Archive for December, 2013

What’s the Big Deal with the Individual Mandate?

December 4, 2013

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Earlier this year, Health & Human Services announced the delay of the “Play or Pay Mandate” which established a penalty for large employers that did not offer qualified and affordable health insurance plans to their employees. Since that time many have wondered why the individual mandate was not also delayed. As it stands now, those who do not acquire health insurance coverage in 2014 will be subject to a tax penalty at the conclusion of the year.

The simple logic of the situation would ask: If the big companies don’t have to pay a penalty, why should the individual citizens have to pay the price?

This question came to light during the big government shutdown in September (what fun!). I wondered myself; if all the major mandates are still going into effect in 2014, such as guarantee issue of coverage, no pre-existing condition exclusions, essential benefits, rate approvals and on and on, then why the tight grip on the individual penalty? Why can’t the government loosen its clinched fist for a year, like they did for big business? The system would still be guaranteed, accessible and affordable as promised.

The answer most likely lies in the “Death Spiral” theory being predicted by actuaries. The concept of the death spiral predicts that claims for the insured population will increase faster than the premiums they are being charged. This will force premiums to increase faster than usual causing healthy members to leave the plans as they become unaffordable. As healthy members leave, loss ratios will soar, forcing premiums to go even higher. Each time the premium reaches a new peak, the carriers will lose another class of healthy members. The spiraling effect breaks down the system.

Now let’s consider that individual mandate. If everyone is required to have health insurance next year, there will be a good amount of healthy people in the insurance pool. This means that Healthy Susan’s premium can help cover the cost of Unhealthy Joe’s claims. In this scenario, there is a better shot at stabilizing premium cost.

Without forcing healthy people into the market via the individual mandate, there is likely a disproportionate amount of unhealthy people in the pool, thus setting off the “Death Spiral.”

Well, if postponing the individual mandate means speeding up the death spiral and watching the new marketplace go KABOOM, I’d say the opponents of health care reform are rooting for the delay of the individual mandate. 

Nuclear-Explosion

But let’s take a moment to be realistic. With ACA in place, America’s health care system is now an entitlement program as stated by many during the government shutdown. When was the last time we saw an entitlement program get the axe in this country? Hmmm…No kaboom.

So we must ask ourselves, if the death spiral occurs, will the program die? Or will our government keep feeding more and more money into the program to keep it alive?

I suggest it is in everyone’s our best interests for the opponents of healthcare reform to start putting together a plan of their own. At the least, opponents should propose simple but effective corrective actions if they don’t want the failure of the country’s entire healthcare system to be blamed squarely on their opposition.

I’d say a great start would be to propose guarantee issue with realistic pre-existing condition periods along with wider plan design parameters. (You can read more about that in an earlier post.) But that’s just me.

What adjustments do you think could be made to the new system to keep cost and premium from spiraling out of control?

Please leave your thoughts in the comments.