April 12, 2017

KRAVITZ’S KORNER | The Health Insurance Pre-Existing Conditions Folly

Print More

Over spring break, I had the opportunity to purchase my first car. The salesman at the dealership told my father and me that if I was the sole owner of the car, I would have to pay a lot of money for automobile insurance—compared to a “normal” adult. My dad and I eventually decided to be co-owners of the vehicle in order to save money through the insurance plan, since my father is cheaper to insure.

Historically, insurance plans were created to cover serious accidents that seldom occur. Property insurance arose in the 17th century in order to protect landowners from fire damage. Life insurance policies emerged a century later as a means of financially protecting families against the unexpected deaths of family members. Disability insurance eventually became a popular means of protecting companies in the event of a patron becoming injured. What made these insurance plans successful—for both consumers and insurers—was the fact that the accidents covered under these plans were extremely uncommon. Individuals were willing to pay insurers on a regular basis in order to avoid paying an arm and a leg in the event of an emergency. Conversely, insurance companies profited by rarely having to reimburse the insured, and by leveraging their size to negotiate discounted rates.

Nowadays, health insurance functions less as a safeguard against unlikely emergencies and more as a college dining plan. Just as dining plans cover daily meals at all the campus dining halls—and even include money to spend at cafes—people select insurance plans that cover a host of routine healthcare services. The coverage and pricings of both of these plans is directly related to what the consumer uses: how much food you eat, how often you’re expected to get sick, etc. Another similarity between college meal plans and health insurance is the exorbitant rate of purchasing items à la carte. Paying out of pocket for a meal swipe is relatively expensive, as is paying for a medical procedure—both non-emergency and emergency—without health insurance.

Since health insurance is used regularly—unlike nearly all other types of insurance—the insurer has to carefully craft plans to reflect their customers’ expected usages. The reality is that people with pre-existing conditions use higher-than-average amounts of healthcare. So if the insurer knows for sure that someone has a condition, and it is known that this condition requires regular treatment, then insurance companies will want to charge more. The parallel situation in the automobile insurance market is young adult men getting charged more for their vehicle insurance, since young men are involved in a higher amount of accidents compared to the general population. These are natural business practices to which insurance companies adhere in order to remain competitive.

The great injustice in the healthcare market in the United States isn’t that insurance companies can discriminate on the basis of pre-existing conditions. The real problem is that every person needs some form of insurance to gain basic access to healthcare services. It certainly makes sense for people to have health insurance for truly life-threatening situations, but this is markedly different than the current environment wherein insurance is required for access to healthcare for non-emergencies.

Today, it is nearly impossible for uninsured people to shop around and acquire price information before receiving care. This lack of transparency allows doctors to heavily inflate the cost of care for those lacking insurance, forcing people to seek insurance. Obamacare and Ryancare both worked around this central issue, focusing instead on how to artificially make insurance more affordable at the expense of the American taxpayer. My hope is that our nation’s legislators spend less time trying to regulate the insurance market and more time introducing reforms to increase competition and transparency in the healthcare market.