Health Care Reform in Transition: Incremental Insurance Reform Without an Individual Mandate

Abstract

A major access problem exists in the private insurance market for individuals with preexisting conditions, who are either denied coverage or charged exorbitant premiums. In effect, individuals are denied coverage for exactly what they need, which jeopardizes their health and the financial security of their family. Before health reform passed, discussions surrounding incremental reform took place, including perhaps the most politically compelling – prohibiting insurers from denying coverage to those with preexisting health conditions. Insurance is based upon the principles of spreading risk of individuals across a population to ensure that everyone can afford medical care when he or she needs it. However, risk pools are functional only if they include enough healthy individuals to keep overall health care expenditures lower than premium costs so that high-cost individuals will be covered. Although providing access to health care for all is vital, in practice requiring insurers to accept more high cost individuals without adding more healthy individuals to the pool could result in adverse selection, increase costs, and a potential financial death spiral. If there are no incentives or mandates for individuals who are healthy to purchase insurance, risk pools become even more expensive and result in even more adverse selection and malfunctioning markets. A mandate to purchase insurance counteracts adverse selection by bringing more healthy individuals into the risk pool, thereby decreasing premiums. Moreover, mandates decrease the number of uninsured, lessening cost-shifting due to uncompensated care. A tax penalty would be levied on individuals who do not have qualifying insurance. Of course, adequate subsidies must also be provided for poor individuals and families to help purchase insurance. But while many support covering those with preexisting conditions, support for a mandate is still contentious, even after the health reform law, which includes a mandate. Conservatives frame the mandate in terms of personal freedom, compulsory contracts, and transfer of money to a private party. In actuality, mandates combined with prohibition of excluding those with preexisting conditions would prevent insurers from engaging in opportunistic marketing practices. The goals of health reform are to increase access to quality affordable care, while reining in costs. But preexisting condition coverage without an individual mandate may ultimately lead to insurance that is less affordable for everyone and make access problems even worse