Can the States Tame Adverse Selection?
If the Bush Administration is successful in promoting tax credits or premium subsidies for private insurance, or some innovative states decide to promote consumer-based voluntary purchasing arrangements for health insurance, using waivers, how does one guard against adverse selection, or risk segmentation? How does one prevent the bad risks from congregating in a few plans, driving up the insurance rates, driving out low-risk individuals, and causing an uncontrollable cost spiral? Fair questions. Critics of choice in medical care often say that the adverse selection problem is insoluble; therefore, patient autonomy and consumer choice of plans should be abolished. Not so fast, say advocates of choice. Ed Haislmaier, the President of Strategic Policy Management, a Washington-based consulting firm, and a former policy analyst at the Heritage Foundation and Pfizer Corporation, has developed a reinsurance pooling arrangement for state officials. In short, they would charter a non-profit co