Will there be an adverse selection death spiral without the individual mandate?
It’s not really disputed amongst health-policy experts that adverse selection exists in voluntary insurance markets, or that it may be exacerbated by pure community-rating requirements.
However, it turns out there is not a general consensus about how serious the problem really is, and it is difficult to find a clear example of anything deserving the fear-inspiring appellation “death spiral.”
A death spiral, if the term bears objective definition, is something more than the predictable escalation of premiums resulting from adverse selection. I understand it to connote something like market collapse—which, in turn, I understand to designate a situation in which a large portion of insurance carriers defect from the market, i.e., stop offering individual insurance policies.
There are a few examples of market collapse in the wake of individual market reforms. Kentucky in 19941 and New Jersey in 19932 (among others) both saw big increases in premiums, declines in overall coverage, and rampant insurer defection. But it is not certain in either of these cases that community rating was the culprit, as other factors were present that may have both caused and aggravated market chaos. Also, other states that have implemented community rating in the individual market have not seen disaster ensue. Notably, New York has a strong community-rating requirement, and though its premiums are significantly higher than the national average, the market has been stable. (See KFF 50-state comparison of rating restrictions in the individual market, and AHIP survey of premiums.)
So, in the end, as leading healthcare economists Mark Pauly and Len Nichols have written, it could be that “[i]nsurers’ fear of adverse selection may be more important than the actual extent of observed adverse selection.”
- See Len M. Nichols, State Regulation: What Have We Learned So Far?, 25 JOURNAL OF HEALTH POLITICS, POLICY AND LAW 175, 192-94 (2000). [↩]
- See Alan C. Monheit et al., Community Rating and Sustainable Individual Health Insurance Markets in New Jersey, 23 HEALTH AFFAIRS 167, 170-71 (2004). [↩]
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ps. great image haha
this is interesting:
http://yglesias.thinkprogress.org/archives/2009/12/politics-as-a-vocation.php
[...] rating. Those things are going to drive insurers out of business if you don’t address adverse selection, so you impose an individual mandate. Because you’re making everyone get insurance, you have [...]