Gaming the Individual Mandate in Massachusetts

Today Kay Lazar reported in the Boston Globe that thousands of Massachusetts residents are purchasing health insurance only when it is needed and dropping it and paying the relatively low penalty when it is not.

In 2009 alone, 936 people signed up for coverage with Blue Cross and Blue Shield of Massachusetts for three months or less and … [paid a monthly premium of] $400, but [had] average claims [that] exceeded $2,200 per month. …

Governor Deval Patrick recently filed legislation that state regulators believe will help fix the problem, by restricting insurance enrollment to twice a year for people who buy on the open market and allowing waiting periods before coverage kicks in. …

It would also bring back the rule allowing insurers to exclude coverage for preexisting conditions for six months, or impose a similar waiting period under certain conditions for people buying coverage on their own. …

Consumer advocates said they aren’t convinced that a lot of people are gaming the system, and they said that many of the individuals buying on the open market are likely those who are between jobs, new to the state, or have some other legitimate reason to buy coverage for a short period.

Implications for the nation’s individual mandate are obvious. But there is plenty of time to learn from Massachusetts’ experience and tweak the federal law, as there is to do more thorough analysis of the issue.

I have no doubt there is some gaming going on, as there would be with any mandate. What has not yet been shown by anybody is the total size and significance of it. That is, how much higher are premiums due to the selection experienced by insurers? Is this a mountain or a mole hill? Some of the reporting is based on sources that have a reason to inflate the significance of this problem. And it can’t be all that big when about 97% of the state’s population is covered (though it depends how that figure is measured).

All in all, I haven’t seen enough work on this that suggests there is a sound basis for policy. I hope somebody, somewhere can get their hands on some solid data and do some credible analysis.

Later: I have many other posts on this topic.

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