Econoclasm continued: What's this pre-existing conditions deal?

Since I interrupted this series, I will remind you that previously, we discussed the problem of adverse selection -- that people who are unhealthy are more likely to buy health insurance in a hypothetical Free Market.™ But sellers of health insurance must find ways of predicting and limiting their losses. The problem of adverse selection would not exist if we had a universal system, as all other wealthy countries and some not-so-wealthy do. Everybody would pay into the system, preferably according to their means. That way people who are healthy today subsidize the costs for people who are not. If that strikes you as unfair, consider that it is the entire purpose of insurance. People whose houses don’t burn down subsidize the people whose houses do burn. Consider also that while most people’s houses never burn, just about everybody eventually needs medical services.

 

Unfortunately, because advocates for universal health insurance were largely thinking about this problem, they often used the term “compulsory” health insurance in the past, which is bad PR. It seems to imply an infringement on liberty. That’s why the “individual mandate” that was originally part of the Affordable Care Act didn’t sit well with many people, and the Republican congress repealed it.

 

Since we do not have universal health insurance, however, adverse selection is potentially a problem. The major public insurance programs – Medicare and Medicaid, along with the Veterans Administration and Indian Health Service – don’t really have this problem since they cover everyone who is eligible, and are paid for by levies on the general public.

 

Private insurance providers, whether they are investor-owned or nonprofit, do have this problem. Prior to the ACA they dealt with it in two ways. One, which they still do, is to sell insurance as a package to large employers, which covers all of their employees, or at least all of them whose terms of employment include health insurance. This group will have a mixture of people with high and low need for medical services, so the premium on a per-person basis can be reasonable. The insurer can adjust the premium from year to year based on its experience with the group.

 

For individuals or families wanting to buy insurance however, this is a big problem. And so we come to the notorious issue of pre-existing conditions. If you went to buy insurance, and you already had diabetes or cancer or heart disease, or any other expensive condition, in the past they wouldn’t cover you for it. To many people, this seems outrageous. The very people who most need the coverage can’t get it. So why not just pass a law that says insurers can’t refuse to cover people for pre-existing conditions? Problem solved, yes?