Last Wednesday, the Senate Health, Education, Labor and Pensions Committee released a grim report showing a reduction in the availability of child-only policies for parents looking to purchase health insurance for their children. They findings show that, “Of the 50 states, 17 reported that there are currently no carriers selling child-only health plans to new enrollees. Thirty-nine states indicated at least one insurance carrier exited the child-only market following enactment of the new health care laws.”
The reason for this decline in child coverage is that specific provisions of Obamacare regulating the child insurance market have made it more difficult for insurers to continue offering the plans. Obamacare creates what is commonly known as a “guarantee issue” requirement for the child-only market, which means insurers cannot deny coverage based on preexisting conditions.
Although this intent behind this policy is obviously to expand coverage, in reality it makes it financially unsustainable for insurers to continue offering child-only health insurance due to adverse selection. As the report explains:
Requiring carriers to sell child-only plans to anyone at any time allows individuals to wait until a child is sick and then purchase coverage. This undermines one of the fundamental principles of insurance, which allows individuals to manage risk by pooling resources to help pay for future, unpredictable expenses. If an individual can avoid paying premiums until they know they will incur an expense, it is impossible for such a system of insurance to be financially sustainable.
If healthy individuals forego insurance, only the sickest individuals are left in insurance pools, increasing costs for insurers. This further drives up premiums and further discourages healthier individuals from participating. This is aptly referred to as the insurance “death spiral.”
The effects of prohibiting preexisting-condition exclusions in the child-only policy market will impact all covered individuals in 2014, when the same rules will apply to adult policies as well.
This is unnecessary. As Heritage health policy expert Ed Haislmaier outlines, Congress could enact reform that ensures that all individuals can access coverage regardless of preexisting conditions without unleashing the effects of adverse selection in the insurance market, which increase costs and reduce choice. Applying the successful rules already governing group coverage to all insurance represents a strategy that, according to Haislmaier, “fixes any legitimate problems without destabilizing health insurance markets—and in the process eliminates the rationale for retaining [Obamacare’s] unpopular and unworkable individual mandate.”
Co-authored by Kyle Rusciano, a member of the Young Leaders Program at the Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/internships-young-leaders/the-heritage-foundation-internship-program