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So what would it cost to allow pre-existing conditions?


There is a number that should not be horribly hard to calculate by the actuaries of the health insurance companies. In fact, it's a number that they have surely already calculated. What would alternate health insurance systems cost?

A lot of confusion in the health debate concerns two views the public has of health insurance. On the one hand, it's insurance. Which means that of course insurers would not cover things like most pre-existing conditions. Insurance is normally only sold to cover unknown risk in every other field. If your neighbours regularly shoot flaming arrows onto your house, you will not get fire insurance to cover that, except at an extreme price. Viewed purely as insurance, it is silly to ask insurance companies to cover these things. Or to cover known and voluntary expenses, like preventative care, or birth control pills and the like. (Rather, an insurance company should decide to raise your prices if you don't take preventative care, or allocate funds for the ordinary costs of planned events, because they don't want to cover choices, just risks.)

However, we also seek social goals for the health insurance system. So we put rules on health insurance companies of all sorts. And now the USA is considering a very broad change -- "cover everybody, and don't ding them for pre-existing conditions."

From a purely business standpoint, if you don't have pre-existing conditions, you don't want your insurance company to cover them. While your company may not be a mutual one, in a free market all should be not too far off the range of such a plan. Everything your company covers that is expensive and not going to happen to you raises your premiums. If you are a healthy-living, healthy person, you want to insure with a company that covers only such people's unexpected illnesses, as this will give you the lowest premiums by a wide margin.

However, several things are changing the game. First of all, taxes are paying for highly inefficient emergency room care for the uninsured, and society is paying other costs for a sick populace, including the spread of disease. Next, insurance companies have discovered that if the application process is complex enough, then it becomes possible to find a flaw in the application of many patients who make expensive claims, and thus deny them coverage. Generally you don't want to insure with a company that would do this: while your premiums will be lower, it is too hard to predict if this might happen to you. The more complex the policy rules, the more impossible it is to predict. However, it is hard to discover this in advance when buying a policy, and hard to shop on.

But when an insurance company decides on a set of rules, it does so under the guidance of its actuaries. They tell the officers, "If you avoid covering X, it will save us $Y" and they tell it with high accuracy. It is their job.

As such, these actuaries should already know the cost of a system where a company must take any client at a premium decided by some fairly simple factors (age being the prime one) compared to a system where they can exclude or surcharge people who have higher risks of claims. Indeed, one might argue that while clearly older people have a higher risk of claims, that is not their fault, and even this should not be used. Every factor a company uses to deny or surcharge coverage is something that reduces its costs (and thus its premiums) or they would not bother doing it.

On the other hand, elimination of such factors of discrimination would reduce costs in selling policies and enforcing policies, though not enough to make up for it, or they would already do it, at least in a competitive market. (It's not, since any company that took all comers at the same price would quickly be out of business as it would get only the rejects of other companies.)

Single payer systems give us some suggestion on what this costs, but since they all cost less than the current U.S. system it is hard to get guidance. They get these savings for various reasons that people argue about, but not all of them translate into the U.S. system.

There is still a conundrum in a "sell to everybody" system. Insurance plans will still compete on how good the care they will buy is. What doctors can you go to? HMO or PPO? What procedures will they pay for, what limits will they have? The problem is this: If I'm really sick, it is very cost effective for me to go out and buy a very premium plan, with the best doctors and the highest limits. Unlike a random person, I know I am going to use them. It's like letting people increase the coverage on their fire insurance after their house is on fire. If people can change their insurance company after they get sick then high-end policies will not work. This leaves us back at trying to define pre-existing conditions, and for example allowing people only to switch to an equivalent-payout plan for those conditions, while changing the quality of the plan on unknown risks. This means you need to buy high-end insurance when you are young, which most people don't. And it means companies still have an incentive to declare things as pre-existing conditions to cap their costs. (Though at least it would not be possible for them to deny all coverage to such customers, just limit it.)

Some would argue that this problem is really just a progressive tax -- the health plans favoured by the wealthy end up costing 3 times what they normally would while poorer health plans are actually cheaper than they should be. But it should put pressure on all the plans up the chain, as many poor people can't afford a $5,000/month premium plan no matter that it gives them $50,000/month in benefits, but the very wealthy still can. So they will then switch to the $2,000/month plan the upper-middle class prefer, and go broke paying for it, but stay alive.

Or let's consider a new insurance plan, the "well person's insurance" which covers your ordinary medical costs, and emergencies, but has a lifetime cap of $5,000 on chronic or slow-to-treat conditions like cancer, diabetes and heart disease. You can do very well on this coverage, until you get cancer. Then you leave the old policy and sign up for premium coverage that includes it, which can't be denied in spite of your diagnosis.

This may suggest that single-payer may be the only plan which works if you want to cover everybody. But single-payer (under which I lived for 30 years in Canada) is not without its issues. Almost all insurance companies ration care, including single payer ones, but in single payer you don't get a choice on how much there will be.

However, it would be good if the actuaries would tell us the numbers here. Just what will the various options truly cost and what premiums will they generate? Of course, the actuaries have a self-interest or at least an employer's interest in reporting these numbers, so it may be hard to get the truth, but the truth is at least out there.


Just to add some perspective, any (de jure or de facto) state insurance in Europe, i.e. the type of health insurance most people have, is required by law to take you on regardless of pre-existing conditions, and the premium doesn't depend on this. (It might depend on your income, i.e. earn more pay more, like a tax, though in some countries there is a cap.)
In some countries it is funded by general income tax. The U.S. has to face up to the fact that there are some areas where the free market just doesn't work, "work" meaning carrying out something in a morally acceptable way.

Yes, in a state-paying system, it's relatively easy to not deny coverage for pre-existing conditions. The challenge the US faces -- because like it or not, too many voters in the USA oppose government run health care -- is to figure out how to design a system which has competition among plans, but avoids more of the pitfalls of the existing system.

This is a tall order, and some would say it is impossible. If it is possible, it is worth looking at, because competition does do a better job of serving the public in pretty much every sphere it is made to work.

The way it works now is most people get their insurance through a group, not on their own. As long as insurance companies can be sure that the group does not exist mainly for the purpose of buying insurance, they can accept pre-existing conditions without much trouble. And the way you get insurance today, if you have pre-existing conditions, is to join such a group -- work for an employer with good coverage, or be a member of a professional society that has coverage. This handles the working class and professionals, and the rich can handle themselves, mostly. It does not handle the unemployed, independent operators without a professional society, people who work for companies which can't or won't get health coverage, illegal immigrants and various others. It also creates the curse that you are stuck in the system once you are hard to insure -- it is more difficult to change jobs, and risky to leave a job long term to strike out on your own.

They key though is that you join the group not to get the insurance. Some of the professional associations are on the line here, there are people who join them just to get the insurance, as as a result their insurance plans are not nearly as good as prime employer ones.

Anyway, the point is that it may not mix to require insurance plans to cover people who have pre-existing conditions, and letting them shop once they have them. However that does not mean it's impossible to find some solution. Once you have a pre-existing condition rule, you gain back what people want to remove -- the application process becomes complex as you must list all your medical conditions, and the companies now have a means to deny you coverage for being incomplete on the complex application. Many plans wish to ban the latter, presumably making the companies take the burden of assuring applications are correct, but it's hard to see how they would have this in outright fraud.

But there might be solutions, in creating insurance pools that anybody can join but which don't particularly attract the sick.

Brad needs to check his facts a bit better. The overwhelming majority of Americans FAVOR universal healthcare or a public option. In 2007 and 2009 polls conducted by New York Times/CBS, 64% of Americans said they would support a government guarantee of healthcare for all Americans and 60% were willing to pay higher taxes to do so. 56% favored a single payor system (i.e., universal healthcare or "socialized" healthcare. A 2009 NBC News/Wall Street Journal poll showed that 76% favored a public option. There are numerous other polls that come to the same conclusion.

In the USA, politics isn't as simple as "76% favour a public option, therefore we get it."

Rather obviously in fact. U.S. political reality depends on many more complex factors, such as what political contributors and powerful lobbies want, what politicians judge voters will tolerate and still re-elect them (which is a lot) and so on.

I have know idea if the polls cited are accurate or not, but if they are, then it's even clearer how little influence the voters have when powerful forces are allied against something.

The health insurance companies I have dealt with often don't consider (or don't understand) the severity of the illness; they just count the number of illnesses. If you hit the magic number, you are bumped to a higher premium. I saw a dermatologist ONCE (in 50 years) for what turned out to be a zit, only to find out years later I was denied medically underwritten coverage for my "acne", which of course I didn't have in the first place. I never missed a day of work or visited an Emergency Room because of my one zit, but it still flags my record. I had an ultrasound once for what turned out to be nothing, and they found a completely benign cyst, a very common and innocent finding. I was told last week by Blue Shield that this finding was the other item in my record putting me at what they consider "highest risk".

More horrifying is the recent news that in DC and eight other states, insurance companies are claiming that "domestic violence victim" is also a pre-existing condition:

For those unable to work or who have lost their jobs and are under 65 here- you're toast. Canada's lookin' pretty good...

There is no doubt that insurance companies do strange things in accepting policyholders. In theory a market solves this out. Somebody who specializes in insuring people who have been rejected for obviously stupid reasons should do very well. Somebody who takes people who have been rejected for plausible reasons (even if often incorrect) won't do quite as well. Somebody who takes people who were rejected as they are legitimately a high risk will of course end up insuring high risk customers, which is not tenable except at high premiums.

The issue is not what odd things the insurance companies do (on the sell end) but what happens if they can't do them. It doesn't work to let people decide to upgrade their insurance after their house is on fire. Something -- I don't know what -- has to deal with that, as the market can't.

"The way it works now is most people get their insurance through a group, not on their own. As long as insurance companies can be sure that the group does not exist mainly for the purpose of buying insurance, they can accept pre-existing conditions without much trouble."

The answer, of course, is that, for the purposes of health care, all citizens should belong to one big group. But let's face it, in a country where morals are still determined primarily because what the Pilgrims believed and by what happened in the Wild West after the Civil War, it will never happen. Oscar Wilde was right: the US is the only country which went from barbarism to decadence without civilization in-between. And uninsured people, especially uninsured children, IS a decadent state of affairs.

Sometimes competition doesn't work. Competition assumes I can change to a new provider if I am not happy with the old one. That won't work if no other one will accept me. In some sense competition might take place at a higher level, i.e. which insurance companies let folks die and will be weeded out in the next round, but, as an evolutionist would say, we don't want group selection here, but rather selection at the level of individual people, i.e. the result of the competition among the insurance companies should be visible during an individual's lifetime.

But understand that single payer is not on the table in the USA at the present time. So the interesting debate is not that, but rather what can be done to exploit the good things that competition does do. While it may not solve every problem it is the right answer the majority of the time, which is part of the US reluctance to abandon it. The question becomes, how can you apply competition here to good advantage, while mitigating the problems, and not expecting it to solve everything.

Indeed, once you have existing conditions, you no longer can shop competitively. Because of the employer system in the USA, most people don't shop at all, the shopping is done by employers, and the criteria are cost and how good the plan will look to people being recruited.

The problem is that people don't get their medical conditions by choice, mostly, while other risks that people assume in insurance are by choice. Choose to live in a high fire risk area and you expect to pay more for fire insurance. One could argue it would actually be good for society in single payer systems if people who smoked paid more for medical insurance, for example. It is generally not done because it would require a smoking police doing drug tests, and cigarette taxes can play the same role.

We've seen the difference competition makes among other service providers. Compare monopoly phone and cable companies with non-monopoly industries! It needs a very good reason to give this advantage up in any place we can get it.

What exactly do the US health insurance companies contribute?

Do they conduct tests, make diagnosis, perform operations,
care for patients?

No, those services are done by doctors, nurses, medical
technicians, etc.

Do they pool risk?

No, the largest percentage of health care recipients are
over 65 and covered by Medicare. Many others are denied
coverage for pre-existing conditions (including acne and
being a victim of spousal abuse) or have their care
retroactively recinded for petty application errors.

And for this "service" they are taking record profits and
running an overhead of anywhere from twenty to thirty
percent. (Compare with Medicare, with an overhead of around
four percent.)

Single payer vs. multiple payer, government-run vs. private
with government regulation -- there are almost as many ways
to provide quality, affordable health care to all citizens
as there are developed nations in the world. I encourage
people to seek out the work of T.R. Reid for perspective on
some of the different methods.

In the US, the pig at the trough is the health care
insurance industry. Until this hog is slaughtered, the
current attempts at health care reform are just ineffective

suggested reading:

5 Myths About Health Care Around the World
By T.R. Reid

Oops... the link was eaten.

5 Myths About Health Care Around the World
By T.R. Reid

I don't think you gave enough credit to the system where everyone is guaranteed issue of a policy from the insurer of their choice as long as the plan is not excessively "better" than the one they already have. You mentioned that "This means you need to buy high-end insurance when you are young, ...", but I don't think it is quite like that. I would expect that such a system would require all insurers to cover all of a specified list of illnesses, and that the differences would be in policy structure such as how much is charged for co-pays, what the deductible is, and what the out of pocket max is. In this case, a young person who chose a high deductible and then had an expensive illness would be punished for some limited number of years - one year if the illness is short, and possibly several if it is a longer term illness. This would encourage people to do sensible planning, while not punishing them to an unacceptable extent (e.g. not providing coverage) if they lose the gamble trying to save on premiums. In any case, a system like this should have a minimum allowed upgrade per year that would be guaranteed to any consumer who wants it, even if they are changing insurers. Higher rates of upgrade could be allowed at the discretion of the insurer.

Which is to say, they don't view it rationally. The young think they will never need health care at all, and often don't for a long time.

But you can't just say "cover all these things and differ on the copays." There are better and worse doctors, better and worse hospitals, and more to the point more expensive ones. There are fancy expensive tests, and fancy expensive treatments. Fancy policies cover these things, cheap policies don't. You think you can stop that in the U.S. system? The US is a long way from that.

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