All through the health care reform process, I noted that there are four pillars upon which the attempted reform stands:  guaranteed issue, community rating, individual mandate, and subsidies.  Take any of them away, and the whole thing falls apart.  If you don't have the mandate, guaranteed issue and community rating will result in the kind of cost spiral we've seen in New York, where only the very sick bother to buy insurance.  If you don't have the subsidies and the guaranteed issue, people can't comply with the mandate.

That's the logic behind the Massachusetts plan as well.  But what Massachusetts seems to be illustrating is that it's not enough to have a mandate; unless the penalty costs at least as much as buying insurance, people will game the system by dropping coverage, and then buying it when they need something done.

The number of people engaging in this phenomenon -- dumping their coverage within six months -- jumped from 3,508 in 2006, when the law was passed, to 17,177 in 2008, the most recent year for which data are available.

"We believe [Murray's] fixes could effectively address the gaming in the system -- which we believe is adding as much as $300 million dollars to the health care system in Massachusetts'' each year, said Tara Murray, spokeswoman for Blue Cross Blue Shield of Massachusetts, the state's largest insurer.

This has bad implications for the nation, since in many ways the mandate in our new program is weaker than that in Massachusetts.  It's not clear whether the proposed fix--open enrollment--will actually solve the problem; there are ways to game that, and not every expensive medical procudure is the result of an acute emergent condition.

Austin Frakt argues that really, it's not so bad:

What isn't clear is how big a problem this really is. Massachusetts has about 6.6 million residents, of which roughly 6.4 million are insured. So, the number gaming the system is less than one-third of one percent of the insured. They'd have to account for over three times the average health care costs in order to raise average premiums by one percent.

The Globe article says the gaming problem is a $300 million issue or $47 per insured individual. Since a typical insurance premium is in the $5,000 range for an individual, this is not far off from a one percent increase. So, my thinking in the prior paragraph may not be far off.

I'm not suggesting we should ignore this issue because it results in a small increase in premiums. We should pay attention because it's the best prediction we have of what may occur nationally. But if one throws in enrollment period limitations maybe it largely goes away. We shall see.

Open enrollment may fix it, as he says.  But if it doesn't, this doesn't seem like a small problem to me.  1% of health care costs is not a small increase.  Moreover, there's no particular reason to think that it will remain at 1%.  These sorts of regulatory responses to not emerge full-blown from the head of Zeus on the day that the regulation is passed; rather, the problem mounts over time.  People figure out that they can do it--and then they pass the tip on to other people. 

The more people you know who are gaming the system, the more likely you are to engage in the behavior itself, both because it becomes more socially acceptable, and because humans are herd animals--when we see a bunch of people taking a risk and getting away with it, the behavior seems safer.  And the fact is that going without insurance is, for most people, a pretty safe bet--most people will not get sick most months, especially if they're young.  Unless you happen to come across a rare instance where someone gets expensively ill when it's five months to go before open enrollment, you're likely to get the message that this is a good idea.

So while it's possible that the new rules will fix the problem, it's also possible that the problem will get a lot worse.  Obviously, I wasn't so hot on the new program before, but watching the desperate, flailing attempts to patch a Massachusetts system that's only a few years old is making me even less excited about 2014.





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