Reforms creating winners and losers among consumers jeopardize viability of individual market

As the new congress and the Trump administration look to put in place their own brand of reform of the individual medical insurance market, they face a delicate task not unlike defusing a bomb. Cut the wrong wire or throw the wrong switch and the market could quickly go critical and explode. Just ask House Speaker Paul Ryan, who is facing significant and immediate blow back to his party’s reform proposal released earlier this week in the form of a budget reconciliation bill that restructures the individual market rules and Medicaid.

The individual market was intricately rewired by the Patient Protection and Affordable Care Act of 2010 to bail it out of an adverse selection death spiral and restore it to healthy and predictable functioning on both the sell and buy sides. Implicit in the reforms is the recognition that despite employer sponsored plans covering the vast majority of working age people and their families, both employment and employer sponsored coverage aren’t as prevalent as they once were.

A policy keystone of the Affordable Care Act is a commercial market should offer accessible, affordable coverage to those not covered by existing government plans or though employer sponsored plans. Plan issuers in the individual market must also have assurance their plans will remain actuarially viable so they can continue to offer them. Hence, the law’s disliked individual mandate requiring those not covered in other plans to get coverage in the individual market to promote a larger risk pool and the spread of risk necessary for any insurance product.

The House Republican proposal has quickly drawn criticism that rather than improve the consumer access and affordability, it will make individual coverage more affordable for some and less affordable for others. Creating winners and losers when it comes to affordability is perilous because without widespread affordability, there is a potentially smaller universe of individuals and families in the risk pool. Fewer belly buttons to use an insurance industry term means less spread of risk. Less spread of risk is never good when it comes to insurance, no matter what variety: homeowners, life, auto, commercial — you name it.

This is the essential challenge policymakers face. They have to ensure broad affordability of individual coverage to head off both adverse selection borne of out poor spread of risk as well as buy side market failure due to unaffordable offerings. People won’t buy a product they cannot afford. That’s simple economics. And without widespread affordability, the risk spreading mechanism of insurance will sooner or later break down and the market will collapse.

If policymakers determine they are unable to achieve long term viability in the individual medical insurance market, they’ll need to consider other means of providing access to medical care for the large and growing cohort of people not covered by employer sponsored plans. That includes reviewing how other nations provide medical care to their citizens and determining best practices that could be employed in the United States.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

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Frederick Pilot

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