It is time for some straight talk on the sensitive issue of preexisting conditions, a subject “fraught with emotion.” There are no easy answers, claims Michael Tanner of the Cato Institute, but understanding the reality for those who are already sick or at high risk of becoming sick is a good start.
First, why is insurance needed? Insurance is about managing risk, whether it is house insurance, key man insurance, flood insurance, equine insurance or any other of the oodles of insurances one can buy. You buy insurance as coverage to protect “against events that are unlikely to happen but would carry a catastrophic cost if they did. (Insurance) premiums reflect both the likelihood of those events and the potential price of the medical care they’d require,” explains Michael.
Consider that, in 1752, Benjamin Franklin started the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, the first wide-scale commercial-insurance company in the United States. In providing Philadelphians with insurance against the then-frequent calamity of house fire, Franklin made the common-sense decision to charge those who lived in wood houses, which were more likely to burn, higher premiums than those who lived in brick houses.
The Affordable Care Act essentially eliminated this type of risk-management, mandating identical premiums for both brick and wood houses, or in this case, someone in perfect health and someone in very ill health. It is this Gordian knot that congressional Republicans are attempting, in their usual inept way, to cut.
For those who have a preexisting condition, “insurance” is a misnomer, because “there is no risk to manage or spread over a larger pool.” Health care costs still need to be paid. But how?
- Those with preexisting conditions could cover the costs out of pocket. Perhaps charities would kick in, and federal law still requires hospitals to provide ER care. The problem: few would receive the care needed.
- Others in the insurance pool can cover the costs, as is the case with the ACA. The problem: not enough healthy people are willing to sign up and pay higher premiums than would normally be justified by their actuarial risk.
- Spread the cost of insurance subsidies over the entire tax-paying population (high-risk pools), with government subsidizing high-risk premiums. The problem: It preserves “the illusion that people with preexisting conditions are being “insured,” when in actuality the uninsurable are uninsurable and there is little point in continuing to include insurance-company middlemen between them and their health-care providers.”
- Take preexisting conditions completely out of the insurance market, and have taxpayers “pay directly for their care, including them, for example, under Medicaid.” The problem: The risk of “adding substantially to federal and state spending at a time when the growth in Medicaid costs is already squeezing out other priorities such as education and infrastructure.” Furthermore, directly paying providers could lead to many of the problems (price controls, rationing) facing existing programs (Medicare, Medicaid, VA) as costs rise.
In a free society, it is natural and healthy to debate who should pay. “But too much of the discourse surrounding this issue pretends that treating people with preexisting conditions is cost-free,” writes Mr. Tanner. People with preexisting conditions are “currently being hurt by high premiums and deductibles wrought by (Obamacare’s) flaws.”
There is much not to like about the GOP’s incoherent proposal, but so far Democrats have been silent on a better answer.
Read more from Michael Tanner here: