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ObamaCare: Gaming the Health Insurance Mandate

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The key to ObamaCare is the individual mandate, which requires individuals to have health insurance or pay a fine. The mandate is supposed to push nearly everyone into the pool to minimize free-riding on the system. But what if millions of Americans decide it's a better deal to pay the fine and remain uninsured until they need coverage? 

It appears that's exactly what's happening in Massachusetts, which passed its own ObamaCare-like reform with an individual mandate in 2006, says Merrill Matthews, executive director of the Council for Affordable Health Insurance and a resident scholar with the Institute for Policy Innovation.  

Last year, Charles Baker, former CEO of Harvard Pilgrim Health Care, one of Massachusetts's largest health plans, noticed some health insurance brokers posting comments on his widely read blog. They were suspicious that people were applying for health coverage after a medical condition developed, got the care they needed, and then dropped the coverage. 

Coverage for an individual, noted Baker, now a Republican candidate for governor, might be $2,000 to $3,000 a year, while the penalty was only about $900. So he asked his finance people to see if they noticed any discernible patterns. What did the find? 

  • From April 2008 to March 2009, 40 percent of the individuals who applied to Harvard Pilgrim stayed covered for less than five months; yet claims were averaging about $2,400 a month, about six times what one would expect.
  • Blue Cross and Blue Shield of Massachusetts has now confirmed it is experiencing similar problems; the company says that in 2009, 936 people signed up for three months or less and ran up claims of more than $1,000. 

The disparity between the cost of expensive coverage and the fine for not getting it encourages individuals buying their own coverage -- i.e., those not in an employer plan -- to game the system by paying the fine and remaining uninsured until they need coverage, says Matthews. 

Insurers have long recognized this problem, known as "adverse selection," which is why every type of insurance normally restricts people from obtaining coverage after an incident has occurred.  Someone can't, for example, buy a homeowners policy for a house that is already on fire. But Democrats have decided to do away with that basic actuarial principle with regard to health insurance, says Matthews. 

Source: Merrill Matthews, "Gaming The Health Insurance Mandate," Investor's Business Daily, April 19, 2010. 

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