Great article from Milliman explaining why something has to be done to address adverse selection in health reform. If it is not the individual mandate, what will it be?
As Tom Snook, Principal & Consulting Actuary, Milliman Inc., says, people will operate in their own economic self-interest. If they are healthy and the cost of health insurance is high, they will not purchase health insurance, especially if it is not highly subsidized by their employer. If they are sick, they are more likely to purchase health insurance. With fewer healthy people buying health insurance and most sick people buying health insurance, you can see that the overall cost of health insurance will be high!
Under Health Reform, the traditional ways of mitigating the risk of adverse selection were taken away: coverage denials; charging higher premiums for those with pre-existing conditions. In exchange for taking these traditional techniques away, the individual mandate and the employer "pay or play" provisions were enacted.
If the individual mandate goes away the plan falls apart. Traditional techniques to manage risk are gone, but nothing new is in their place. This is a very sobering thought and one employers need to understand since you will be left holding the bag in your employer-provided health plans!
Read the Milliman article.