Why Small Bore Healthcare Reform Doesn't Work

| Sun Feb. 21, 2010 12:59 PM EST

Everyone — Democrats, Republicans, tea partiers, you name it — is supposedly in favor of banning insurance companies from turning down people with preexisting conditions. When you ask about small, bipartisan changes we could make in the healthcare arena, this is one of the proposals that gets hauled out most frequently.

Now, the reason you can't implement this except as part of a larger reform effort is pretty obvious. I've written about it numerous times, including here and here. But just in case you need a case study to convince your friends, the LA Times writes today about New York state's experiment with guaranteed issue:

The state has become a victim of a dangerous dynamic in insurance markets. Laws allowing consumers to buy insurance at any time often saddle companies with a lot of high-cost customers. That in turn drives up premiums, pushing away younger, healthier people who are vital to a functioning insurance system.

"You basically can't have a functioning insurance market if people can buy insurance on the way to the hospital," said Mark Hall, a Wake Forest University economist who studied New York's experience.

....[In 1992] state lawmakers approved the "guaranteed issue" provision, which prohibited insurance companies from denying coverage to customers, even those with preexisting conditions. Such rules became popular in the early 1990s, as states including New Jersey and Washington contended with insurance companies that were denying coverage to people with preexisting health problems.

New York went further, becoming the first state to also include a "pure community rating" requirement that prohibited insurers from varying premiums based on customers' age or health, another common industry practice. Three years later, the state required all HMOs to offer a comprehensive, standardized package of benefits.

The law allowed consumers to buy insurance after they became sick with only a relatively short waiting period. They could also drop it when they no longer needed it. The New York insurance market did not collapse, as some insurers had warned. But in the ensuing years, more older and sicker New Yorkers bought individual health plans. And premiums shot upward.

Well, yes. If the only people who buy coverage are ones who know their claims will be higher than their premiums, insurance companies are toast. They'll just keep raising their prices in an endless spiral to keep up with their losses. The only answer is to mandate that everyone be covered all the time so that insurance companies have a reasonable pool of customers to balance out their gains and losses. And then provide subsidies to low-income families that can't afford the coverage they're legally required to have. And then put in a funding source to pay for the subsidies.

What a great idea that would be! And just think: Both the House and the Senate have already approved bills that would do exactly this. All they have to do now is reconcile a few modest differences and pass them. So what's stopping them?

POSTSCRIPT: On another healthcare note, I wrote a post two days ago saying that I didn't remember ever seeing the mainstream press explain the endlessly repeated Republican proposal to allow insurance policies to be purchased across state lines. Well, David Adesnik found one. It was on page 20 of last Sunday's New York Times. You can read it here.