Most people like to feel that they are pretty indestructible. Myself? I lamented turning 20 as the age at which my indestructibility left me. There are many young people that choose not to have health insurance, and still many more (especially men) who carry insurance but do not have regular checkups.
When the U.S. Government, as part of Health Care Insurance Reform, stated that they wanted to force Insurance companies to insure people with Pre-Existing conditions, I thought it was a good and popular move. After all, who likes to think about the people that want insurance and cannot get it?
That was before I actually started thinking through the problem.
How Insurance Works
One of the amusing things about insurance is it’s the only industry where you’re betting you’re going to use it and they are betting you’re not—or at least not right away.
Life Insurance – You know you’re going to die, but you don’t know when. The insurance company is betting you’re going to live longer so that they can make enough money to cover the payout and their bills.
Auto Insurance – They’re betting you won’t be in that many accidents, and the fewer you are in, the less that they charge you, so that if you are in one, they can pay the payout. This is also why some companies may drop you when you have an accident—you proved to be less reliable than they had predicted.
Health Insurance – They are betting that you will not be sick enough to cover the premiums that you are paying in. They also put in some cost sharing to make the premiums affordable.
And the last is the rub. As long as you’ve always been covered, if you had a pre-existing condition an insurance company may take you on—knowing that you’ve paid in in the past. However, if you did not have insurance, you’re just looking to take out which is a bad risk to them.
The Results of ObamaCare
And this is what this part of ObamaCare has done. It’s basically told everyone that they can get on a Health Insurance Plan regardless of whether they’ve had any insurance, and regardless of what costs may come up—which may be millions of dollars for some pre-existing conditions.
Insurance is funded by premiums and investments, and it’s well tuned. It’s supply/demand driven as well as driven by stock prices. The actuarial tables are based off of who is in the pool.
If there’s an influx of people that are not paying currently, but then decide to get insurance for a pre-existing condition, they are a net negative for the insurance industry. This is the same insurer that’s paying for your health care as well.
If these people are cured, and then get off health insurance knowing they can get back on at any time, the Insurer never makes back that money—and must therefore raise rates.
The Attempt as a Solution
So, Congress decided to try to change the rules of the game to account for this. What they did was to mandate everyone to get some level of Health Insurance. The problem with this is that they tried to do this with a fine based system—and the fine is cheaper than insurance. They tried to add jail time to the fine, but that was unpalatable—people want all the perks but don’t understand the fees. And it also appears that the IRS was the one to self-impose the feeds for not being in a plan, but they’re not given extra resources to do it.
So, the attempt was to force everyone into a plan, which would then mean that money would be available from the low risk people to help pay for the high risk, but since the fee was less than premium payments, people might still choose to be uninsured.
And even if they did impose the fee and collect, what insurance company would get the money? My guess is that it’d stay in the Federal Government’s coffers.
What Should Have Been Done?
What could have been done was to create some kind of system whereby people with pre-existing conditions could tap into some kind of emergency money. It could have been instituted by the insurance companies themselves. It needs to be local, so that it can be quick and that it can meet needs. People could then get policies with some kind of rider that covers routine stuff, and then they have to apply for the special account.
Or, perhaps there should be some kind of charity system whereby people could donate to the charity, get a tax write-off, and help people with pre-existing conditions.
There could also have been contracts that could be created to verify some level of payment in the case that something doesn’t go wrong—a life insurance policy that’s deeded to the health insurer.
In any case, just eliminating the pre-existing condition ban seems short-sited in terms of the law of unintended consequences—unless the plan was to bankrupt the Private Health Insurance companies in the U.S. for the purposes of a single-payer, public plan…