Restricted Community Rating vs High Risk Health Insurance Pools

High risk pools are suggested to make insurance affordable for those with previously existing conditions.  Making affordable involves the money of others either through government subsidy or allowing insurance companies to artificially deflate higher risk premiums by shifting the cost to others, thereby letting the government fool folks into thinking they’ve protected them by making those bad insurance companies pay, even as everyone else kicks in higher premiums costing the insurance company nothing.

While allowing the insurance company to cost shift premium to the non high risk as a subsidization seems more efficient than creating additional government to administer such transfers, it still imposes a fee or tax (or whatever) on everyone indirectly in this attempt to make insurance affordable for all.

This is where the connection to community rating enters the picture.  Community rating can be a real disaster if applied across all age groups as youth will crash the system with non participation.  But what of community rating by 5 year age groups?  Would not this bake in those high risks directly in the premium charged to all rather than having to make other arrangements to effect the transfers we seek to make anyway?  Why not then simply make the transfer right up front, eliminating the need to create other mechanisms that carry their own added expenses?

A couple last thoughts for this post: Community rating by 5 yr age groups would also include the behavioral caused illnesses of others along with their genetically caused or unexplainable misfortune.  While this is somewhat unfair, in a system that moves to high deductible based real insurance where the majority of individuals spend enough of their money ahead of that of others, the incentives to avoid such situations by better diet and exercise will impose on many as they do not today and is the preferable alternative to finding healthy living than by fearing to have to use a system of rationing and long wait times.

Also age-group-limited community rating will impose large premium increases later in life.  Again, in a market based system using higher deductibles and expanded health savings accounts not necessarily tied to insurance, most individuals will have achieved significant balances in their health savings accounts over the years to the point they will then be able to offset the rising premiums by moving to higher deductibles, so high they do not even exist today.  Considering that a health savings account with a $150,000 balance (not at all an unexpected outcome for many) can completely cover a $30,000 deductible for five years makes this a sensible option and would carry a greatly lower premium.  Insurance is about the necessary limitation of risk and owning too much is as bad for one’s personal financial situation as owning too little.

Notice something else in a world of widely dispersed health savings accounts of significant value.  A large portion of the population starting from an early age will reach retirement with no need whatsoever (at least initially) for Medicare.  What other approach has the power to do that?!!