Day 225 – “Pre-existing Conditions”

August 13, 2009

I was thinking about all the nonsense coming out in the health care reform debates about insurance companies denying coverage based on pre-existing conditions. I want to question what will happen if insurance companies can no longer pick who they insure based on this.

Before I begin, I want to remind you to put your emotions aside while you read this, and remember that I think that having health problems is a terrible thing, and I feel for those who have health problems and have problems getting insurance coverage. I am just arguing that using government force is not the way to fix this, and might actually make things worse.

Also, before I begin, this is from HealthReform.gov: “Under health insurance reform, insurance companies will be prohibited from refusing coverage because of someone’s medical history or health risk.”

Now, to what I wanted to say:

Insurance companies are in the business of taking on risk and providing compensation for some sort of specified loss. Those firms’ livelihood depend on their ability to calculate risk and gamble on it. Look at, for example, housing insurance in known high-risk flood areas. Most insurance companies will not insure homes in these areas. The companies know the home will likely be washed away in a flood and, if they choose to insure it, they will have to rebuild it every few years. Insuring homes like this frequently would probably bankrupt a company. Remember, insurance companies are gambling. They look at the amount of risk they are taking on and make decisions on who and what to cover based on how much and how often they will have to pay out.

If you are playing poker and know you will not win the hand, do you fold or call? If you are concerned about your money, you fold, obviously. If you are concerned with giving money to someone else at the table, you call. This is just a hunch, but I am pretty sure insurance companies are concerned with their own assets. They are not insuring you because they want to help you…if this was the case, they should just hand out money to everyone around. They are insuring you in order to make money by providing a service to you. If they think that insuring you is not a good investment, they will not do it. They do not make money by paying out more in claims than they can possibly bring in. They avoid paying out more in claims than they being in by rationally selecting who they will insure. (If you think insurance companies should be there to help you instead of make money, get in contact with me. I would like to explain some things to you.)

How does an insurer rationally select (in the case of health insurance) who it will insure? A lottery system is a bad plan, as it will just provide a smaller, but very similar sample of the general populous. Instead, insurance companies look at health history, lifestyle, etc, and calculate the risk of insuring someone. Frequently, these companies decline to insure people with pre-existing conditions, or people with lifestyles which will likely lead to health problems. Or, if it does insure these people, it weeds out more of them in another way: price. Typically, health insurance premiums are higher for smokers, because smokers are more likely to have health issues. This works in two ways: it discourages smokers from seeking out health insurance from these firms (and causes some to stop smoking), and the firms get more money from the smokers it does cover, so it does not lose as much money. Either way, it keeps more money in the firms’ accounts. The more they can select who they cover, the less they have to pay out. This keeps them in business.

To take it into other areas of insurance: Why do insurance premiums go up (or your coverage dropped) if you frequently get speeding tickets, DUIs, and get in accidents? The insurance companies know you are a higher risk, so adjust accordingly. Should the insurance company be forced to provide car insurance to known DUI offenders? I think not. Should insurance companies be forced to cover homes they know will be wiped out by floods roughly every three years? I think not. Why, then, should insurance companies be forced to cover people with conditions that make them a high risk for making future insurance claims? (I want it to be known here that I am not equating people with medical conditions with DUI offenders or houses that need rebuilt every three years. Look beyond the particulars here to the underlying components here.)

Now, what will happen if these firms are no longer allowed to select based on if someone has pre-existing condition? I see two things happening. The first is that premiums will sky-rocket. The second is that, over time, insurance companies will stop providing health care insurance all together. Medical/health insurance will give them huge losses, so they will drop that all together and stick to insuring other things. Should this happen, only one provider of health care coverage would be left: the government. It bothers me to think about that, but I am pretty sure that is what would happen. Back to the flood plain example: who provides low cost home insurance in known flood plains? The government. Other insurance companies can’t afford it. Only the government can because it is taking the money from your pockets at the point of a gun. This is what I dislike the most. If you are okay with the government taking your wealth, we have a lot more to talk about. Please contact me.

The current health care reform may not look like a government take over, but I fear that it might be in the near future. A take over of the health insurance industry is not explicitly written into the reform bill, it does not have to be. If the government makes providing health insurance no longer profitable, it will no longer happen privately.

I would like to point out that there have been a lot of particulars brought up by individuals in the government in order to get people upset about firms selecting on the basis of pre-existing conditions. Here is a quote from HealthReform.gov: “But a pre-existing condition does not have to be a serious disease like cancer or heart disease. Even relatively minor conditions like hay fever, asthma, or previous sports injuries can trigger high premiums or denials of coverage.” I am not in the health insurance industry, but some of these ‘conditions’ seem a little harsh to limit covering someone because of. I am not advocating, however, that the government regulate these companies and force them to stop their selecting practices. There are other ways of getting the company to change its ways. Stop buying insurance from them. Threaten to stop buying from them. Picket them. Send them millions of letters. Just don’t use force to get them to change. Providing insurance should be a voluntary thing, on both ends, not a forced thing.