In Massachusetts, the Health Insurance Game Adds More Players


How effective is the individual mandate to purchase health insurance in Massachusetts? For years, defenders of the plan have touted its effectiveness—both at getting individuals to buy into the system and at reducing the potential for gaming that comes when you require insurers to offer equally priced plans to everyone regardless of preexisting conditions. But a new report indicates that more and more people are ignoring the requirement and gaming the system instead—and causing the state's already sky-high premium prices to rise as a result. From yesterday's Boston Globe:

The number of people who appear to be gaming the state's health insurance system by purchasing coverage only when they are sick quadrupled from 2006 to 2008, according to a long-awaited report released yesterday from the Massachusetts Division of Insurance.

The result is that insured residents of Massachusetts wind up paying more for health care, according to the report.

"The active members subsidize some of the costs tied to those individuals who terminate within one year," the report says.

One insurer quoted in the article believes that this behavior adds $300 million a year in costs to the system. And, as the report explains, those costs are passed on to everyone who follows the rules.

Right now, it's only a problem for Massachusetts. But soon enough, it's likely to become a problem for the rest of us. Starting in 2014, the same combination—rules for insurers and a purchase requirement for individuals—will be in place nationally. And as Cato's Michael Cannon points out, the penalties for non-compliance with the mandate in the federal health care overhaul are even weaker than the penalties in Massachusetts. That creates the potential for a lot more gaming, and far greater added costs to the system—and everyone in it.

The governor's office in Massachusetts says it's working to make rapidly hopping on and off of insurance plans more difficult. But as I've argued before, the rule changes Gov. Deval Patrick supports still leave substantial opportunities for determined individuals to take advantage of the system. More to the point, small regulatory changes are probably the wrong approach. The easiest way to fix the system is not tweaking the existing rules by adjusting the number of times an individual can move on or off the system in a given year. It's getting rid of the individual mandate and the insurance regulations entirely. After all, it's tough to game the system if there's no game to play.