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Expand High-Risk Insurance Pools To Handle Pre-Existing Conditions – Pacific Research Institute

Expand High-Risk Insurance Pools To Handle Pre-Existing Conditions

With his public option stalled on the tracks, a centerpiece of President Obama’s health care agenda is emerging. This new one would require insurers to cover those who have pre-existing conditions — while making them charge prices that ignore those conditions.

This would immediately inflate the prices of everyone else’s insurance premiums while incentivizing millions to quit carrying coverage year-round. In doing so, it would undermine private insurance and pave the way for a government-run plan.

Furthermore, it would make it harder for the rest of the uninsured — the vast majority of whom don’t have expensive pre-existing conditions — to afford coverage.

It’s essential that we solve the problem of ensuring health care access to those with pre-existing conditions. But this serious issue should be dealt with in a sensible way, not in a manner that would make matters much worse.

The president’s proposed experiment, like so much of his health care agenda, has already been tried in Massachusetts. Bay State insurers are banned from denying coverage or charging higher premiums to those with pre-existing conditions.

Massachusetts residents are also required by law to buy health insurance, even if they don’t want it. But many did the math, realized the fine for not carrying insurance was lower than the cost of carrying it, and decided to pay the fine rather than buy the plan.

Why carry insurance year-round when you can just wait until you get sick or injured and then sign up for “insurance” (wink, wink) to cover you?

Naturally, there has been an increase in the number of Massachusetts residents who buy coverage for a few months, run up high medical bills, then dump the coverage.

One Massachusetts insurance company, Harvard-Pilgrim, estimates that from April 2008 to March 2009, 40% of its new enrollees stayed with it for less than five months. These short-term enrollees incurred $2,400 in average monthly costs compared with a companywide average of $350, according to the Wall Street Journal.

Most Americans aren’t comfortable with forcing people to pay the full cost of coverage for a pre-existing condition when it’s prohibitively expensive and they can’t possibly afford it. But most Americans’ intuitive sense of justice also recoils at the other extreme: the view that those who cost far less should be required — by law — to pay the same as those who cost far more.

A completely healthy person who exercises, doesn’t smoke, and eats and drinks in moderation should not be required to pay as much for coverage as a chronic drinker or reformed smoker who’s requiring expensive treatment for liver or lung disease.

And those who wait until they’re sick to buy insurance should not be able to buy it at the same price as those who have been paying into the insurance pool all along.

Beyond issues of fairness, Obama’s proposal would raise prices, reduce access for the uninsured who don’t have expensive pre-existing conditions, and cause a mass exodus from the insurance ranks.

A better solution exists. Rather than requiring insurers to cover all comers at the same rate, we should further strengthen the high-risk pools operating in most states. Thirty-four states already have high-risk pools to help cover those who are uninsured and have pre-existing conditions.

We should increase federal support for these pools and incentivize their establishment in all 50 states. Some of the federal funds that go to covering emergency-room care for such patients could be shifted to these pools, as reliance on emergency-room care is reduced.

Perhaps Obama fails to anticipate that his proposal would lead millions of Americans to drop their insurance. But perhaps he doesn’t. For if people start buying insurance only when they need care, insurers’ revenue will decline but their costs will not, and insurers will have no choice but to raise costs substantially for those who remain.

As prices rise, two things will happen: More people will follow suit in treating insurance as a just-in-time good, and the public outcry against higher insurance premiums will escalate. And then who will ride to the rescue on the white horse? The government.

“You see,” the president would say, “private insurance has been tried, and it hasn’t worked. We need to do what works.”

The predictable result would ensue.

To give the administration its due, it has repeatedly said the public option is not an end in itself, but rather the means to an end.

Anderson is a senior fellow in health care studies at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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