|
The Cherry Picking Dynamic (in States Without Community Rating / Modified Community Rating):
Suppose you live in a state without community rating or modified community rating. (Community rating and modified community rating prevent what is called "cherry picking", and exists in 5 states.) Say you already have an individual health insurance policy in that state, and your state even has laws say that it can't be cancelled on you, or at least that it can't be cancelled on you unless the insurer stops offering insurance in the state. You might feel pretty secure.
There's a way you might get stuck, which you might not expect. Say you do develop a medical condition: a heart problem, cancer, etc., and at the time you currently have private insurance. You might feel secure: you have a policy, you keep paying the premium, and under the laws of your state your company can not cancel your policy unless they decide to cancel all policies in the state. But that sense of security is false. What will happen is this: all of the people who are in your insurance policy's "pool" of people were pretty healthy when they got issued their policy. But over time, a few have gotten sick, but most are still pretty healthy. The small number of sick people in the pool will start to make rates rise a bit. Then other insurance companies, and possibly your own insurance company, will seek out the people in the pool who are still healthy, and sell them insurance that is a bit cheaper, since there are no sick people in that new pool.
As they keep doing this, only pretty sick people will be left in your pool, and your insurance rates will get very high. You won't be able to get new insurance from a private company, though, unless they exclude your expensive condition. So, just like people who had an explicit loss of an old insurer, you're stuck, and you really need reasonably priced insurance or you may go broke. (This continuous increase in price due to other insurance companies cherry-picking out healthy people from the pool actually happened to me about 5 or 10 years ago in CT. I had a policy that started at about $1000 a year, and in less than 5 years it went to about $5000 a year, which was more than the cost of the high risk pool for my young age at the time. When I called the insurance company that had issued the policy to ask how high the rate might go, they told me they couldn't say, but then they connected me immediately to their Connecticut agent, who tried to sell me a new pre-existing-screened policy. (That is, they tried to cherry-pick me from their own pool.) At that point, I just took the high-risk pool even though I was healthy, in order to avoid any part in the insane system, and also resolved to leave the state I was in -- CT -- for a community-rated state at the nearest economically opportune time.) (Aside: that insurance company probably had cherry picked other people out of its own pool prior, and that was probably, in part, responsible for my rate rising so high. Whether that is illegal or not -- I haven't checked -- is irrelevant. If they hadn't cherry picked healthy people out, other insurance companies would have. The pre-existing-screened system has that fundamental cherry-picking mechanism for rates on current policy holders to rise, and force them to get a new policy if they are still healthy. Moreover, folks of an economics or mathematical bent will easily see that this product being billed as "insurance", which is supposed to pool risk, actually pools only the risk of costs for a period of time after disease onset, that period of time getting shorter and shorter as the technology for cherry-picking gets better and better. Only restraint on the part of cherry pickers, motivated not by any morality, but rather by not making too obvious the uselessness of the consequent product, prevents them from using computer and internet technology to bring that period of time of being insured down to say 1 hour from disease onset.)
Another thing I wanted to point out about cherry-picking is that, although agents and insurers routinely actively pursue this strategy (the agent for a commission that they get from this wasteful churning), without regulations, even if agents and insurers tried to be very, very moral and absolutely stopped trying to do it, the same thing would happen by itself automatically. To see why this happens, say I and 99 oother very healthy pass a pre-existing condition screen and get put in an insurance pool by an insurance company. The rates are low, maybe $1,000 a year because we are all so healthy. Well, in a few years, maybe I and someone else in the pool have a heart attack. The rates for the 100 people in the pool go up to say $1900. a year for everyone, because of the medical bills and likely future medical bills of the two of us. But then 20 of the 98 people who didn't get sick and are still really healthy realize that they can pick up new health insurance for just $1150. (they're a little older than when they got the policy), and they do so. Then just 80 people are paying for 2 sick people in the original pool, so the rates are $2400. a year, and all but the non-asleep of the remaining healthy people in the pool get new insurance. So in just a few years, there might be 5 people in the pool, 2 of them have heart conditions, and so the 5 of us pay $80,000. a year.
|