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Analysis: An alternative to Mass. law?

By OLGA PIERCE

WASHINGTON, May 31 (UPI) -- Policies requiring health-insurance coverage, like the one recently enacted in Massachusetts, unnecessarily interfere with markets' ability to distribute healthcare costs, a libertarian health-policy expert told congressional staffers at a briefing Tuesday.

A better system would be one where individuals are offered a product called "guaranteed renewable insurance" at a steady premium that allows them to contribute more than they spend when they are young and healthy to subsidize possible high expenditures later, said Peter Van Doren, a senior fellow at the Cato Institute.

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"The market has provided an option," he said. "In effect, you can front-pay in your 20s for stuff you'll later spend down the road."

Insurance policies are designed to pool risk, and policymakers often find themselves concerned with ways to ensure that a risk pool is broad enough so that healthy individuals who use few health resources participate in large enough numbers to subsidize the care of high-cost individuals, the small number of people who account for a large share of expenses.

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One method -- part of a recently adopted package of healthcare reforms in Massachusetts -- is to require everyone to have a health-insurance policy, thus ensuring that low-cost individuals are not in short supply.

Proponents of the plan say the requirement, in combination with state subsidies and mandated contributions from employers, will lead to affordable coverage for all of the state's uninsured residents.

But it is predictable, Van Doren said, that some individuals will have higher expenses than others -- the elderly, for example, generally have higher costs than youths. "We worry about pooling because healthcare costs are so concentrated," he said.

Recent data compiled by the federal government indicates that the sickest 1 percent of individuals account for 30 percent of overall healthcare costs, while the healthiest 50 percent account for less than 5 percent of spending.

And that can amount to a raw deal, he said.

"You're dragging in young people who don't feel the options available are what they want," he said. "In effect, you're taxing young people."

Guaranteed renewable policies offer a better alternative with less government interference, he said.

Traditional policies compare premiums and healthcare expenditures in the short timeframe of the policy. This discourages health individuals from participating and encourages insurance practices like skimming -- selecting healthy customers in order to be able to offer a lower premium.

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"If the only people who sign up for something have greater-than-average spending ... you can't have an insurance program like that," he said.

Guaranteed renewable policies get around this by asking beneficiaries to pay toward their own future expenses at a rate roughly equal to the cost of care for a healthy person plus an adjustment for the probability that they will become a high-cost beneficiary in the future.

In addition, it appears that in guaranteed renewable individual insurance markets that already exist -- even in states that do little to regulate them -- premiums are available that very closely match this rate, according to University of Pennsylvania health economist Mark Pauly and others.

"These policies are a way out of the mess," Van Doren said.

Of course, in a system where there is no legal requirement to be insured, he said, some people may still choose not to be covered, no matter how much sense it makes. But those individuals have the right to make that choice -- especially if, in exchange, they could somehow be required to forego the right to safety-net treatment at others' expense, Van Doren told United Press International.

"You can't argue that markets don't provide a pooling option," he said. "You need to have incentives to prevent people from being stupid. If you play hockey and you don't wear a helmet, it's your fault."

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