What to do about Pre-existing Conditions?
Our health care system is the best in the world. You would be hard pressed to find an individual who actually thought that one could find better medical care in a country other than the United States. That being said, our health care system does need to be reformed to solve two fundamental problems. These problems being that it is too costly to obtain simple insurance for the average citizen, and that our health care system does not provide for those who have pre-existing conditions.
An excellent article in the Wall Street Journal by Cato Institute Scholar John Cochrane points out the only real solution to providing insurance for those with pre-existing conditions, while maintaining minimal costs. His logic is excellent and further debunks the idea that the best solution to health care reform is a government run system.
An excerpt from his article is below…
A truly effective insurance policy would combine coverage for this year’s expenses with the right to buy insurance in the future at a set price. Today, employer-based group coverage provides the former but, crucially, not the latter. A “guaranteed renewable” individual insurance contract is the simplest way to deliver both. Once you sign up, you can keep insurance for life, and your premiums do not rise if you get sicker. Term life insurance, for example, is fully guaranteed renewable. Individual health insurance is mostly so. And insurers are getting more creative. UnitedHealth now lets you buy the right to future insurance—insurance against developing a pre-existing condition.
These market solutions can be refined. Insurance policies could separate current insurance and the right to buy future insurance. Then, if you are temporarily covered by an employer, you could keep the pre-existing-condition protection.
Some insurers avoid their guaranteed-renewable obligations by assigning people to pools and raising rates as healthy people leave the pools. Health insurers, like life insurers, could write contracts that treat all of their customers equally.
The right to future insurance could be transferrable to another company, for example, if you move. You could have the right that your company will pay a lump sum, so that a new insurer will take you, with no change in your premiums. Better, this sum could be occasionally placed in a custodial account. If you got sick but had something like a health-savings account to pay high premiums, you could always get new insurance. Insurers would then compete for sick people too.
Innovations like these would catch on quickly in a vibrant, deregulated individual insurance market.
What John Cochrane effectively describes is the option of having health insurance run similar to the current life insurance system… Essentially a health care system could be set up to allow individuals to purchase future health insurance at todays prices. (same as term life insurance) This would allow citizens to maintain their health insurance if they were temporarily laid off or if they developed a serious health condition.
Dr. Cochrane further points out in the article that deregulation is necessary to lower costs. This is because health care companies do not compete outside of state lines. By removing this requirement, one could get health care from any state and not be restricted to their current State ‘pool’ of health insurance companies. This new competition would force costs lower as companies competed for every customer within the United States.
Cochrane ends the article by pointing out the only way to lower costs in health care is to increase competition. It is a fallacy that government run health care can produce the same results.
More importantly, health care and insurance are overly protected and regulated businesses. We need to allow the same innovation, entry, and competition that has slashed costs elsewhere in our economy. For example, we need to remove regulations such as the ban on cross-state insurance. Think about it. What else aren’t we allowed to purchase in another state?
The bills being considered in Congress address the pre-existing condition problem by forcing insurers to take everybody at the same price. It won’t work. Insurers will still avoid sick people and treat them poorly once they come. Regulators will then detail exactly how every disease must be treated. Healthy people will pay too much, so we will need a stern mandate to keep them insured. And this step further reduces competition.
Private, competitive insurance markets are a superior way to solve the pre-existing-conditions problem, and the only hope to lower costs.
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