Mandated Missteps

[Welcome Kaiser Blog Watch readers!]

One of the problems with requiring everyone to buy health insurance is that, absent sufficient "teeth" to enforce such a rule, healthy (read: young) folks just aren't that interested in complying. That is, unless the gummint makes it more painful to not buy coverage than to do so, people are more likely to ignore any such requirement.

We saw this in Massachusetts, where folks who failed to play along lost an exemption worth about $200. Compared to potentially thousands of dollars for insurance premiums, who can blame them? Young, healthy people aren't stupid: if you don't hurt them in the wallet, a lot of them are just going to say "the heck with it."

And if, at the same time, the system causes the cost of health insurance to increase, you're going to get even less compliance.

Don't believe me?

"The coverage guarantee is not a new concept. But it has had a troubled history in several states that tried it for people seeking coverage through the insurance market. Some states, such as Kentucky and South Dakota, eventually dropped the guarantee after insurers left. In the few states where guaranteed coverage continues, monthly premiums generally are much higher for younger, healthier people than in nearby states."

But what does that mean?

"[Young people are] very price sensitive. They're healthy. They think they're invincible and getting them to buy coverage is a challenge. If it's expensive, they'll walk away," said Mary Lehnhard, a senior vice president at Blue Cross and Blue Shield Association."

One way to do that, of course, is to punish these "invincibles" who choose to opt out. But of course, these "shirkers" are mobile, as well, so there's every reason to believe that they'll vote with their feet, to a more economically-friendly clime.

But even in those states where this experiment has been tried, the result has been less than, well, optimal:

"South Dakota enacted the guarantee mandate in 1995. By 2001, claims exceeded the premiums collected by $2 million. By 2003, the state was down to only three major insurers; one, American Family Insurance Group, notified state officials that it was about to leave, too."

Ooops.

The solution?

"Within months, the South Dakota Legislature passed a bill that relieved the private insurers of their most costly customers. Those people are still insured, but as part of a high-risk pool. The state pays expenses that are over and above the premiums collected."

Several states use the risk-pool model, where the government acts as a sort of reinsurer for the costliest claims. Of course, the very phrase "the state pays expenses," is a lie: the "state" has no money. Rather, it collects what it needs from its citizens (this is known as a "tax"). So these folks face a double-whammy: higher insurance costs and higher taxes.

Ooops, redux.

On the other hand, and somewhat counter-intuitively, I'm actually in favor of this sort of mechanism. Although it doesn't actually address the real, underlying problem -- increasing health care costs -- it does seem to me to be a more equitable resolution to the challenge of covering more people. If one were to simultaneously shed some of the expensive mandated benefits that abound, one might actually bring health insurance costs down a bit, too.

[Hat Tip: Elizabeth A. Terrell]