Summary of Urban Institute health policy study provided by The Market Institute
Amid the disastrous launch of Healthcare.gov and the roll-out of the Federally facilitated Health Exchanges, there are concerns that risk pools will ultimately suffer from “adverse selection,” which occurs when a disproportionate of higher risk people sign up for health coverage. Adverse selection would have many negative effects such as higher premiums and the long term destabilization of the non-group marketplaces, but the Urban Institute contends that even though adverse selection is a possibility in the first year of Obamacare, the program could still recover and achieve long term success.
The UI argues that some adverse selection was expected by policymakers in the first few years of the Affordable Care Act. However, protections like risk corridors and risk adjustment was put in place for insurers. Financial assistance to encourage younger people to enroll (age rating and tax subsidies) should tend to increase the healthier population in the risk pools. Finally, the argument against adverse selection leading to higher premiums is that as the number of people in the pools increase, competition among insurers will stabilize average premium prices. Assuming enrollment continues to rise, insurers will set premiums for 2015 on expected 2015 enrollment and not based on underwhelming figures for 2014.
Technical problems and President Obama’s proposal to continue people’s plans for another year will certainly contribute to lower than expected enrollment figures, but the long term viability of the program should not suffer. Financial subsidies and competitive pressures will eventually correct any adverse selection that does occur.
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