Needed: A Real Market For Health Insurance

The oral arguments over ObamaCare have concluded at the Supreme Court, but they continue in the media with defenders of the unpopular law trying to patch together responses that they complain the government’s attorneys couldn’t muster in the courtroom.

The latest example: A software technology executive penned an op-ed for The Washington Post claiming that there is no market for private health insurance and that it’s almost impossible for people to buy insurance on their own.

“Basically, expect to be denied” health insurance if you try to buy coverage in the individual market, says Donna Dubinsky, chief executive of Numenta. She says that the market for individual health insurance is so dysfunctional that you will be rejected “if you have asthma, if you take just about any prescription medication, if you are more than 15 percent overweight.”

She is trying to convince the court that Congress was right to mandate that everyone must buy insurance so the “market” can work. But the problem is that Ms. Dubinsky’s facts are wrong.

A comprehensive 2009 industry survey found that an average of 87 percent of those who completed the process of applying for health insurance in the individual market were offered policies. Ninety percent of young people age 18-24 were offered policies as were more than 70 percent of those age 60 to 64. The survey was conducted by America’s Health Insurance Plans with information on 2.6 million policies covering 4.2 million people purchasing health insurance in the individual market.

In contrast, Dubinsky cites a study by the Government Accountability Office that showed for the first quarter of 2010, 19 percent of people were denied coverage. But the GAO study had no way to tell if someone may have been denied or stopped the application process with one company only to receive a policy offer from another.

The issue of mandated health insurance is at the center of arguments before the Supreme Court over the constitutionality of the government requiring almost everyone to have government-approved policies.

Indeed, the health insurance market does not function as well as it could, but it is most dysfunctional in those states that have adopted insurance “reforms” included in ObamaCare.

For example, New Jersey adopted changes that require health insurance companies to sell to all comers (“guaranteed issue”) and to equalize the premiums they charge (“community rating”) so older, sicker people pay less and younger, healthier people pay more for insurance.

The result, according to an article by Joe Antos of the American Enterprise Institute: Premiums in New Jersey have soared to $34,128 for an individual and $77,212 for a family! The number of people in the market for the policies has, not surprisingly, plummeted.

Contrast this with premium prices in the AHIP study averaging $2,606 a year in Iowa, where the health insurance market is much more lightly regulated and more competitive.

Ms. Dubinsky apparently believes that the solution to a dysfunctional, overly-regulated market for health insurance is even more onerous and distorting regulation.

But if we are to move toward a truly competitive market for health insurance, we must produce policy solutions that will help expand access to health insurance that provides a platform for true competition, allowing people to shop for health insurance that is portable and affordable. Otherwise, the country will face a market like New Jersey’s that spirals down on itself with only the sickest and most expensive people paying extraordinarily high prices for policies.

There is plenty of money in the system now that could be more sensibly used to help millions more people obtain coverage. The key is the financing of health insurance. People who are uninsured most often make too much to qualify for public programs like Medicaid and the Children’s Health Insurance Program and don’t have the good, higher-paying jobs that come with health insurance.

We could start by providing help for those who are uninsured at the lower-end of the income scale – whether through refundable tax credits or another form of monetary assistance. And states could be provided incentives to open up their markets to more competition and less regulation in exchange for federal help in funding high-risk pools so people with pre-existing conditions can be assured coverage.

The core to a functional market is to allow choice and competition so people, not government bureaucrats, decide what kind of coverage works for them.

If we do not address the financing issue, the next battle may be over a direct, full-fledged single-payer system.

Posted on Real Clear Markets, April 20, 2012.

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