Gaming "Mandatory" Health Insurance

What happens when you force insurers to offer coverage to everyone at similar prices? Ask Massachusetts. The state has a law that requires nearly all residents to buy health insurance. The state also requires guaranteed issue and community rating, which means insurance companies have to cover anyone who applies (regardless of their health) and charge similar premiums. Not surprisingly, people wait until they are sick, and then buy insurance.

Well, the returns are rolling in, and a useful case study comes from the community-based health plan Harvard-Pilgrim. CEO Charlie Baker reports that his company has seen an "astonishing" uptick in people buying coverage for a few months at a time, running up high medical bills, and then dumping the policy after treatment is completed and paid for. Harvard-Pilgrim estimates that between April 2008 and March 2009, about 40% of its new enrollees stayed with it for fewer than five months and on average incurred about $2,400 per person in monthly medical expenses. That's about 600% higher than Harvard-Pilgrim would have otherwise expected.