How to Make Community Ratings Work

The health reform package’s basic tenet is that we spread; the risk of illness by charging everyone the same premium.

Economist James Kwak has these observations

  • “If you’re a profit-maximizing insurer, what do you do? You try to cherry-pick the healthy, since the revenues will be the same as for the sick and the costs will be lower. If you can do this successfully — say, by only advertising in gyms and in Runner’s World, or maybe by offering additional benefits that only the healthy will want — then you can dump the sick on someone else.” Medicynical note: This is of course an extension of our current system.

So how will the disparity in healthy patients be balanced. In the Baucus bill it states: .

  • “The Secretary would be required to pre-qualify entities capable of conducting risk-adjustment and the states would have the option to pick among those entities. The entities pre-qualified by the Secretary cannot be owned or operated by insurance carriers. The Secretary of HHS would define qualified risk-adjustment models which can be used by states. States can also choose to develop their own risk-adjustment model but it must produce similar results and not increase Federal costs. After risk-adjustment is applied, reinsurance and risk corridors (described below) would apply.”

Kwak observes that this is inadequate and the whole area vaguely covered in the bill. It would have been no problem in a single payer system.

Medicynical note: In our money driven business culture, we can expect such loopholes to be gamed by insurers. Their goal is profit, not a equitable health care system.


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