This weekend, the New York Times reported that healthcare leaders and politicians have been meeting for months to build consensus toward a point of agreement in healthcare reform: a requirement that every American carry health insurance. Will this work? Time will tell. Until then, we offer this interview about potential pitfalls in guaranteed issue as a cautionary tale. The success of any coverage requirement may depend on those who least want coverage.
We asked Milliman Principal Jim O’Connor to provide some perspective on this issue.
Q: Guaranteed issue can lead to adverse selection. Why is this?
Jim O’Connor: It’s human nature for people to seek out the best deal they can get. People who are young and healthy typically haven’t used the healthcare system much and are less inclined to seek health insurance coverage, whereas people who are less healthy are more likely to seek out insurance. Unless there’s some kind of screening of health insurance applications and a preexisting condition limitation, people tend to wait until they become sick before actually seeking health insurance. A purely guaranteed issue market, without certain controls, will be selected against because it will attract the sickest—and most expensive—people without attracting healthier—less expensive—populations. This results in adverse selection and spiraling health insurance costs.