For a health reform that was designed to expand health coverage, the Commonwealth Connector seems to be having trouble with its target audience, according to the Boston Globe's Alice Dembner.  First, insurers’ bids were much higher than expected, averaging $380 per month (“Sticker shock for state health care plan: average premium of $380 outlined”, January 20, 2007), although they’ve now come down to $352. Then, it threw out the “universal” angle, exempting one fifth of low-income uninsured from the program (“Health plan may exempt 20% of the uninsured", April 12, 2007).  Recently, it’s had tech troubles holding up people trying to enroll (“Computer snag leaves subscribers uncovered”, August 7, 2007).  Now, we learn that the premiums for older people are too high for them to afford (“Older residents feel insurance law pinch: age-based prices too high for some”, August 17, 2007).

One 60-year old lady is upset about premiums of $352 per month, versus $176 if she were 27: “discrimination”, she claims – and she’s right.  Age (within limits) is one of the few things health plans can use to price their policies under the Commonwealth’s modified community-rating regulation.  Unfortunately, because medical underwriting is still forbidden, there’s no way a healthy 60-year old can get a discount versus an unhealthy 60-year old.  (The law establishing the Connector did allow insurers to risk rate smokers, which is a step in the right direction).

Perhaps the more appropriate question is: Why did she wait until she was 60 to buy health insurance? 

As Bradley Herring and Mark Pauly have shown, risk is well pooled in a market of “guaranteed renewable” individual policies (Incentive-compatible guaranteed renewable health insurance, NBER Working Paper No. 9888, Cambridge, MA: National Bureau of Economic Research, August 2003).  Such policies encourage young and healthy people to sign up for health insurance, because the insurer promises to give everyone who signed up at the same time the same rate increase.  As time goes on, and some people become sick, the insurer limits premium increases because he does not want the still healthy people to defect to other insurers who are trying to get them to switch.  Isn’t competition wonderful?

Unfortunately, this college-boy stuff of which I’m so fond is not very politically appealing, because Americans are not used to buying low-premium, life-long, health insurance when we are young.  Instead, we look for a job with “benefits” and if we lose it in late middle age…..well, then we’ve got a problem because we’ve got to shop for individual health insurance many years after we should have.

So, the older folks in Massachusetts are “mobilizing”, AARP demands “relief”, and other patients’ groups are “agitating” that the state (which, after all ordered them to get health insurance) artificially limit their premiums  Unfortunately, none appear to be calling for reducing the regulations that keep Bay State premiums too high – which means taxpayers will pick up the difference.