March 27, 2007

One pool

Lisa Girion peels back another layer of the health insurance industry onion in this piece in the Los Angeles Times. It's about the slow demise of association health plans, which used to be a safe haven for the self-employed and small business owners, from lawyers to real estate brokers. Increasingly, Girion reports, these folks are losing their coverage as health plans cherry pick the least risky cases and leave the association groups with those most likely to get sick, or those already sick. That drives rates up for the group, drives more (relatively) healthy people out of the plan, and the pattern repeats itself in a "death spiral."

Free-market advocates will note that Girion mentions in passing that some of this is due to laws that required association plans to offer coverage to anyone who applied. By preventing the insurance companies from excluding tough cases, this practice means the group will be left with higher and higher rates as people who can leave flee for cheaper plans. Without those laws, we'd still have a problem but it would be different: the healthy people would all be in the association plan while the sick would be denied coverage and left on their own. Either way, the result is similar.

One caveat: most of the anecdotes in the story are rather dated. She does not provide overwhelming evidence, except in the case of the real estate people, that this trend is accelerating. Still, it does appear that the health insurance industry is innovating itself out of a job, at least when it comes to helping people share risk. If they are only going to insure people who are least likely to need insurance, they are not going to be around for much longer. Health care is becoming like floods and earthquakes, where the risky cases are so plain that no private insurer will offer coverage. In those cases, the government stepped in and performed the pooling function. People at least have coverage if they need it or want it. Those programs, by offering coverage for building in risky areas, send a poor signal to potential homeowners. But health care, for the most part, is not like building in floodplain or on an earthquake fault.

As the Bee said in its editorial the other day, it appears that the government is going to have to step in and provide a pooling mechanism so that everyone can share the risk of needing expensive health care. Requre everyone to have coverage, require insurers to cover everyone who applies, and give a break to the working poor. Maybe create a state-run pool as an alternative to the private insurers. That's where we are headed, I think.

Posted by dweintraub on March 27, 2007 9:20 AM