Gaming State-Run Health Insurance in Massachusetts

I hope you don't mind if I'm a little lazy this morning and simply point you to a post by the CEO of Harvard Pilgrim Healthcare, which addresses an issue which I do not believe we have covered in our analyzes of Massachusetts. (I was directed to it by Bob Laszewski's blog.)

Critical examination of Massachusetts' experience with a government-run health-care "market" (e.g. Connector) are prevalent in this blog. Recent analyzes from the consumer-directed reform camp, by Grace-Marie Turner & Tara Persico, as well as Michael Tanner have focused on the budget-busting increases in costs and the absence of incentives for patients to use medical services appropriately (although Mr. Tanner does allude to adverse selection, the topic of this post).

Mr. Baker of Harvard Pilgrim points out that merging the small-group and individual markets, as the Connector does, creates an incentive for individuals to game the system by only buying health insurance when they become sick. Before the "reform", Massachusetts imposed guaranteed issue and community rating on the individual market, so people were already motivated to wait until they became sick to buy health insurance. (This is a key reason why the Bay State ranks so poorly in the U.S. Index of Health Ownership.)

However, this adverse selection was minimized because state law allowed insurers to exclude pre-existing conditions for up to six months. Under the Connector, which merges the small-group and individual markets, it would have to do the same for the much larger small-group market alongside the individual market.

Follow me so far?

Insurers were unwilling to do this in the small-group market, so they had to remove the exclusion in the individual market. The tax for not obeying the mandate to have health insurance is about $900 annually, or $75 monthly), which people are content to pay if they know they can wait until they get sick and get individual coverage through the Connector with no exclusion for pre-existing conditions.

Result? Death spiral! Mr. Baker reports that Harvard Pilgrim's individual policies written since the "reform" only last five months, and the premiums are ramping up fast.
What will the state do? Well, I suspect it will do what all government's do when their policies fail: impose more government.