In Massachusetts, the Health Insurance Game Adds More Players

How effective is the individual mandate to purchase health
insurance in Massachusetts? For years, defenders of the plan have
touted its effectiveness—both at getting individuals to buy into
the system and at reducing the potential for gaming that comes when
you require insurers to offer equally priced plans to everyone
regardless of preexisting conditions. But a new report indicates
that more and more people are ignoring the requirement and gaming
the system instead—and causing the state’s already sky-high premium
prices to rise as a result. From
yesterday’s Boston Globe:

The number of people who appear to be gaming the state’s health
insurance system by purchasing coverage only when they are sick
quadrupled from 2006 to 2008, according to a long-awaited report
released yesterday from the Massachusetts Division of
Insurance.

The result is that insured residents of Massachusetts wind up
paying more for health care, according to the report.

“The active members subsidize some of the costs tied to those
individuals who terminate within one year,’’ the report says.

One insurer quoted in the article believes that this behavior
adds $300 million a year in costs to the system. And, as the report
explains, those costs are passed on to everyone who follows the
rules.

Right now, it’s only a problem for Massachusetts. But soon
enough, it’s likely to become a problem for the rest of us.
Starting in 2014, the same combination—rules for insurers and a
purchase requirement for individuals—will be in place nationally.
And as Cato’s Michael Cannon
points out, the penalties for non-compliance with the mandate
in the federal health care overhaul are even weaker than the
penalties in Massachusetts. That creates the potential for a lot
more gaming, and far greater added costs to the system—and everyone
in it.

The governor’s office in Massachusetts says it’s working to make
rapidly hopping on and off of insurance plans more difficult. But
as
I’ve argued before, the rule changes Gov. Deval Patrick
supports still leave substantial opportunities for determined
individuals to take advantage of the system. More to the point,
small regulatory changes are probably the wrong approach. The
easiest way to fix the system is not tweaking the existing rules by
adjusting the number of times an individual can move on or off the
system in a given year. It's getting rid of the individual mandate
and the insurance regulations entirely. After all, it’s
tough to game the system if there’s no game to play.

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