Shifting Private Insurers' Risk to Government Could Make Health Insurance More Affordable

Designing effective regulatory oversight of individual health insurance markets

From 1998 to 2002, researchers at the Harvard University School of Public Health conducted research on the individual health insurance markets in the United States (the markets for people buying their own insurance) and why people are uninsured, and considered how to redress the problem through public policy.

The project was led by principal investigator, Katherine Swartz, Ph.D.

Key Findings

Swartz concluded that:

  • "Public policies to help the uninsured need to be created with two lenses on why people lack coverage":
    • One lens needs to focus on characteristics of the uninsured: The two-thirds who are poor or near-poor need government subsidies or publicly funded programs to buy health insurance; the one-third who are middle class could obtain coverage if premiums were lower.
    • The second lens should focus on how insurers compete in the individual insurance market and how to reduce insurers' risk of adverse selection by shifting the risk of extremely high-cost people to government.

      (Adverse selection occurs when a disproportionate share of people who buy individual insurance are those who know they have medical problems or need to have expensive medical care. Insurers fear adverse selection and charge high premiums to avoid covering this group.)
  • The two-thirds of the uninsured who are poor or near-poor need government subsidies or publicly funded programs to access health insurance.
  • Middle-class people would be the main beneficiaries of programs to reduce insurers' fears of adverse risk selection if they resulted in less expensive health insurance premiums.
  • Insurers use a variety of methods to protect themselves from the risk of adverse selection, particularly by denying coverage to some people based on their age and prior medical history and they offer coverage that restricts what services are covered.

Funding

The Robert Wood Johnson Foundation (RWJF) supported this project through a grant of $209,296.