Why Health Care “Reform” Could Increase the Number Uninsured

Marty Feldstein has an editorial in the Washington Post detailing how the current health care reform proposals in Congress could actually increase the number of uninsured individuals. Namely, he points to some of the mandates contained in the legislation.

Specifically, mandating guaranteed issue and community rating would both help to foster higher premiums, as has occurred in New York and other states. Community rating essentially mandates similar premiums for everyone, regardless of age, health status, or behavior – which increase rates for young, health, non-smokers, who already are among those most likely to go without insurance now.

Feldstein focuses more directly on guaranteed issue – essentially mandate than insurance companies have to offer coverage regardless of pre-existing conditions. But this creates a perverse incentive to drop insurance coverage and wait until you get sick to buy insurance (imagine if this were allowed for auto insurance, and you could buy coverage after you have an accident). And as insurance rates escalate – as should be expected under the health care reform proposals, and given the experience in Massachusetts – more individuals will chose to drop coverage and wait until they get sick. Of course, as Feldstein points out, when the healthy drop coverage, the rates will have to increase to cover the smaller, sicker insurance pool – encourage more healthy individuals to drop coverage, and repeating the cycle.

Of course, the health care bills contain both and individual and employer mandate – and would impose taxes the uninsured and wages for those not insured by their employer. But Feldstein notes that these penalties probably are not enough incentive to encourage buying insurance, and may – given higher rates and extensive mandates of what qualifies as “insurance” under both mandates – even encourage dropping coverage.