Not at all. I'll prove it to you (not that I think you'll really read through it).
Take a world of perfect free markets. I own an insurance company, my goal is to make a profit. I sell insurance to a pool of people who are randomly distributed, some are sick and some are healthy. I can't tell in advance which people are which.
Ideally, I would set the price for my insurance by using the percentage of people I estimate will get sick. This is an efficient outcome and results in the "fair" insurance price. Unfortunately, I know that sick people are also more willing to purchase insurance, so I adjust my expectation slightly in that direction. The solution that actually arises, in a pure free market economy, is that only sick people are willing to purchase high-priced insurance and insurers are unwilling to cover them.
Anyone with a background in economics (or maybe game theory) can confirm the story I just told for you.
I agree that this is a very simplified set of assumptions, but it is the same set of simplified assumptions the pro-"completely unregulated" crowd works with in their arguments.
Markets work great the majority of the time. However, there are plenty of special cases where markets fail. Insurance markets tend to be one of them.
I doubt many people with a background in economics are going to argue that adverse selection is not inherently present in insurance markets. Where I take issue with your stance is the assumption that government regulations, most notably, those within the current Senate bill are going to counterbalance those concerns.
Now, let me preface the following by stating that I am no economist, just an educated adult who is financially conservative with an interest in economic thought. That being said, in its most simplistic form, the negatives from adverse selection merely reflect the inability of the market to properly price a particular good because it cannot properly set rates that reflect risk. Unfortunately, outside of mandating insurance coverage (such as is the case in auto insurance), government intervention has rarely proven that it can do much to combat adverse selection.
In fact government regulation often perpetuates adverse selection by restricting the ability of insurance companies to make rates more closely representing an individuals risk (e.g., state regulations on community ratings and guaranteed issue). Typically, guaranteed issue provisions promote adverse selection concerns by giving individuals the ability as well as the incentive to delay purchasing insurance until they have health care needs. Similarly, pure community rating and adjusted community rating rules can raise the premiums for younger and healthier individuals relative to what they would pay if age and health status could be used as rating factors.
So, moving on to the Senate bill that was passed the other day, I do not think the entire bill is bad. It is certainly an attempt to step in the right direction to remedy these innefficiencies. Specifically, I have no problem with the economics behind the individual mandate. In fact, I believe that is one of the only ways to combat the problem with adverse selection. By requiring all individuals in an insurance pool to purchase insurance, insurers no longer have to adjust rates upward on the basis that most of their customers would tend to be higher risk individuals. I do, however, question the constitutionality of taxing people for not purchasing a good from the market. Regardless of how well the economics of a bill may hold up, legislatures must be mindful of the Constitution. I have not researched this issue enough to have an opinion of its constitutionality.
On the other hand, there are many portions of the bill that make little economic sense. First, taxing high cost health plans make little economic sense (although I understand that these guys are fighting for any means in which to pay for the plan). Second, I find little reasoning to require all employers offer approved healthcare coverage. If the individual mandate is supposed to lower costs by allowing insurer the ability to better estimate risk and the insurance exchange is supposed to take advantage of administrative efficiency and competition, what is the point of requiring employers provide health coverage? Third, the expansion of Medicaid to 133% of the federal poverty line will only exacerbate high premiums as care for more patients will be paid at below market rates rates which must be absorbed by the market in the form of higher costs all around. Fourth, it goes without saying that the moral hazard associated with requiring everyone to purchase insurance (i.e., many will have incentive to get their moneys worth by getting checked out more than they normally would) will put a strain on our current healthcare providers as well as increase the costs of providing medical insurance (which in turn is recovered through higher premiums). Finally, because the problems of adverse selection to low risk individuals results primarily from insurers inability to properly set rates reflecting risks, the bills limitations on rates that can be charged for certain high risk individuals will be absorbed by the remaining insureds through increased premium costs. [I wont even mention the problems I have with the payoffs for votes such as Nebraskas federal Medicaid subsidy.
All in all, although I understand the inherent problems of insurance markets, I do not believe this bill is sufficient to counterbalance those concerns. The problems with this bill are simply too great for me to support it.
