This is the second part of an ongoing post which starts here. You may want to read it first but here is a short summary:

If we can implement a nicely regulated competitive market, a set of government supervised insurance exchanges, where health insurance companies are forced to charge uniform rates for their policies and cannot discriminate against sick people, that market will still fail. Sick people will wind up paying more for insurance policies than healthy people or everyone will find that they can only get insurance policies that provide little or no insurance against losses due to illness.

It works like this: some insurers will offer cheap policies, golden youth plans, which require high out of pocket payments and deductibles before any payments are made for health care. These policies will be attractive to consumers who are healthy or believe that they are healthy and do not anticipate really needing much medical care. They will be cheap because the consumer will make most of the payments for health care most of the time.

At the same time, insurers who offer comprehensive health plans will find that they have lots of older, unattractive customers who tend to get sick a lot. Those insured by golden youth plans will have lower average medical expenses making these plans still more profitable for insurers. The comprehensive plans will find that their costs rise. They will become very expensive and may go out of business.

So what happens if we require everyone to buy health insurance? This mandate was suppose to reduce the cost of insurance for everyone since young healthy people and unattractive old people were supposed to mix in the same insurance pool but - the buildup was long and the punchline is short - it won't work.

The two types of policy will effectively separate the two risk pools. The golden youth, faced with a mandate, will choose to associate with other golden youth. The geezers will be walled off in a geezer ghetto. They will pay high rates for comprehensive policies or resign themselves to buying high out of pocket policies which force them to bear most of the financial risk from illness,

When the golden youth fall from grace they will regret their choice but it will be too late.

Mandates will just assure that everyone, young and old, rich and poor is required to pay a certain tribute to the fine health insurance companies. This will no doubt be good for the states that host fine health insurance companies and may well generate many campaign contributions. It will not make reasonable health insurance policies any less expensive.