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Commentary

You Can’t Buy Insurance Until Next November


     
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Here’s something that’s really odd. Let’s say at the end of last year there were almost 50 million uninsured people in the United States. Averaging over all the different estimates, let’s say that 5 million of them have now acquired insurance because of ObamaCare. But now it’s April and the open enrollment period is over. That means that 90% of the uninsured are still uninsured and they won’t be able to buy an individual insurance plan until next November.

As AP reporter Connie Cass explains:

With limited exceptions, insurers are refusing to sell to individuals after the enrollment period for HealthCare.gov and the state marketplaces. They will lock out the young and healthy as well as the sick or injured. Those who want to switch plans also are affected. The next wide-open chance to enroll comes in November for coverage in 2015.

The exceptions are generally limited to “qualifying life events”—marriage, loss of a job, etc.

Here is something you may find even more surprising: most of the uninsured don’t even know the market is closed –

A survey by the Kaiser Family Foundation in mid-March found that 6 out of 10 people without insurance weren’t aware of the marketplace deadline on March 31.

If you don’t find all this a bit odd, let’s review the bidding. During the 2008 presidential campaign every Democratic candidate for president from Barack Obama to Hillary Clinton left no doubt about the goal of health reform: It was to achieve universal health insurance coverage. But if that was the original goal of the Affordable Care Act, why would anybody design the system so that 45 million people are precluded from buying insurance for the next six months?

As I explained in Priceless, health care is a complex system that no one fully understands. This much we know, however. When you intervene in ways that create perverse incentives in one part of the system, you are going to get perverse outcomes in other parts of the system.

As we’ve explained before, allowing people to buy health insurance by paying premiums that are unrelated to their health status creates perverse incentives on both sides of the market. Among these are the incentives of buyers to wait until they get sick before they sign up for health insurance. This decision is made even more likely if the penalties are weak, if the enforcement of the penalties is weak and if the penalties don’t even apply to a large swath of the American public.

Limited open enrollment periods are one way insurers limit the impact of this perverse incentive. If people know they can only enroll during a two month period, they are less likely to gamble on going without insurance for the remaining 10 months. Or at least that’s the theory.

By the way, as long as we are talking about oddities and other perversions, here is something else you may find strange: The insurers don’t know anything about the health status of the people who have enrolled in their health plans. Nothing? Nothing. That’s because they weren’t allowed to ask about anyone’s health condition at the point of enrollment.

If that doesn’t knock your socks off, remember that ObamaCare was supposed to usher in a new era in medicine. Instead of patients going to whatever provider they happen to find convenient and providers billing for whatever they happened to do, we are supposed to be in the age of managed care, integrated care, coordinated care, etc.

But how can care be integrated, coordinated and managed if no one knows the health condition of the patient? It can’t. As the Wall Street Journal reports:

To fill in the blanks, insurers are calling, emailing and writing letters to new enrollees, urging them to divulge information about their conditions, prescriptions and even personal habits, often through online forms called health-risk assessments that have long been used in employer-sponsored wellness programs.

Read that last paragraph again if you are tempted to think that ObamaCare is going to usher in a new era of efficiency in health care delivery.

To make matters worse, insurers will soon have to set their premiums for next year. But how can they choose a new premium without estimating what their costs are going to be? And how can they estimate their costs without knowing how sick or how healthy their enrollees are? They can’t.

Paul Krugman and others on the left continue to claim that the Republicans have no alternative to all this. And there is some truth in that. Although I don’t know why. You would think that anyone with the IQ of a turnip would be able to come up with something better.

So let’s start with where we want to be and work backward:

1. If we want to encourage insurance, people should be able to sign up at any time during the year—preferably at any time day or night.

2. If we want people to be in a plan that best meets their health care needs, people should be able to switch plans at any time during the year; i.e., there should be continuous open enrollment.

3. If we want health plans to choose ideal treatment regimens, they must be free to ask health questions at the point of enrollment.

So how do we get all this done in a way that avoids all kinds of perverse incentives? We follow some simple rules.

1. No one is allowed to game the system. If you wait until you get sick to insure, you will be charged an actuarially fair premium so that you are not able to shift costs to others. If you want to upgrade to a richer plan, you have to pay the full actuarial cost of the upgrade. If you downgrade, you get to keep the full actuarial gains from the move.

2. No insurer is allowed to dump its sickest, most costly enrollees on another plan without paying the full cost of the transfer.

The Medicare Advantage market is an example of where we might begin. Seniors pay a community rated premium to the health plan they choose. But Medicare adds to the senior’s premium, topping up the total payment until it reflects the true actuarial value of the insurance—given everything that is known about the enrollee’s health status. This means that plans that attract seniors with multiple conditions get premium payments of $60,000, for example.

But we don’t really need Medicare to do the risk adjustment. The health plans themselves can do it and they are likely to do a much better job if they are free to innovate and experiment and engage in voluntary, consensual transactions.

From time to time, we have called this “health status insurance,” and we are indebted to University of Chicago economist John Cochrane for thinking through the details.


John C. Goodman is a Senior Fellow at the Independent Institute and author of the award-winning and widely acclaimed Institute book, Priceless: Curing the Healthcare Crisis. The Wall Street Journal and the National Journal, among other media, have called him the “Father of Health Savings Accounts.”


  New from John C. Goodman!
PRICELESS: Curing the Healthcare Crisis
To cure the ailments of American healthcare we must get rid of the perverse incentives that raise costs, reduce quality, and make care hard to access. We must allow a free-market price system to emerge, so that the laws of supply and demand will work to the benefit of patients and providers alike.






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