Manhattan Institute: 'Continuous Renewable Coverage – Rx for America's Dysfunctional Health-Insurance System'

WASHINGTON, Jan. 1 -- Manhattan Institute issued the following report, dated December 2020, entitled "Continuous Renewable Coverage: Rx for America's Dysfunctional Health-Insurance System."

The report was authored by Chris Pope, senior fellow.

Here is the executive summary of the 20-page report:

Executive Summary

Well-designed health insurance should offer good value that encourages individuals to sign up while they are healthy and pays for the care they need when they get sick. Because American health insurance is so fragmented, this is too often not the case. On the individual market, only 47% of those covered by plans remain enrolled after a year. Most Americans have insurance through their employer, and they must usually switch health-care plans when they change jobs, which they do every four years, on average.

Within such short time horizons, much of the variation in medical costs is foreseeable, which makes it hard for insurers to pool the risks of people who are sick with those who are healthy. If insurers are free to do so, this will usually lead them to raise rates and deny coverage to individuals with serious medical conditions that preexisted their enrollment application. However, if insurers are forced to cover the seriously ill on the same terms as those who sign up before they got sick, people will often wait until after they develop high medical risks before purchasing a policy--causing medical costs to soar, insurers to hike premiums, and the quality of coverage to deteriorate.

Health-insurance markets will never yield the quality coverage that people want by compelling them to purchase overpriced products that offer them little value. Instead, policymakers should seek to restore the individual insurance market to health by allowing people to get lower premiums if they sign up before they get sick--and rewarding them when they remain insured for longer periods. When Australia enacted such a reform, encouraging individuals to maintain continuous insurance coverage, it led to a surge in enrollment that improved the health-insurance market's risk pool.

To fully reward individuals for buying health insurance before they get sick, insurers have to determine their general state of health--a process known as medical underwriting. If people switch plans only at a time of their own choosing--rather than whenever their employment circumstances change--this need not put them at risk of being locked out of coverage because of preexisting conditions. A recent federal regulatory change is a step in this direction by making it possible for Americans, most of whom are covered by their employers, to carry their own tax-preferred health insurance between jobs.

This presents the U.S. with an opportunity to emulate Germany's successful health-insurance arrangements. In that country, individuals control the purchase of health insurance, tend to retain coverage for many years across employment circumstances, and may choose between private plans with actuarially fair premiums and standardized coverage funded by a payroll tax. Germany's system, structured to reward continuous enrollment, leads private insurers to compete by improving medical coverage, rather than merely trying to identify people who will incur the lowest medical costs in the short run.

Full-text: https://media4.manhattan-institute.org/sites/default/files/rx-americas-dysfunctional-health-insurance-system-CP.pdf

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