The Center for Budget and Policy Priorities has a useful analysis of the Wyden-Bennett bill -- which swing Republican Arlen Specter signed on to yesterday -- which points out both some of its flaws and some of its strengths. One of their concerns is that in giving folks choice of insurance plans, "some adverse selection likely would result, with healthy individuals choosing low-cost health insurance plans, like high-deductible plans attached to Health Savings Accounts, while people in poorer health opted for more comprehensive plans. If that occurred, sicker individuals would, over time, face increasingly unaffordable premiums for the coverage they need." To rectify this, they suggest the plan should "restrict the availability of plans that are very likely to provoke adverse selection such as high-deductible plans attached to HSAs." There's no way you're going to excise Health Savings Accounts from a reformed system. Nor do you necessarily need to. When you're worried about adverse selection, there are two ways to approach the problem. The first is on the individual level, by creating choices and regulations such that consumers don't try and game their way around the system. That's what CBPP is proposing: Don't let them choose HSAs. But the other is on the insurer level. This is how Germany handles adverse selection, and it's a smarter model. Basically, you tax the insurers who game the system. In essence, the risk profile of each insurer's customer pool is evaluated, and those insurers who have a substantially younger, wealthier, and demographically advantaged risk pool have to pay into a central fund. That money is then distributed to insurers who have an older, sicker, risk pool. And the tax is heavy enough to make risk selection a fairly unprofitable way for insurers to spend their time. It's called "Risk Adjustment." This is the sort of fix the Wyden people are envisioning: You can't stop insurers from trying to sign up younger, healthier people. If it's not through plan construction it will be through advertising in rock climbing magazines and on the iTunes' homepage. But it's easy enough to see if the insurer's efforts are bearing fruit: If they have a risk pool that's demographically quite different than that of their competitors, something is going on. And while it would be hard and uncertain to try and stop their efforts by shaping the market, it's relatively easy to equalize the playing field through taxes.
