Budget a Bad Omen for Insuring the Uninsured

As lawmakers prepare for a special session on health care reform and the Governor touts a broad coalition backing universal coverage, the recently enacted budget should serve as a reality check.

Governor Arnold Schwarzenegger and his staff has made clear that any reform package emerging from the special session needs to include an “enforceable” requirement for every Californian to obtain health care coverage. This makes sense. Requiring carriers to issue coverage to all applicants without a corresponding mandate to buy is a formula for disaster. People are logical. If it makes economic sense to simply wait until medical services is needed before buying coverage that’s what they’ll do. Of course, when healthier individuals exit an insurance pool, overall claims increase which leads to higher prices for those remaining. This drives more low cost individuals from the pool and premiums move even higher. Eventually you wind up with New Jersey where the average premium for individual health insurance is 350 percent higher than in California.

So the state’s promise of passing an enforceable mandate to buy coverage along with a mandate for carriers to sell that coverage is critical to the overall health care reform package.

One of the tenants of the California of Health Underwriters’ Healthy Solutions health care reform plan is that the state should demonstrate it can meet its current obligations before making new promises. Unfortunately, to date, the state has failed in this regard. As the Healthy Solutions document notes, as many as a million Californians are eligible for state-run health care programs, yet fail to enroll. According to the California Health Interview Survey, 447,000 children are eligible for, but not enrolled in, state health programs. Healthy Solutions calls on the state to first enroll this group before creating new programs.

It seemed the state was going to do just that. Earlier this year the Governor held a press conference at the Northeast Valley Health Corp clinic in the San Fernando Valley promising additional state funds to support enhanced outreach.  According to the Los Angeles Daily News, the commitment was so firm nonprofit health clinics and local government agencies had already increased staff to bring many of those 447,000 into the state’s Healthy Families and MediCal programs. Yet, as part of the deal to pass a budget, an estimated $66 million was cut, resources which health advocacy groups told the Daily News would have enrolled about 100,000 children during the current fiscal year. The Northeast Valley Health Corp had hired nine people in April for this effort. At least half will now be let go and the others reassigned.

So, here’s what we’re about to witness: Legislative Leaders and the Governor will announce plans to expand eligibility for Healthy Families and MediCal. They’ll promise to enforce a requirement for all Californians to obtain health care coverage and offer premium subsidies to those in households with less than 400 percent of the Federal Poverty Level. At roughly the same time, the Northeast Valley Health Corp will be laying off roughly half of the nine people it hired in April to expand outreach to children and reassigning the rest.

This strikes me as a credibility problem of near Lyndon Johnson-like proportions. As CAHU suggests, the state needs to keep its current promises before making new ones. Yet the budget fiasco of 2007 demonstrates this may be beyond its ability.

At the very least all of this should (but won’t) give advocates of single-payer programs pause. After all, it’s a pretty bad omen when a liberal Legislature and a moderate Governor fail to reach out to 100,000 kids. Imagine what might happen when the pendulum swings to a conservative state government. And the pendulum always swings.

Unintended Consequences and Guarantee Issue

I’ve written a lot in this blog about unintended consequences. Like the law of gravity it is ever present, impacting everything. Simply put the law of unintended consequences is that whatever the intent of any given piece of legislation, among its impact will be things unhoped for. No matter how well intelligent and savvy the authors, no matter what intended consequences result, any piece of legislation will have unanticipated, unwanted and unwelcome results.

Proof that the unintended consequences is a strong force can be found in a report conducted by Milliman, Inc., a respected independent actuarial firm on behalf of America’s Health Insurance Plans, an industry trade group. Putlished in July, the report takes on special significance in light of the health care reform initiatives put forward by Governor Arnold Schwarzenegger, Speaker Fabian Nunez and Senate President Pro Temp Don Perata. (The Impact of Guaranteed Issue and Community Rating Reforms on Individual Insurance Markets).

The study demonstrates that while the goals of reforms which established guarantee issue and community rating were laudable, “they frequently had unintended consequences that disrubted the individual marketplace,” according to Leigh Wachenheim. a Principal and Consulting Actuary at Milliman.

This result shouldn’t surprise anyone. These reforms bring into the insurance system individuals with higher costs than those previously in the pool. This is what is these laws intend to do and, personally, I believe it is a good thing. However, where there’s no offsetting incentive or requirement for lower risk individuals to buy insurance, the result is higher claims than previously experienced. This means rates go up for everyone. This in turn drives some low risk consumers out of the insurance market. Which means further increases are required for what is now an even higher cost pool. This antiselection process leads to substantially higher premiums as only high risk individuals remain in the pool. There’s nothing sinister about this. It’s the way every medical coverage pool works whether it’s for-profit or non-profit, government-run or private.

And it’s what happened in the eight states studied by Milliman. In two of the states, New Hampshire and Kentucky, the results were so negative and severe the guaranteed issue and community rating laws were repealed. A similar dynamic occurred in Washington leading to a significant weakening of its guarantee issue provisions. In other states, carriers fled the individual market where they can and the cost of coverage has skyrocketed. Another impact the study identifies is that the reforms do not appear to be effective in increasing the number insureds in these states.

This report should be required reading for every legislator and the governor, too. Hopefully they will come to the logical conclusion: guarantee issue can have a very positive impact on the market, but only if it is done correctly. This means linking guarantee issue not on the promise of an effective mandate to purchase coverage, but on a mandate to purchase coverage proven to be effective.

That’s why the California Association of Health Underwriters, in its Healthy Solutions health care reform plan, recommends triggering guarantee issue only after 90 percent of California’s population has medical coverage. Until then, CAHU recommends expanding the current state pool for high risk individuals so it can serve as an effective  insurer of last resort. Even after the 90 percent threshhold is met, carriers should be permitted to raise the rates and exclude from coverage pre-existing conditions of the 10 percent who fail to abide by the law. (The length of time these penalties could be applied would be commensurate with the length of time the individual remained outside the insurance system).  

Without an effective mandate to purchase coverage, the guarantee issue provisions being pushed by the Legislative Leadership and the Governor will do more harm than good.  Premiums will increase, carriers will leave the market, and the number of uninsured Californians will remain untouched.  This obvioulsy is not their intent, but it would be the likely result. Afterall, just because consequences aren’t intended, doesn’t mean they’re not foreseeable.

A Special Session AND An Initiative. Oh Joy!

I’ve been predicting that Governor Arnold Schwarzenegger would call a special session to push through a health care reform package for quite some time now. As the Legislature faces adjournment in less than a week, it looks like it’s now become all but a certainty. But it seems the special session is only a prelude. According to an article by Mike Zapler in the San Jose Mercury, the Governor will use the a special session to pass a framework for reform, but make much of it contingent on funding to be enacted by an initiative.  The Mercury reports an aide to the Governor predicting that “Schwarzenegger would assemble the ‘strongest, most robust health care coalition ever put together’ to push for the initiative.”

The aide is probably right. The Governor will be able to muster support among hospitals, insurers, consumer groups, and unions to create a unique and potent coalition. There’d still be opposition, including from some from hospitals, insurers, consumer groups and unions. But the mere fact that these stakeholders would be split on the issue is a huge win for the Governor.

How the split within these interest groups works itself out will depend in large part on how well the framework is designed and what funding mechanisms are included in the initiative. For example, the Democratic majority’s legislation, Assembly Bill 8 (Nunez) gives unprecedented power to the Managed Risk Medical Insurance Board to raise fees on every business in California without considering the impact of the fees on the state’s resources or economy.  If the Governor endorses this approach the framwork will be perceived as hopelessly flawed by a substantial portion of the business community which would otherwise have supported the Governor’s ballot measure.

The nature of the taxes and fees the Governor proposes will also impact the outcome. Broader taxes will be required to raise the billions of dollars required to achieve anything close to universal coverage. Some in the business community support a one-percent increase in the sales tax to raise the necessary funding. Others will argue this is a particularly regressive form of taxation which punishes low income families — albeit this population will no doubt benefit the most from the overall package.

In looking for more narrowly-targeted  taxes, the Adminstration may want to look at the list of potential financing mechanisms proposed by the California Association of Health Underwriters in its Healthy Solutions health care reform plan. CAHU recommends taxing activity which directly impacts health care costs. This includes common targets like smoking and alchohol, but CAHU goes further. It recommends imposing fees on handguns and ammuniation and on unhealthy foods. These would no doubt be controversial, but there’s no denying they target significant drivers of increasing medical expenses. (Full disclosure: I helped draft Healthy Solutions and pushed to have these targeted taxes included).

 What all this means is, the coming week will be devoted mostly to political theater. Act One will be symbolic passage of Democratic reform proposals followed quickly by vetos. Act Two will be the special session. If robust public debate flourishes at this point the result could be a framework for reform which is reasonable and effective. Act Three would be the funding initiative, most likely to be part of the November 2008 ballot.  What’s interesting is, while the script is finally becoming clear, no one is really certain yet if the play is a comedy or a tragedy.

Health Care Reform Compromise: Unsolicited Advice Part I

As noted in my previous post, there’s rumor of a compromise on health care reform swirling around Sacramento. One element of the purported package is to require carriers to accept all applicants regardless of their health condition (something called “guarantee issue”). Assembly Speaker Fabian Nunez and Senate Pro Tem President Don Perata are willing to enact guarantee issue without a corresponding mandate that all Californians buy coverage (a “buyer’s mandate”). This position is shocking in light of the experience of other states that have done something similar. Those states have all experienced substantially higher insurance premiums and an erosion of competition in the marketplace (for example, see this earlier post on the topic).

Meanwhile, the Governor’s staff claims they will agree to legislation only if it includes an “enforceable” buyer’s mandate. Of course, what’s enforceable is open to debate. And while the staff is extremely bright, the fact is that what looks good on paper often disappoints in reality. (For example, only about 75 percent of drivers comply with the “enforceable” mandate to have auto insurance or post a bond.) Nonetheless, the Governor is likely to hold out for guarantee issue with a program aimed at achieving a buyer’s mandate.

No one asked for my opinion, but here’s how to get guarantee issue right: prove the buyer’s mandate is working before implementing guarantee issue.

We already have a program in place to insure the “uninsurable.” It’s called the Major Risk Medical Insurance Plan (“MRMIP”). At times it’s been plagued by long waiting lists. And coverage through MRMIP isn’t cheap. So create subsidies for low- and middle-income Californians. Then implement a buyer’s mandate. If an individual is turned down for coverage, the subsidy can be applied to the MRMIP coverage. At the same time, expand the number of Californians eligible for existing state programs like MediCaid and Healthy Families. And spend the time and creativity necessary to create an effective outreach program for those programs (today as many as one million Californians eligible for the programs fail to enroll). 

These efforts, along with a package of incentives and penalties to encourage enrollment in health insurance, should dramatically increase the number of insured in the state. Once the state can document 90 percent compliance with the buyer’s mandate then carriers should be required to guarantee issue coverage. This means the need for the MRMIP program will go away, freeing up more money for subsidies or other important health programs.

Even after this 90 percent threshold is reached, there will be some folks who fail to meet the requirement to purchase coverage (by defintion, 10 percent, initially). If these individuals are permitted to buy coverage on their way to the doctor’s office or hospital, without a penalty, the result will be higher premiums for those who have played by the rules. So carriers should be permitted to apply pre-existing condition exclusions and premium adjustments for a limited time. The amount of time these penalties, and the amount of the premium adjustment, should be proportional to how long the individual has gone without coverage. If these individuals qualify for a state subsidy they should still receive it.

The guarantee issue and the buyer’s mandate provisions could be approved by the Legislature by a majority vote. The funding for premium subsidies and expansion of MRMIP would be part of the funding intiative. The implementation of the guarantee issue and buyer’s mandate provisions would be contingent on passage of the initiative. In this way, the resources and the legal framework must both be in place before the state can honestly claim to be on the road to true universal coverage.

This proposed compromise isn’t new. It’s actually a part of the California Association of Health Underwriter’s Healthy Solutions health care reform proposal and I first suggested it in a post back in March.

Like all compromises, this version of guarantee issue won’t please everyone. It will be called a cop-out by opponents who think carriers are being let off too easy. However, failing to demonstrate an enforceable buyer’s mandate will only lead to disasters of New York and New Jersey proportions. Other critics will claim the 90 percent threshold is unreachable. Yet nearly 80 percent of Californians are already insured by public or private programs. An effective outreach program could bring a million more people into public programs. Premium subsidies will help millions more obtain coverage. The fact is, the 90 percent target is well within our reach.

This compromise offers lawmakers to go beyond promising universal coverage. It allows them to actually achieve it. To me, that’s a compromise worth making. 

CAHU Launches Effort to Delay Vote on AB 8 Until It’s Fixed

The California Association of Health Underwriters (CAHU) launched Operation Drumbeat yesterday, August 16th. It’s goal is to get key Legislators to urge their Leadership to delay a vote on Assembly Bill 8 (Nunez) until it can be fixed.

The concern is one that I’ve written about in previous posts: that the Legislature will rush through a health care reform bill that will generate many devastating unintended consequences. As currently drafted, the unintended consequences include higher health insurance premiums, more uninsured among the self-employed, higher taxes on businesses and place a damper on the state’s economy. It does some good, too, but on balance, it’s would do more harm than good.

Yet there is tremendous pressure on Legislative Leaders and the Governor to pass a bill quickly (as described in yet another previous post). To counteract this pressure, CAHU is asking its members, their clients, friends and colleagues to contact key legislators, to explain to them how important it is to get health care reform right, and to ask them to put off a vote on AB 8 until it can be thoroughly reviewed, debated and amended. The hope is that it will be amended to something more akin to CAHU’s Healthy Solutions plan.

Why Operatation Drumbeat? Because CAHU will be initiating new messages to these key lawmakers at least once a week until the current legislative session ends on September 14th.

To promote it’s own health care reform package and to facilitate Operation Drumbeat, CAHU launched its a new website yesterday: www.CAHUHealthySolutions.org. (I posted the link yesterday before the site was ready. My apologies to those who visited the site before the links were all in place). 

If you haven’t done so already, I strongly urge you to send your own message to these key legislators. It takes only a fe minutes to use the Operation Drumbeat communication tool, but the impact can be great. After all, everyone in this debate wants to pass the right reforms. If that requires more time, it will be time well spent.

Full Disclosure: As CAHU’s Vice President for Public Affairs, I’m responsible for Operation Drumbeat.

AB 8 and Unintended Consequences: Guarantee Issue

AB 8 requires individual health insurance carriers to accept virtually all applicants for coverage (a practice called “guarantee issue”). Because it empowers the Major Risk Medical Insurance Board (MRMIB) to establish criteria which would divert three-to-five percent of applicants to a high risk pool MRMIB manages, there’s a small safety valve. But it is small indeed — too small to avoid creating dramatically higher premiums and increasing the number of uninsured among self-employed and unemployed Californians.

Health insurance is about spreading risk. Insureds who incur lower than average claims subsidize those who incur higher than average claims. Why? Because the “healthier” group expects their costs to be covered if they’re ever on the subsidized end of the equation.

But if individuals know they can get coverage as soon as they need it, why would they buy it when they’re healthy? A system that incents healthy individuals to forgo coverage, but encourages those incurring heavy expenses to buy insurance is called adverse selection. It can devestate a health care market and AB 8 is a recipe for doing just that.

This isn’t just theory. In Kentucky when a guarantee issue market was created 45 carriers left the market and premiums skyrocketed. Things got so bad Kentucky lawmakers had to reverse their “reforms.” In Maine, guarantee issue, along with other reforms, means only one carrier offers individual coverage.  Significantly, even after the state agency regulating rates approved rate increases totaling 124 percent over six years, the lone carrier left in Maine still loses money in this market segment.

Then there’s New York and New Jersey. As noted in an earlier post, citizens of those states pay, on average, a “health care reform surcharge” of 350 percent. That’s how much more the average annual premiums in those states exceed the average annual premium in California.  Adverse selection will do that.

There’s other ways AB 8’s mandate to sell provision could increase premiums in the individual market. For example, it could result in non-Californians facing surgery or expensive treatment to establish residency in the state just tenuous enough to qualify for coverage. (It appears even opening a California-based post office box might work). Once the treatment is completed, they could “move” back to their home states having paid a fraction of the cost of their care. The majority of their medical expenses would be paid by Californians in the form of higher premiums. And as premiums increase it would make it economically attractive for even more individuals to drop their coverage until they need it, increasing the amount of adverse selection in the system and driving costs up further. The process would repeat in a death spiral that could undermine the entire system.

The problem with AB 8, as it is in Maine, New York and New Jersey, is its creation of a mandate to sell coverage without a corresponding and enforceable requirement that consumers buy coverage.  Guarantee issue, when coupled with mandates to purchase, could go a long way toward achieving universal coverage. This is precisely what Governor Arnold Schwarzenegger proposed and it’s what the California Association of Health Underwriters calls for in their Healthy Solutions plan. Another previous post describes how Healthy Solutions approach to guarantee issue would help mitigate against the adverse selection and higher premiums AB 8 will create.

The proponents of AB 8 are not trying to increase premiums and encourage people to drop their coverage. Unfortunately, as written, the legislation is likely to have that very result. Let’s hope supporters of the bill will slow down and enable the Legislature to reconsider some of its provisions before Californians pay the unintended consequences.

Will Budget Impasse Delay California Health Care Reform?

The California budget for this fiscal year was to have been finalized before July 1st. Senate Republicans are withholding their needed votes, however, until more cuts are made and regulations are changed.  With lawmakers at home for their summer recess until August 20th passage of a budget anytime soon is unlikely. And with the Legislature scheduled to adjourn for the year on September 14th, the window available to pass other legislation is short.

Health care reform, as embodied at the moment in Assembly Bill 8 (Nunez), is just one of several major pieces of legislation held up by the budget impasse. Governor Schwarzenegger has an ambitious proposal concerning California’s water supply while Legislators are passionate about reforming term limits and addressing reapportionment.

So the question is, will the budget fiasco derail passage of health care reform legislation? The Los Angeles Times reports today that, the answer is probably “yes.” Under the headline, “Budget deadlock stalls Schwarzenegger’s agenda” the Times reports, “Everything has been put on the sidelines,” said Senate Leader Don Perata (D-Oakland). “No one would like to have a healthcare bill more than I would. But if we don’t have a budget, nothing else matters.” The article concludes with another quote from Senator Perata, “The only game played in center field here is the budget,” Perata said. “Until the budget is resolved, no one else gets in.”

All this would seem to lead to the conclusion that AB 8 is destined to become a two year bill, right?

I’m not so sure. As I posted earlier, there’s a tremendous amount of political pressure on the Legislative Leadership and the Governor to pass health care reform as soon as possible. Govenor Schwarzenegger wants leverage and visibility in the run-up to the state’s February presidential primary, which means he wants health care reform as soon as possible. The unions, close allies of both Senator Perata and Assembly Speaker Nunez, want health care reform now. Plus Legislators want voters to change the term limit laws on election day in February, and passage of health care reform before then would help cast them in a positive light.

It’s hard, if not impossible, to come up with solid public policy reasons for passing the budget this year. But politics often trumps public policy in capitals across the country. Yet if there’s just a few weeks between passage of the budget and the Legislature’s adjournment, the immutable laws of space-and-time trumps politics, doesn’t they?

Usually. But we have a Governor who has no qualms about making a dramatic gesture. A Governor who relishes acting outside of normal political practice. A Governor, in short, who could easily call for a Special Legislative Session to consider AB 8. As I understand it, all it takes is a stroke of a pen. The press conference is optional, but inevitable.

Calling for a Special Session would emphasize the importance of health care reform to the Governor. And it might be welcomed by Senator Perata and Speaker Nunez as it would enable them to divert attention away from the budget deadlock to substantial public policy. A Special Session would allow both the Governor and the Legislature to achieve their political need of passing health care reform — any health care reform — before the end of the year.

It’s the “any health care reform” that’s the problem. AB 8 needs a lot of work before its anywhere close to ready for implementation. As currently drafted it is likely to cost the state jobs and tax revenue, increase health insurance premiums and the number of uninsured, and devastate an industry that makes up over 15 percent of the state’s economy. Preventing these unintended consequences will require a great deal of discussion, deliberation, hard choices and compromise. In short, AB 8 needs to be a two year bill.

A Special Session might allow for a thoughtful approach to health care reform, but more likely ti will just serve as a forum for political theater. Californians deserve responsible, effective health care reform. There are proposals on the table, like the California Association of Health Underwriter’s Healthy Solutions plan which would deliver on that goal. AB 8 isn’t there yet. The Governor and the Legislature should take the time to get it right. Their constituents deserve no less.

Schwarzenegger Health Care Reform Redlines Lower Income Californians

Several health care reform proposals call for subsidizing insurance premiums for those earning too much to qualify for state programs, but not enough to afford typical premiums. Governor Arnold Schwarzenegger’s health care plan and CAHU’s Healthy Solutions plan are two examples of initiatives taking this approach.

There’s a significant difference between these two plans concerning how these subsidies can be used. Under the Governor’s proposal, those receiving subsidies can only use them to purchase coverage offered through a state-run purchasing pool called an “Exchange.” Under the CAHU reform plan, subsidies can be used in the open market. The distinction is significant.

By redlining subsidized Californians into a state purchasing pool the Governor’s plan limits their choice. The only real beneficiary is the agency running the pool: they’re guaranteed a clientele whether they “earn” it or not.

The CAHU proposal calls for subsidizing health insurance premiums for those earning 400% of the Federal Poverty Level or less. And it gives them the same freedom and choice as their neighbors not earning subsidies.

Imagine a legislator introducing a bill limiting Californians receiving food stamps to use them in a state run grocery store. The outcry from the left and right — and from the Governor’s office — would be loud and swift. What’s the difference here? Maybe the subsidies should be called “health stamps” to make things more clear.

Just because someone needs help paying their premiums doesn’t mean they should be denied the same rights, choices and access to innovation available to everyone else. The Administration’s current course of segregating subsidized individuals into a state run purchasing pool is neither fair nor needed. Redlining is redlining. The state should root out such behavior, not promoting it.  The time has come for the Governor’s team to rethink this part of their health care reform plan.

Universal Coverage Is Not Universal Access

My thanks to Bill Robinson, an agent in the Palm Springs area, for forwarding an article from LATimes.com entitled “Universal healthcare’s dirty little secrets.” Bill is a longtime Health Underwriters leader and a bona fide news hound.

This gem, posted on April 5th, is a column by Michael Tanner and Michael Cannon. Tanner is director of health and welfare studies and Cannon is director of health policy studies at the Cato Institute. It makes a few simple, but important, points for anyone engaged in the health care reform debate. Such as:

“… there’s a big difference between universal coverage and actual access to medical care. Simply saying that people have health insurance is meaningless. Many countries provide universal insurance but deny critical procedures to patients who need them. Britain’s Department of Health reported in 2006 that at any given time, nearly 900,000 Britons are waiting for admission to National Health Service hospitals, and shortages force the cancellation of more than 50,000 operations each year. In Sweden, the wait for heart surgery can be as long as 25 weeks, and the average wait for hip replacement surgery is more than a year. Many of these individuals suffer chronic pain, and judging by the numbers, some will probably die awaiting treatment. In a 2005 ruling of the Canadian Supreme Court, Chief Justice Beverly McLachlin wrote that ‘access to a waiting list is not access to healthcare.'”

The same point was made by Dr. Brian Day. president elect of the Canadian Medical Association, when he spoke at a Los Angeles Association of Health Underwriters conference on March 28th (more on Dr. Day in a future post).

Tanner and Cannon go on to say, “Supporters of universal coverage fear that people without health insurance will be denied the healthcare they need. Of course, all Americans already have access to at least emergency care. Hospitals are legally obligated to provide care regardless of ability to pay, and although physicians do not face the same legal requirements, we do not hear of many who are willing to deny treatment because a patient lacks insurance.”

I don’t agree with everything in the article. For example, they write, “You may think it is self-evident that the uninsured may forgo preventive care or receive a lower quality of care. And yet, in reviewing all the academic literature on the subject, Helen Levy of the University of Michigan’s Economic Research Initiative on the Uninsured, and David Meltzer of the University of Chicago, were unable to establish a “causal relationship” between health insurance and better health. Believe it or not, there is “no evidence,” Levy and Meltzer wrote, that expanding insurance coverage is a cost-effective way to promote health.” I’m sure the study is legitimate, but personally I don’t buy the conclusion. That’s why I support health care reform, like CAHU’s Healthy Solutions plan, which seeks to make health insurance coverage available to all Californians. Still …

“Universal coverage” is the battle cry for many supporting single payer schemes like SB 840 (Keuhl). But there’s simply too much evidence that single payer systems fail in a crucial respect — they deny access to care. Single payer advocates who are more interested in sound public policy than catchy sound bites need to seriously address this issue.

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.