Academicians question “adverse deselection” in individual market

A post at the journal Health Affairs blog questions what I’ve termed “adverse deselection” —  when healthier people in the individual market decide to take their chances and drop their coverage to save premium dollars in the current economic downturn.  In California, Anthem Blue Cross contends the flight of these better risks left it with costlier insureds in its risk pool — what’s classically known as adverse selection — thus necessitating sharp rate increases to cover higher dollar claims brought by sicker individuals.  The theory is these folks will suck it up and pay the higher premiums in order to stay insured, knowing both that they’ll likely need medical care in the future and that they can’t shop around for lower premiums because no other insurers are likely to accept them due to their preexisting medical conditions.

Jonathan Kolstad, assistant professor of health care management at The Wharton School and Leonard D. Schaeffer of the University of Southern California’s Center for Health Policy and Economics, claim to have developed data casting doubt on that scenario.  “There is little evidence of a change in composition and size of the non-group insurance market between 2007, prior to the recession, and March of 2009, near the bottom of the recession,” they conclude.

Initially, I thought regardless of whether those dropping their coverage are healthy or not, the recession has likely shrunk the individual market.  Those who need medical services still have to pay the premium to keep their coverage in force.  And when comes down to paying the mortgage or a monthly health insurance premium that in many cases nearly equals the mortgage payment, it’s the latter that’s likely to go unpaid.  But consider another study issued this week by the UCLA Center for Health Policy Research projects California’s individual market actually grew during the recession, covering 8.5 percent of non elderly adult Californians at its start in 2007 to a projected 9.1 percent in 2009.

 


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