News Release - States Struggle to Solve Problem of ‘Adverse Selection’

For Immediate Release –

Sept. 10, 2009

Media contact: Mark Marchand – (518) 443-5283 /

States Struggle to Solve Problem of ‘Adverse Selection’ for Small Employers and Individuals as Health Care Reform Debate Heats up in Washington

New Paper by Researchers at Rockefeller Institute and Harvard University Suggests Potential Solutions for States

Albany, N.Y. — States struggling to reduce the number of uninsured residents face the threat of “adverse selection,” the problem created when a large number of people who have health insurance also incur higher-than-average medical costs. As a result, health insurance costs more to provide and pay for than it would if everyone, including healthier people, were to have insurance.

The greater costs may in turn deter even more employers from offering health benefits, and more individuals — especially young healthy ones — from signing up for it.

To address this problem, authors of a paper — developed with support from the New York State Health Foundation and issued today by the Rockefeller Institute of Government — suggest that states consider three strategies:

• Merge the small group and individual health insurance markets
• Create statewide insurance exchanges
• Institute requirements for people to be personally responsible for obtaining health insurance coverage

The paper, Managing Risk in Health Insurance Markets: A Challenge for States in the Midst of Health Care Reform, was researched and written by Courtney Burke, director of the Rockefeller Institute’s Health Policy Research Center, and Professor Katherine Swartz of the Harvard School of Public Health. Burke and Swartz also recommended that states ensure that subsidies to individuals to pay for insurance are adequate, and that rating regulations and product offerings are the same for people using the exchange as those not using it.

Citing the speech given by President Obama last night, Burke said, “Whatever happens in Washington, New York and other states still will have considerable jurisdiction over managing risk in their small group and individual insurance markets.” Such groups include well over 40 million Americans, a large proportion of whom are currently uninsured.

“Adverse selection is a major reason that premiums per person in the two markets (small group and individual) are higher than in large group markets and why some people are denied coverage in states that permit denials of applications,” Burke added. “When states can manage this risk so it is substantially reduced, more insurers will be willing to sell insurance policies; competition between the insurers will ensure efficiency in the markets, making premiums more affordable; and more people will have access to health insurance.”

The authors also said state initiatives indicate there are three major sets of strategies that states currently use for managing risk in health insurance markets: those that affect the entire state’s population and avoid adverse selection; those that involve only certain parts of the population and may not avoid adverse selection; and those that target only a small segment of the population.

“States have extensive experience with strategies that target only a segment of the population, such as high-risk pools,” Swartz said. “Such strategies may help a targeted group obtain coverage, but they have not been successful at ensuring universal coverage, nor can they deal effectively with unpredicted risk. A combination of newer risk management strategies implemented simultaneously is likely to improve coverage efforts.”

For a full copy of the report, visit


About the Rockefeller Institute of Government

The Nelson A. Rockefeller Institute of Government, at the University at Albany, is the public policy research arm of the State University of New York. The Institute conducts fiscal and programmatic research on American state and local governments. Journalists can find useful information on the Newsroom page of the Web site,

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