The health insurance industry has been under attack for years. There are those who would like to do away with it completely. While those voices have grown louder in recent years their political success has been limited at best. For evidence, just look at the campaign for the Democratic presidential nomination: no major candidate called for a government-run, single-payer system. The two remaining contenders have both explicitly taken such an approach off the table.
Yet there is one aspect of the industry that is under intense attack: the individual market. Again, this isn’t new. In the past, however, most of the attacks have been unfocused or ill-informed. Critics tended to ignore unique aspects of the coverage targeted at individuals and families buying insurance outside of work: it’s a voluntary decision. To maintain affordable premiums carriers must weed out potential buyers who are certain to incur substantial claims.
For example, carriers will often reject an applicant who is a regular user of a particular prescription drug. This strikes many as wrong, if not immoral. Just because someone needs a certain medication is no reason to deny them insurance.
Yet, when the monthly prescription costs exceeds the monthly premium, what else can the carrier do? Insurance is about spreading risk. In a voluntary market where people can choose when to purchase coverage, it means they need to buy insurance before their known risks exceeds the premium. Otherwise, they are simply asking other consumers to subsidize them. This dynamic, known as adverse selection, is at the root of much of the problems facing the individual market.
It’s not the only cause, however. Carriers exacerbated the problem by mishandling their approach to managing adverse selection. The most obvious mistakes involved how rescissions were handled. Even the industry’s most ardent foes admit carriers need to protect themselves from fraud. If an applicant knowingly and intentionally lies about material information on an application for coverage, the carrier should have the right to revoke the coverage.
It’s identifying when the misstatements are knowingly and intentionally that creates a gray area. Carriers chose to be aggressive in applying their right to rescind coverage. Now they’re paying a huge cost for this posture in the form of large fines, law suits and horrendous publicity.
The rescission issue is the hammer being used by lawmakers, regulators and pundits interested in reshaping the individual health insurance market. That their proposals would be more likely to do more harm (in the form of higher prices and less consumer choice) than good seems almost beside the point. They want change. They want it now.
While their changes are often off target their goal may not be. Perhaps the attack on the this market segment is what’s needed to prod the industry to reform itself. Perhaps it’s the motivation needed to reinvent the individual health insurance market, to make it stronger, more valuable and more respected than in the past.
I’ll be writing about the opportunities for reinvigorating the individual market over the next several days. I hope you’ll share your ideas, too. Please post your thoughts on ways to reinvent individual health insurance products, the way they’re sold, administered and used. By the end of this dialogue we’ll at the very least have built a list of alternatives to some of the misguided proposals currently being considered in Sacramento, Washington D.C. and elsewhere. At best, someone who can actually implement the changes may be inspired by your thoughts and meaningful change will follow.