The High Cost of Guarantee Issue

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Maine, Massachusetts, New York and New Jersey guarantee issuance of health coverage for anyone who would like to purchase a policy and they do not require consumers to consistently maintain coverage. This gives rise to adverse selection. That is, consumers in these states have an incentive to purchase insurance only when they expect to utilize medical services and can drop coverage when they are well. Without enough healthy consumers also paying for coverage, the medical costs are not spread broadly. This drives up premiums for those who do carry coverage. California, with the largest individual enrollment and low-cost options, does not impose a guarantee issue requirement on its competitive individual market. This is in sharp contrast to those states with guarantee issue which have lower individual plan enrollment and substantially higher prices for coverage.