• Short-term insurance buyers in Massachusetts

    Kay Lazar reports on the increase in part-year insurance buyers described in a new Massachusetts Division of Insurance report in today’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 number of people engaging in this phenomenon — dumping their coverage within six months — jumped from 3,508 in 2006, when the law was passed, to 17,177 in 2008, the most recent year for which data are available. …

    Part of the problem is that individuals can jump in and out of coverage anytime during the year. Senate President Therese Murray and Governor Deval Patrick are both considering legislation to address this by allowing just one or two annual open enrollment periods.

    What isn’t clear is how big a problem this really is. Massachusetts has about 6.6 million residents, of which roughly 6.4 million are insured. So, the number gaming the system is less than one-third of one percent of the insured. They’d have to account for over three times the average health care costs in order to raise average premiums by one percent.

    The Globe article says the gaming problem is a $300 million issue or $47 per insured individual. Since a typical insurance premium is in the $5,000 range for an individual, this is not far off from a one percent increase. So, my thinking in the prior paragraph may not be far off.

    I’m not suggesting we should ignore this issue because it results in a small increase in premiums. We should pay attention because it’s the best prediction we have of what may occur nationally. But if one throws in enrollment period limitations maybe it largely goes away. We shall see.

    Maybe the Division of Insurance report sheds even more light on this, but I can’t find it online. If anyone else can, please send me a link.

    Later: Kay Lazer sent me a link to the report. I see now that it is an analysis of the “Merged Market” (small- and non-group market). The introduction of the report tells us that:

    • In that market “[t]he percentage of individuals terminating coverage within their first year grew from 13.8% in 2006 to 24.2% in 2008.”
    • “[T]he cost of the additional adverse selection in the Merged Market is in the range of 0.5% to 1.5%.”
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    • Another reason to simply go to Medicare for all and eliminate choice on basic coverage. These people who buy only when they need care, wouldn’t bother buying long term care and would simply pay as little as possible to get to the expensive care and then not pay the rest of the bills. No one is going to repossess the repaired body.

    • I totally agree with mulp – a minimal compulsory coverage (with a minimal compulsory payment) is hardly going to hurt anyone and will almost completely remove one’s incentive to hop on and off the coverage. Although not paying the rest of the bills is ethically questionable to me.
      Putting an arbitrary limit on the allowed insurance terms per year is a rather poor solution. Personally, I cannot even imagine why people would want to quit paying for health insurance three times a year. Aren’t they bothered that a car accident victim may not be able to sign the new insurance contract before arriving to the hospital?