What to Expect from the Health Insurance Exchanges

This is from a study by Anthony T. Lo Sasso (University of Illinois at Chicago):

  • Community rating prohibits differential premiums based on health status, effectively lowering premiums for individuals in poorer health and increasing them for healthier individuals.
  • Guaranteed issue allows people to purchase coverage when they get sick, decreasing the need to maintain insurance coverage.
  • Healthy individuals respond by dropping coverage and entering the market only when they need coverage, thus the pool of enrollees becomes increasingly older and sicker.
  • This adverse selection pushes premiums for all remaining enrollees higher, provoking further departures by those at the healthier end of the spectrum.
  • Premiums increase again to reflect the ever-worsening risk pool of enrollees.

The cycles continue, further destabilizing the market and potentially leading to complete market collapse.

Comments (11)

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  1. Brian Williams. says:

    I think this is what they call a Death Spiral…

  2. Devon Herrick says:

    The premiums in the Exchange are limited to a percent of income based on a sliding scale. As a result, the adverse selection death spiral Brian refers to could also be used to describe the economy suffering under the tax burden of skyrocketing taxpayer subsidies.

  3. Greg says:

    Death spirals are inevitable.

  4. Bruce says:

    This is Econ 101. When the prices are wrong for every buyer and every seller, everyone will face perverse incentives.

  5. Phil says:

    Perverse incentives = perverse outcomes.

  6. Erik says:

    An annual enrollment period would solve the adverse selection issue. If your healthy and don’t enroll during open enrollment, you’re on your own (no subsidies) if you get sick or injured.

    Oddly enough, I did not see this as a recommendation in Mr. Lo Sasso’s article. Why is that?

    I always find it misleading to only offer criticism devoid of solutions.

    I would suggest Mr. Lo Sasso throw away his crystal ball, it is cracked.

  7. Linda Gorman says:

    Open enrollment periods create an unnecessary burden by making it impossible to adjust for changing circumstances as they happen.

    Why is it that people who dislike markets respond to the problems caused by their intervention in them by proposing more and more regulation to fix the problem?

    If you want to subsidize people with some set of pre-existing conditions just given them cash for heaven’s sake.

  8. Erik says:

    Open enrollments create a backstop for people who will attempt to “Game” the system by only enrolling into an insurance pool once they become sick thus create an adverse selection death spiral for insurance companies (Medicare has an annual open enrollment period).

    Insurance pools need more healthy bodies than sick or the pyramid scheme fails as is happening now due to the recession. More healthy people are dropping insurance due to cost while those with chronic conditions maintain their coverage creating a gap between premium and outlays.

    There are always “qualifying events” which would enable you to amend your eligibility which could be expanded to include economic factors.

    This will keep insurance markets viable and place the burden of fiscal responsibility on the individual where it should be.

  9. Linda Gorman says:

    A “qualifying events” exception to the open enrollment controls supposedly needed to stabilize an insurance system destabilized by guaranteed issue requirements means that a normal person who wants to change his insurance because his financial circumstances have altered has to sit around and play mother-may-I with a bunch of bureaucrats.

    The only reason he has to do use part of his life to do this is because someone else has to patch up a problem that was created because the people messing with health insurance system wanted to disguise the subsidies needed for coverage for pre-existing conditions.

    People who claim that all of this meddling is justified by the need to force individuals to take responsibility for their health care ignore the fact that the majority of Americans do in fact pay for their own care with no government assistance.

    The meddlers refuse to adopt a much simpler alternative that rewards people for being responsible and makes subsidies crystal clear–they could adopt the food stamp model.

    Leave people alone. Let them pay for health care as they see fit. If someone can’t pay, or for some reason is judged to deserve a subsidy, give him restricted cash at whatever level the political systems deems appropriate.

    The food stamp program does not seek to nationalize agriculture in the name of getting everyone to be responsible and pay for their own food. It is unfortunate that government health care policy is not as sensible.

  10. Erik says:

    Open enrollments and qualifying events is how the insurance market works today.

    By the way what’s a normal person?

  11. Saad says:

    , if you do not have a green card, or a social seciurty number, I don’t know how that works but I KNOW you cannot be denied medical care. ( I actually called this morning to my local SS department here in MD haven’t gotten a call back yet but I will EDIT once I do. My husband is in the Coast Guard and I will also ask him once I get a hold of him) If you do not qualify for medical assistance, you can/ go to any prenatal clinic in your area. They charge on a Sliding Scale which is a % of what you can afford. Parkland Memorial Hospital there in Texas has MANY clinics also!! It is important for you (and your baby) to get prenatal care. Regardless of how well you take care of yourself and even if you take OTC, over the counter, prenatal vitamins, only a DR can predict if something is going wrong by the tests they preform. Many things can be prevented if caught early!BEST of luck to you!! If you can afford private insurance, I suggest you GoogleEDIT: I called the local SS Depth here in my area and they informed me That HERE, if applied for, only the birth and hospital stay would be covered. It would not cover prenatal care. It varies from state to state and from county to county.Call your local SS and ask;)