The Better Solution for "Pre-Existing Conditions"

October 17, 2012

Early in 2010, as the final debates over the Affordable Care Act, aka ObamaCare, neared an end, a parade of the legislation's defenders appeared across the media. All had the same message: pre-existing conditions, says John C. Goodman, president and CEO of the National Center for Policy Analysis, a Research Fellow with The Independent Institute and author of Priceless: Curing the Healthcare Crisis.

The message surely resonated, but how many people have actually been affected since the law passed?

  • The Affordable Care Act established a federally funded risk pool -- the Pre-Existing Condition Insurance Plan -- that allows individuals with such disqualifying conditions to buy a policy for the same premium a healthy person would pay.
  • About 82,000 people have signed up as of July 31, according to the Kaiser Family Foundation's statehealthfacts.org.
  • That is not a misprint: Out of a population of more than 300 million, some 82,000 have the problem that was cited as the principal reason for spending $1.8 trillion over the next 10 years and in the process turning the entire health care system upside down.

The three-year cost of the pools is about $5 billion -- a tiny fraction of the law's overall burden. Nevertheless, the federal risk pool will be closed down in 2014, when ObamaCare will begin prohibiting insurance companies from charging premiums based on the health conditions of applicants.

But when insurers are forced to charge the same premium to all applicants, regardless of expected health care costs, prices will be wrong for everyone -- and both buyers and sellers of health care policies will have perverse incentives.

  • On the buyer's side, healthy people who are overcharged will underinsure, buying less coverage than they otherwise would. They may even go without insurance, since the ObamaCare penalties for being uninsured are weak and people can always buy a policy after they get sick.
  • People with expensive health problems will overinsure, buying more generous coverage than they otherwise would.
  • Insurers, on the other hand, will try to sell policies to the healthy, on whom they expect to make a profit, while avoiding the unhealthy, on whom they expect to incur a loss.

While the high-risk pools are a cheaper and less destructive solution to the problem of pre-existing conditions, there is an even better idea: to insure yourself against the possibility of becoming uninsurable, as suggested by economists such as the University of Chicago's John Cochrane. Under this approach, policies would be guaranteed to be renewable and include the right to buy another policy in the future. If your health condition worsens, a new insurer would be free to charge you a higher premium. But the old insurer would pay the extra premium caused by the change in your health status.

Source: John C. Goodman, "The Better Solution for 'Pre-Existing Conditions'," Wall Street Journal, October 17, 2012.

 

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