claims expenses of the general population (Colorado’s claims expenses on the new ACA-created high risk pool are particularly high). Without premiums paid by healthy people who need little or no healthcare in any given month, the premiums required to cover the expenses of people who need significant treatment would quickly become unaffordable. Hence the need for the individual mandate.
Jason’s proposition is to structure guaranteed issue health insurance pricing on the Medicare Part D model. Basically, people who don’t enroll when first eligible would have higher premiums assessed if and when they do eventually enroll, with the premium increase calculated based on how long the person opted to go without health insurance. I agree with Jason’s assessment that this model would probably be met with less resistance from lawmakers and the American public than the individual mandate. But I think people would be a bit put off by the premium hikes that would likely be required in order to make this work.
Guaranteed-issue health insurance is expensive. When it’s enacted without a mandate requiring people to buy it, the premiums can become out of reach very quickly. In Colorado, group health insurance (all eligible employees are guaranteed enrollment, regardless of medical history) is significantly more expensive than individual health insurance (medical underwriting applies until 2014 when the guaranteed issue provisions of the ACA kick in). But since employers usually pay at least a chunk of the premiums, people aren’t generally aware of the full cost of group health insurance. In the individual market, that cost will be more transparent (subsidies – also created by the ACA – will be a significant help for a lot of families).
Any way you look at it, the claims expenses will be high once all health insurance is guaranteed issue. I would assume that individual health insurance premiums will start to look more like group premiums as the years go by. The goal of increasing premiums for late enrollees should be three-fold: To make the practice of waiting to purchase health insurance until one is sick seem less attractive; to make sure that there are enough total premium dollars collected to pay for the total claims submitted; and to make things as fair as possible for people who opt to have health insurance all the time, even when they’re perfectly healthy. Those people should not be paying the lion’s share of the total premiums.
I agree with Jason that if this model were used, it should be up to the carriers – with regulatory oversight – to set the premium adjustments rather than having the government set the prices. But I think that if we use this model to try to accomplish all three of those goals I outlined, the premium adjustments for late enrollees would have to be pretty significant.
Jason’s article was included in this week’s Cavalcade of Risk.