The End Of Insurance As We Know It

James Surowiecki argues that health insurance reform makes insurers unnecessary:

Congress’s support for community rating and universal access doesn’t fit well with its insistence that health-care reform must rely on private insurance companies. After all, measuring risk, and setting prices accordingly, is the raison d’�tre of a health-insurance company.

The way individual insurance works now, risk and price are linked. If you’re a triathlete with no history of cancer in your family, you’re a reasonably good risk, and so you can get an affordable policy that will protect you against unforeseen disaster; if you’re overweight with high blood pressure and a history of heart problems, your risk of becoming seriously ill is substantial, and therefore private insurers will either charge you high premiums or not offer you coverage at all. This kind of risk evaluationwhat’s called “medical underwriting”is fundamental to the insurance business. But it is precisely what all the new reform plans will ban. Congress is effectively making private insurers unnecessary, yet continuing to insist that we can’t do without them.

Drum agrees:

My take is that community rating at the national level can eventually lead to only two outcomes: (a) the end of private health insurance completely or (b) the transformation of private insurers into regulated public utilities. Roughly speaking, Option A is what you see in Canada or Sweden, Option B is what you see in Germany and the Netherlands. I'd prefer the former, but the regulated utility model works OK too, and it's hard to see how you avoid one or the other in the long run.

E.D. Kain has further thoughts.