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HEALTH PLANS/POLICY: And for those of you suffering from the voluntary pooling delusion…

PacAdvantage, nee CalHIPC, was the biggest small business purchasing pool in the nation. It was supposed to be a model for the Clinton-era Regional Health Alliances, but because that reform never happened, it was forced to soldier on and accept all the small businesses that wanted to join.

What happens to voluntary purchasing pools? Simple economics—they only get customers who can’t get a better deal in the underwritten insurance market and so they go into a death spiral where the people in them are too sick to be supported by the premiums they charge. Today PacAdvantage announced that it was closing down, throwing 110,000 people into the small group and individual market, where by definition, no insurer wants them (unless they’re like me—very lucky).

PacAdvantage is the type of organization that our friends in the “voluntary universal insurance” world (Cato, Galen et al) think is going to solve all of our problems, with no need for pesky mandates to buy insurance, or for community rating, or standardized benefits packages. I’m sad to say that I think Alain Enthoven has joined that philosophy, although I may be misinterpreting his views.

The answer is that there is no such thing as voluntary universal insurance, and there cannot be universal insurance without very different regulation of the insurance market. And the longer we let that go on, the closer comes the day of reckoning when there is no viable market for private insurance, and we go to single payer by default (or Brazil, take your pick).

Mark this one as a signal event, and if you don’t like that outcome, begin to figure out how to prevent that awful day.

CODA. I just found this CHCF piece from November 2005 which explains in more detail why voluntary pools are doomed–although it doesn’t quite call a spade a spade and suggest that mandatory coverage is the obvious answer.

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Jason ShafrinEric Recent comment authors
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Jason Shafrin
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Another example of an adverse selection death spiral is given by Harvard’s employee health insurance plans in the 1990s. The manner in which this occured is detailed in a 1997 study by David Cutler and Richard Zeckhauser titled “Adverse Selection in Health Insurance.” (http://www.nber.org/papers/w6107)

Jason Shafrin
Guest

Another example of an adverse selection death spiral is given by Harvard’s employee health insurance plans in the 1990s. The manner in which this occured is detailed in a 1997 study by David Cutler and Richard Zeckhauser titled “Adverse Selection in Health Insurance.” (http://www.nber.org/papers/w6107)

Jason Shafrin
Guest

Another example of an adverse selection death spiral is given by Harvard’s employee health insurance plans in the 1990s. The manner in which this occured is detailed in a 1997 study by David Cutler and Richard Zeckhauser titled “Adverse Selection in Health Insurance.” (http://www.nber.org/papers/w6107)

Eric
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Eric

I have not kept up with all of the recent literature on purchasing pools, but my recollection is that all of the health care reform proposals endorsed by Alain Enthoven made the small employer’s (and employee’s) tax deduction contingent on the employer’s participation in a government-regulated purchasing pool, which I think would provide a pretty strong incentive for small employers to pool risks. In addition, Enthoven has made it clear that in order for purchasing pools to be effective their sponsors must adopt practices to limit risk selection problems. I am not familiar with all of the operational details associated… Read more »