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One of the stated goals of health care reform is to insure more people. I know it is very early, but so far we are not getting what we expected.

Fewer children are now eligible for health insurance in Connecticut than before the September 2010 mandate was made effective.

One of the mandates that went into effect on September 23rd was designed to preclude insurers from rejecting children because of their health history. Apparently there is a loophole in the mandate that allows insurers to reject children who are unhealthy so long as they also reject children who are healthy.

The private health insurers that sell to individuals and families in Connecticut appear to have decided to walk through that loophole. Not every company has announced their intentions, but I’m not expecting any of them to buck the trend.

They will insure children who apply for an insurance policy with a parent or parents so long as one of the parents is approved. However, they will no longer insure children who apply for standalone policies that are effective after the mandate.

Children who have existing policies will be unaffected.

This means that there will be countless children who would have been insured under the old laws who now will be uninsured.

Who is to blame for these uninsured children?

The insurance companies are convenient scapegoats, but I don’t think that they are at all at fault here.

Our lawmakers should have anticipated this.  Companies, be they insurance companies, restaurants or shoe makers will leave a market when they believe that they can no longer make money in that market.

While it is true that the big insurance companies make a lot of money in the aggregate, their margins are very thin. They make their money by insuring a huge volume of people and making five or ten or twenty dollars a month on each policy.

Opening their doors to all comers could mean going out of business. I don’t see who benefits if an insurance company goes out of business and leaves their unhealthy policyholders uninsured and uninsurable.

Forcing insurance companies to insure unhealthy people is a lot like forcing banks to offer loans to people who are not creditworthy. We’d never do that would we? This would cause some banks to close and others to become unstable and might even contribute to a worldwide recession.

Insurance companies have been mischaracterized as greedy entities that are making money hand over fist and will do anything for profit. If this is the case, why are they refusing to sell to so many children? The answer is simple. They don’t make enough money on the healthy kids to insure the unhealthy ones.

It is very unfortunate, but unless there is a reciprocal mandate that forces parents of healthier children to insure them, a company that took the unhealthy children would probably go out of business after a short period of time.

Here is what would happen. Parents of unhealthy children would rush to get coverage. Many of these unfortunate children would need costly operations that would cost tens of thousands of dollars. Their insurance companies would pay for these operations after receiving only a few hundred dollars from their parents.

Rates would then go up and some of the parents of the healthier (profitable) children would decide not to renew their policies. The rates would go up again because the ratio of profitable to unprofitable children has changed for the worse. Rinse and repeat.

Health insurance is a lot more complex than most other types of businesses. If we mandated that the grocery stores gave away 10% of their food to the poor, we could easily estimate the costs they would incur. However, when an insurance company opens its doors to less healthy people, it is like asking a bank to lend money to people with lower credit scores.

It only takes a few “extra” heart attacks or cancer surgeries to dramatically affect costs and in turn insurance premiums.

We cannot mandate that insurance companies take on all comers unless we mandate that all Americans buy insurance. You will hear a lot of rhetoric to the contrary. However, the math doesn’t work. If it did these so called greedy companies would not close their doors to so much business.

It will get worse before it gets better.

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