Require Carriers to Sell Coverage to All Who Apply. But Do It Wisely, Please.

 A lot of health care reform proposals require health insurance carriers to accept all applicants, regardless of their current health condition (a practice known as “guarantee issue”). Some would even allow folks to sign up for coverage while they’re in the hospital waiting room. This makes no sense.

Insurance is about spreading risk among a large population. If people could wait to buy auto insurance until after they’ve had an accident, how many would buy coverage before a crash? No one. Which is why, if not done right, guarantee issue leads to something called “adverse selection.” Just ask the residents of New York and New Jersey.

Several health care reform proposals include guarantee issue provisions. Governor Arnold Schwarzenegger’s plan is one of them. But at least he calls for a mandate to buy coverage, too.

The problem is mandates to buy don’t work all that well. In California, 25% of drivers fail to buy required auto insurance. Other states with mandatory auto insurance laws experience roughly the same levels of non-compliance (give or take 5%). That’s why you can still buy uninsured motorist covered in most of these states. But when it comes to health insurance, achieving only 75% compliance in a guarantee issue environment would lead to disaster (again, see New York and New Jersey).

So the key is to first prove that the mandate to buy is working before requiring a mandate to sell. That’s what CAHU’s Healthy Solutions health care reform plan does. And in tomorrow’s post I’ll describe how.