Of magic wands and kaleidoscopes: fixing problems in the individual market

Policy analysts sometimes imagine that problems in the individual market can be fixed by waving a magic wand that makes the individual market function more like the group market. However, prior studies reveal that purchasing cooperatives fail to achieve substantial economies of scale; market reforms that reduce the impact of medical underwriting are difficult to implement in the individual market; and it may not be as easy as imagined to induce people to purchase over the Internet or from new or smaller companies that are at higher risk for exiting the market. The best solution is to limit the use of subsidies to certain purchasing options, such as with purchasing cooperatives that abide by rating, issuance, and renewability rules. What is not acceptable is to hand people subsidies and send them to the unstructured and relatively unregulated individual market, nor will it work to give people unhindered choice between two basically different market segments.