How do health insurance companies purge their sickest customers?

[subterranean]

As I understand it, their strategy is to jack up rates in plans with too many expensive policyholders. All the healthy customers will then switch to cheaper plans (with higher deductibles). Unhealthy customers will stay in the high-cost plan until they can no longer afford it, but after they are forced to drop their coverage they will not be accepted by any other plan due to pre-existing conditions. So they join the ranks of the uninsured, and taxpayers pick up the tab for their health care.

Is my understanding of this correct?

[Warpy]

1. That's about it. The insurance death spiral is especially bad

for people who have to buy private insurance. If they're healthy, they're put into an arbitrary "group" of other people who buy at the same time. As claims are issued within the group, the rates climb. As the rates climb, healthy people get other insurance in another new group, something the sick people are no longer eligible to do. The rates eventually get confiscatory and the last sucker drops coverage.

It's a racket.

A great deal of reform could be accomplished by tossing out the notion of "groups," and forcing the insurance companies to take all comers at the same rate, whatever that rate turns out to be. Without separating us into these artificial coteries that work so well with their actuarial tables, the death spiral would be much harder to accomplish.

[subterranean]

6. Thanks for the explanation.

In any other country, this kind of practice would be a major scandal. Here, it's business as usual.

[Nictuku]

2. I think another method

I think another method is for a carrier to 'No longer service your area/county', forcing people to change carriers, and then the new carrier denying coverage for pre-existing conditions.' I think the insurance companies probably collude to achieve the purge.

[flyarm]

3. ISN'T "REFORM " GREAT?? unless you are ill of course!! eom

[subterranean]

5. I think the reforms will require them to justify premium increases

at least for plans in the exchange. That should put a stop to this kind of practice (in theory, anyway; in practice, they'll probably find some other way to purge sick customers).

[Ratty]

4. Don't they also blackmail employers?

They threaten to raise rates as long as the employer carries expensive policyholders. Employer fires or lays them off, problem solved.