Patient Power

Obama encourages insurers to deny coverage

Michael Cannon has written an excellent critique of an Obama campaign ad on health care.  Here’s a part on denying care:

Obama encourages insurers to deny coverage.  If the average 18-year-old makes $1,000 in claims per year, the average 55-year-old makes $20,000 in claims, and each pays a premium of $12,000, whom will insurance companies court, and whom will they avoid?  By requiring insurers to charge everyone the same average premium, Obama guarantees that insurers will avoid and provide lousy care to the sick whenever possible.  That problem already exists in states with community-rating laws and the Medicare program.  It doesn’t even matter if insurers deny care to the sick deliberately or not; Obama would reward them even if they do so unintentionally.  Finally, Obama proposes a new federal agency whose very purpose is to help insurers deny care.

I’ve written before how community rating backfires.  An article John Goodman elaborates on Cannon’s point:

Under community rating, health plans will seek to avoid the sick and attract the healthy … economic theory predicts that the evidence will be mixed but in a systematic way. HMOs under managed competition have incentives to provide too much care for the healthy (from whom they make a profit) and too little care for the sick (from whom they incur losses). Although the evidence is skimpy, I believe it is broadly consistent with this prediction.

• Attracting the healthy and avoiding the sick
• Obama Care: encourage insurers to avoid the sick, cater to healthy
• Make ‘em argue honestly for community rating
• Obama-Care: pay more for insurance you don’t want
• Maine’s “public option” has failed