An Answer to the Health Policy Dilemma. Part 2

Many Democrats are suspect of the MSA concept, believing that only the healthiest people will buy MSA plans thereby leaving other insurance plans with the burden of taking care of the sickest people. They argue that any insurance system has to be one that includes the largest pool of people possible where the sickest and the healthiest are together — the healthy offsetting the costs of the sick thereby creating a lower average cost for all.

There is some credence to this notion. In the 1980s and early 1990s, there were many examples of insurance company “cherry picking,” where some insurance companies went out of their way to insure only the healthiest consumers to keep their prices and their claims lower. Most of this behavior was outlawed by a series of state and federal laws, including the 1996 Kassebaum /Kennedy insurance reform law.

Many Democrats fear that some insurance companies just want to write MSA programs as another way to begin the cherry-picking process all over again.

The MSA critics also worry about another insurance concept – anti-selection. Anti-selection is the notion that consumers will select the health plan that is in their own self-interest with healthy people going one way and sick people going to another plan. They look at MSAs as an insurance product that, because of its reliance upon high deductibles and the consumer’s ability to save any money not spent in a tax-deferred account, will attract only the consumers who think of themselves as healthy. To the critics, this means the insurance companies would end up getting only the healthiest consumers and an unfairly profitable block of business.

While the reasons for the MSA critics concerns are valid, they miss the rest of the story on anti-selection and cherry picking: durational rating.

It is true that some insurance companies went out of their way to cherry pick the healthiest consumers, especially prior to the state and federal reforms. But those same companies were also faced with another aspect of insurance underwriting as the initial selection process wore off. What that means is that while an insurance company could get the healthiest people in the beginning, on average, a healthy group of people doesn’t stay disproportionately healthy over the long run — healthy people also get sick. It is not uncommon to find what was a cherry-pick group of better-than-average healthy people later looking like an average health group — in as little as 18 months. That’s why during the days of insurance company cherry picking insurance companies would gradually compensate for this underwriting “deterioration” by raising the rates over time. That process was called durational rating. Sometimes companies who at first had selected just the healthy people to insure later gave those same people larger rate increases and even canceled their coverage as those consumers who had previously been attractive to the underwriters became less attractive customers.

The upshot of all of this insurance jargon is that while MSA programs may get the healthiest people on day one, they will not likely have a healthier population over time. While the critics of MSAs have reason to be concerned that MSA insurance products will unfairly attract the healthiest people there is also good reason to believe that phenomenon will be at best temporary. As long as an insurance company cannot cull out their sickest customers, that may have been healthier than average in the beginning, their overall pool of customers will likely not be significantly healthier or sicker than any other health insurance plan over time.

It is possible that MSA consumers will take advantage of the system by moving to a comprehensive insurance plan when they become sick. To minimize this, an MSA system might include a provision allowing MSA participants to be limited in how often they can change their coverage, to perhaps once a year.

When all of the pros and cons of MSAs are considere. During his presidential campaign, Steve Forbes seemed to have a “one-answer-fits-all” health policy solution. The single answer was medical savings accounts, or MSAs.

Many Republicans, including George W. Bush, John McCain and a number of Republican congressional leaders, point to MSAs as at least a partial solution to the problems of affordable access to healthcare and giving the patient/consumer more control over the healthcare system.

But no one pushed the MSA concept like Forbes did. It is therefore instructive to look at how Forbes offered the MSA solution in his campaign as a cure for the number of uninsured, for the rising level of insurance premiums, and as at least one solution to Medicare’s benefits and funding woes.