Why You Might Never Get Quality Affordable Health Insurance: The Dangerous Lack Of Robust Risk Adjustment

Yesterday, I drew attention to the CMS's findings about the House's robust public option tied to Medicare rates. There were two important findings: The first was that it would be 18% cheaper to insure someone with a robust public option. The second was that premiums for people who chose the public option would only be about 11% cheaper. The problem: the lack of strong enough risk adjustment mechanisms or reinsurance program on the new exchange. People with serious medical issues are the ones most likely to be diligent shoppers on the new exchange. A good health insurance plan with lower overhead and a large provider network (like a robust public option) will attract these less healthy individuals. This shift of sicker people to better, well-run health insurance plans will drive up their premiums. The House bill does contain risk adjustment mechanisms for the exchange to protect against adverse selection, but the CMS determined that would be insufficient.

Fortunately, the robust public option tied to Medicare rates would be so much better than private insurance. It could absorb this consumer shifting and still provide insurance with substantially lower premiums. It would start with real market clout and could have an important impact.

If the exchange did not have a robust public option (or had only a very weak one), the lack of a sufficient risk adjustment becomes an even more serious concern. The result is that it would be impossible for an insurance company to ever offer high quality, low cost insurance even if they wanted to.

Let's assume some non-profit insurance company (maybe one of the new co-ops Conrad is pushing) really tried to offer a low hassle, low cost, high quality insurance package. Word would soon get around to individuals with costly medical problems. They would flock to this better plan and drive up its premiums. Every attempt to cut waste and pass on savings to consumers would be eaten up by more adverse selection.

Bad insurance companies that treated their sicker customers poorly would be the ones reaping the benefits from the good behavior of socially responsible insurance companies. The bad insurance companies with bureaucratic hassles would try to drive all their unprofitable consumers to socially responsible companies. That would leave the bad insurance companies with just high profit, healthy individuals. It is a vicious cycle that would make it nearly impossible for groups to create a large, well-functioning, socially responsible, private health insurance company, even if they wanted to.

Based on my research, none of the bills currently before Congress have robust enough risk adjustment mechanisms and/or the necessary regulations in place to discourage adverse selection. Other "market based" health care systems (Switzerland, Netherlands, Germany) in the world use a much stronger risk adjustment mechanism and have a much tighter definition of what minimum insurance every company must provide.

My worry is not just that without a public option people are unlikely to have the choice of a quality, low-cost health insurance option. I don't just think it is only improbable that insurance companies will choose to act more socially responsible, my real concern is that the new loosely regulated exchange will be a marketplace where it is simply impossible to offer a high quality, low cost, socially responsible, private insurance plan.

It is not just unlikely that current health care reform bills, without a public option, will fail to provide millions of more people with quality affordable private health insurance--I fear such reform will make it impossible to them to get quality affordable health insurance.

1 comment:

online insurance said...

Yep. That's what I'm worried about too - that there will be no affordable, good quality insurance. Not just in the US or Canada but everywhere. Nowadays, I think people are doing a mistake when believing all the stuff on the internet - I mean, too many people are trying to get insurance online but they don't realize it's actually not very convenient. I have even written an article recently about the disadvantages of that. People just shouldn't do it.

Best regards,


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