Big trouble if younger, healthier people don’t enroll for health insurance . . . you pay more! To encourage enrollment communicate, communicate, communicate

2013

One of the greatest risks for the new health insurance exchanges (and for employer plans offering a choice among health plans) is adverse selection. That is, people who are high users of health care are likely to buy the best coverage and those who feel invisible will forego insurance or take the least generous coverage. This risk is very real; people act in what they perceive as their best interest … even when they are wrong.

Dr Ezekiel Emanuel has a good op-Ed in the WSJ on this subject pointing out the risk and correctly noting that to the extent this adverse selection occurs, premiums will rise for everyone, including the government in the form of higher subsidizes. This may start a high cost cycle as the higher premiums go, the fewer healthier people will buy coverage. The fact is health insurance or any insurance for that matter, needs people who pay premiums, but have no claims … that’s why it’s insurance, a group pooling resources to protect against substantial financial risk . . . for a relatively few .

To illustrate this problem, consider the cost and tax credit offered through the exchanges for a 27-year-old with income of $35,000 a year. The estimated annual premium for silver level coverage (one up from the lowest level) is $3018.00 per year. There is no subside in this case because income is 300% of the poverty level. So, if you are healthy, have incurred few, if any medical expenses in the last several years and don’t expect to, do you spend the $3,000 or pay the penalty for not carrying health insurance.? That fee in 2014 is $95.00, or 1% of income if greater, in 2015 $325 or 2% of income if greater, and in 2016 $695 or 2.5% of income if greater.. NOTE: Under the Law certain people based on their income are not subject to the mandate to carry insurance and therefore not subject to the penalty for not doing so thereby adding to the adverse selection problem.

In his plea for strong and ongoing communication to educate individuals about carrying health insurance, Dr Emanuel notes that part of the message should be personal responsibility to carry coverage because of the adverse affects of not doing so will have on others. He may be right, but that’s a hard sell, because that adverse affect has been with us for years. The picture may change somewhat for individuals who receive a hefty tax credit to carry coverage, but as in our example above, if the decision is purely financial, doing the right thing may not be a strong incentive to carry coverage.