Sunday, February 21, 2010

Avoiding insurance death spirals

Spurred by heart-wrenching stories of sick people denied health coverage, the state of New York did what many of President Obama's critics say he should do now -- it passed a relatively simple law requiring insurers to accept all applicants. ...

Premiums in New York are now the highest in the nation by some measures, with individual health coverage costing about $9,000 a year on average. And nearly one in seven New Yorkers still lacks health coverage, a greater proportion than before the law was passed.

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. ...

"We are sort of a case study of what not to do," said Mark Scherzer, a consumer attorney who helped lead the fight for New York's changes in the early 1990s and is now counsel to New Yorkers for Accessible Health Coverage. ...

Since 2001, the average premiums for a health plan on the individual market in New York has nearly tripled, according to the state Insurance Department. ... Although New York has higher medical costs than many states, its premiums still outpace other high-cost states.
--Noam Levey, LA Times, on why you can't have guaranteed-issue insurance without a purchase mandate. HT: Alex Tsai

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