The most interesting thing I heard in Anthem-Blue Cross’ testimony Tuesday wasn’t the 39 percent rate increase the company wants to impose on some customers. Or the 700 claims handling violations over the past three years alleged by the insurance commissioner. It was the 25,000 customers that the firm says it has lost from its individual insurance line in California over the past year.
Maybe some of those people left because of the way the firm handles its claims. But chances are most dropped their coverage because of rising prices and the tough economy. And the company says many of them were the kind of young, healthy people who are crucial to keeping the risk pool broad. In other words, by buying insurance and then not using it, they subsidize the care of other people who get sick or injured. When they leave the pool, higher costs have to be spread among fewer people. Thus, rate hikes.
Ironically, this is the biggest risk in the kind of health reform that was proposed in California in 2007 and is now on the table in Washington, D.C. By requiring insurers to cover all comers, without regard to pre-existing conditions, the government would be creating a disincentive for people to buy coverage while they are healthy.
Why bother, if you can easily get it as soon as you are sick? But if only sick people bought insurance, the costs would skyrocket. It is like letting people buy homeowner’s insurance while their house is on fire.
One way around this is to require everyone to buy coverage, the so-called “individual mandate.” California’s proposed plan had a fairly robust version of this rule. There was talk of including it in the national reform plan. But politicians of all stripes are reluctant to go there. Liberals don’t want to require people to pay money to the same industry they are repeatedly bashing in their speeches. Conservatives don’t want to require people to do anything, including buy a private company’s product. So the mandate gets watered down, its enforcement weakened.
The result could be a repeat of the what we are seeing now with Anthem Blue Cross: Rising costs as more sick people enter the insurance pool. And healthy people, especially young people, leaving the pool because they can no longer afford the premiums. This would force even more premium increases. We’ve already seen that happen in other states that have tried to impose these kinds of requirements on insurers.
I have yet to hear a good explanation for how this scenario would be avoided under the kind of hybrid design most likely to emerge from the debate now underway in Congress.