Unbiased Analysis of Today's Healthcare Issues

Adverse Selection in Action

Written By: Jason Shafrin - May• 05•09

For individuals who have recently lost their job, Carolyn’s Blog advises them how to get health insurance coverage.

Unless you have a pre-existing condition you should only stick with COBRA until you find a private health insurance plan.  Believe it or not, if you go with a High Deductible Health Care Plan (HDHP) for a middle aged guy of 35, private health insurance can be around $75 a month — even with such well known companies as Humana and Blue Cross Blue Sheild when you live in the city of Chicago (very expensive health insurance here!)

Healthy people sort to the less generous HDHP, sick people choose to the more generous COBRA.

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  1. Guy says:

    This doesn’t live up to the headline “adverse selection in action”. It’s just advocacy. There’s no evidence here that people actually sort in the way suggested.

  2. Thanks for the link.

    Couple things…if there were no pre-existing exclusions, for most people, even sick people, leaving a traditional Co-Pay plan for a HSA/HRA friendly HDHP would be cheaper.

    I ran the numbers before I knew that I wouldn’t have a private option. For some of the HDHP plans once your deductible is reached you don’t pay anything. No drugs. No out of pocket maximum. Nothing. You save on premiums, co-pays (which can add up very quickly for the very sick) and you *may* get tax deduction on the deductible (if you’re working or had a pre-existing health savings account / flexible spending account, etc.)

    Tax laws have changed a lot in the last few years. Up until about 5 years ago self-employed people couldn’t get tax deduction on health insurance, that changed…but for a while people with S Corps couldn’t get deductions if they purchased privately. In Illinois purchasing private insurance can be better for the business and employees actually.

    The people who don’t get tax breaks automatically for all their medical expenses now are people who are forced to pay their own insurance because an employer can’t/won’t. For them a HDHP plan with a health savings account is probably the cheapest way to go…if they are very sick or very healthy. When I ran the numbers people in the middle lost out a bit.

    Oh, and my name is Carolynn with two n’s.

  3. Jason Shafrin says:

    You are correct, this is advocacy. However, if it is optimal for individuals with pre-existing conditions to take up COBRA and for those without pre-existing conditions to get a HDHP, then this would constitute adverse selection.

  4. […] society; easiest way to decrease the number of uninsured; can solve the problem of adverse selection; lower administrative costs; benefits small business who otherwise would pay high load factors; […]

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