The January 27 edition of the New England Journal of Medicine has a detailed article by Dr. Mark Pauly on health insurance reform, specifically on how to deal with higher risk individuals.
All U.S. health insurance reform proposals currently being discussed now include changes in the way insurers treat some people with above-average health risks. In most states, insurers who sellpolicies directly to individuals now charge premiums based to some extent on characteristics thought to predict the risk of high-cost conditions; insurers also exclude some or all preexistingconditions from coverage and simply refuse to cover some people. Without such "risk rating" and coverage exclusions, insurers would be subject to substantial adverse selection -- that is, consumers would seek them out primarily if and when they became ill and therefore represented higher risks to insurers -- which could lead insurers needing to cover their costs to charge premiums so high they would drive lower-risk consumers to choose minimal coverage or forgo insurance altogether.
Some states have decided that adverse selection is a lesser evil than people being left uninsured and have passed regulations that require insurance companies to charge the same premiums to everyone in a certain geographic area ( a practice called "community rating.") Dr. Pauly suggests an alternative approach: the guaranteed renewability policy. He argues that these policies, that already exists in today's insurance markets, are the best way to wring efficiency an efficacy from the system. In a nutshell, these policies charge a small premium for the right of the insured to continually renew his or her policy at the standard class rate even if they develop a high risk or chronic condition. The insured person benefits from the security of knowing that their insurance will not be cancelled or their rates raised because of serious illness and the insurance company benefits because people will purchase these policies while they low risk (young and healthy).
To read the article in its entirety, please click here.
