Insurance Industry Reform Proposal––Little Ado About Nothing

This week the health insurance industry trade association announced that its board had approved a new policy position. The industry has agreed to guarantee the insurability of everyone if the nation passes a health insurance plan that requires everyone is covered.

That’s a no-brainer for the industry to offer and not much of a deal.

If everyone is in the insurance pool—sick and healthy alike—there is no insurability risk for insurers. Pre-existing condition limitations in today’s health insurance policies are necessary because, in our voluntary system of insurance, without them people could just decide to wait until they get sick to buy coverage.

It’s like the old argument that without such limits people could wait to buy their homeowner’s insurance until after the house burned down.

But if everyone is covered there is no reason to have these limits. All the healthy people would begin paying premiums on the same day the sick would have guaranteed access to coverage. It’s an easy quid pro quo.

The industry’s proposal glosses over the real issue—figuring out how to make health insurance affordable so that a mandate that everyone buy coverage is practical and enforceable.

All we need to do is to look to Massachusetts to see how hard this is.

Under the new Mass health law, there was to be a mandate that everyone have health insurance. But Mass was only able to afford to provide subsidies for families making less than about $60,000 a year. With the cost of a family policy—that included a $2,000 deductible—often between $10,000 and $13,000 a year the state had to back off on the mandate. It was simply unrealistic to force most middle-class families to pay such high costs.

See The Connector's monthly premium and affordability chart here.

To enforce an individual mandate to buy health insurance any successful reform program would likely have to cover the 75% of premiums most employer-programs cover in order to make insurance reasonably affordable for most of the middle-class.

So, the health insurance industry is saying that if we cover everyone—and therefore eliminate their underwriting risk—they’d be happy to take 45 million new customers at retail.

How magnanimous!

Non-partisan estimates of the Obama campaign’s health reform plan have concluded that even his program likely wouldn’t cut the number of those uninsured by more than half—similar to the Massachusetts health plan’s success.

Since Senator Kennedy and his allies are getting ready to introduce a plan similar to the Obama health plan, and Massachusetts plan, falling short of universal coverage at least for many years, I can only conclude the health insurance industry’s offer is non-binding.