Washington D.C. Examiner, October 19, 2009

Democrats have been trashing insurance industry analyses of their health care proposals.

But in the hallways of the Capitol, lawmakers concede the truth of the report's main criticism: The cost of insurance could skyrocket because the framework of the plan would bring more sick people into the system but not force enough healthy people to buy insurance.

Insurance companies refer to the problem as "adverse selection," and they say the bill approved by the Senate Finance Committee last week would create this troublesome situation by insuring just 93 percent of legal residents, leaving 17 million people out of the risk pool, many of them young and healthy.

"Without more people in the pool, you run the risk of adding additional costs to people's premiums," said Sen. Ben Nelson, D-Neb. "Part of the problem is, how do you add people to be covered without adding to the cost curve?"

The original plan in the Finance Committee bill would have insured millions more people by fining families up to $3,800 if they did not buy insurance. But the fine was lowered under pressure from Sen. Olympia Snowe, R-Maine, a moderate whose support is much sought by Democrats seeking a sliver of bipartisanship for their bill.

Now the bill requires families who do not buy insurance to pay a fine of just $1,900. The tax for individuals who forgo insurance was also lowered, from $950 to $750. And the taxes don't kick in until 2014, beginning with a fine of $200 that gradually increases every year.

The average cost of an individual insurance policy, by comparison, is about $5,000.

Insurance companies normally compensate for a skewed risk pool by denying coverage to people with pre-existing medical conditions, charging people more based on age and gender, and imposing lifetime coverage limits. But most of those tactics would be prohibited or modified under the Democratic proposal, leaving insurance companies with a mandate to cover the sickest, without premiums paid by the healthiest.

Insurance companies would also have to use a "community rating" system, which would prohibit them from charging higher premiums for older people. Insurance companies argue this will make it harder to entice young Americans into the system with cheap coverage.

"As fewer young people come into the system, overall premiums will increase for everyone," read a report put out by America's Health Insurance Plans.

Democrats know this is a problem, but they have no idea how to fix it as they struggle to keep the cost of their bill under the $900 billion ceiling imposed by President Obama. Not only would raising taxes be politically unpopular, but it would almost certainly require additional subsidies.

"There are a lot of things being considered," Senate Budget Committee Chairman Kent Conrad, D-N.D., told The Examiner.

Democrats are eager to avoid the mistakes made in a similar plan in Massachusetts, where the tax of $90 per month encourages many not to buy insurance until they need it.

"People sign up when they are sick, and when they are well, they drop their insurance," said Sally Pipes, chief executive officer of the Pacific Research Institute, a free-market think tank. "The costs are just going to get out of control."

sferrechio@washingtonexaminer.com