About the author

Dr. Jane M. Orient is the executive director of Association of American Physicians and Surgeons and has been in solo practice of general internal medicine since 1981. She is a clinical lecturer in medicine at the University of Arizona College of Medicine. She is the author of Sapira’s Art and Science of Bedside Diagnosis; the fourth edition has just been published by Lippincott, Williams & Wilkins. She also authored YOUR Doctor Is Not In: Healthy Skepticism about National Health Care, published by Crown. She is the executive director of the Association of American Physicians and Surgeons. Additional information on health-related issues: www.aapsonline.org and www.takebackmedicine.com.

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The plight of people who lose their insurance and then get sick is one of the most appealing arguments for health care reform. And the White House really took advantage of it, soliciting tear-jerking stories from responsible folks who played by the rules and who can’t get insurance through no fault of their own.

The disagreeable truth—a relentless law of economics—is that you can’t insure a pre-existing. If you wreck your car, State Farm pays only if you had the insurance policy before the accident. If you don’t have insurance, your options are to take the bus, walk, ride a bicycle, get help from friends or family, or come up with money to buy a new car from some source other than a car insurance company.

People would very much like the “right” to buy insurance that would cover their pre-existings, without restrictions or waiting periods. But the same folks don’t much like the idea of paying for other people’s pre-existings—or even for their sicknesses. So the healthy ones often switch into a new policy that gives them an enticing low rate if they pass the underwriting. Then those who can’t switch see their premiums go up rapidly. This is called the “death spiral.” Is it the wicked insurance companies’ fault? Or human nature?

You might naturally feel sympathy toward a person who finds out that he has a costly and fatal condition like AIDS. But what if he doesn’t tell the life insurance company about the pre-existing as he buys a million-dollar policy for the benefit of his partner? Is it wicked of the insurer to rescind the policy because of fraud? Or should the government force the company to pay—until it goes bankrupt, and leaves all of its subscribers without coverage?

If you have insurance through your employer, pre-existings are likely not a problem—if you can get the job, that is. But the huge drawback of employer-owned insurance is that you lose it if you lose your job. This is called “job lock.” Lots of people are stuck in jobs they hate because of this.

It might not seem fair that people who pay into a policy for years or decades are left with nothing the instant the policy lapses. But that is the nature of an insurance contract.

If over 10 years or so, you put $100,000 into a safe investment, at the end of that time you have $100,000 plus interest. If instead you hand the money over to the insurance cartel, you have nothing. The trade-off is that if you have a catastrophic event during the time you are covered, the insurer pays. Most people think the deal is a fair one, and that’s why they voluntarily pay the premiums.

As soon as the government forces people to pay a premium for other people’s pre-existings, they are likely to object to what they—quite reasonably—see as a rip-off. Hence the need for more force: the individual mandate.

Some people don’t see the connection, and think we can keep that popular provision on pre-existings, and delete the rest. We can’t.

The long-term answer to the problem of pre-existings is to break the connection between health insurance and employment, which requires changing the tax code provision that caused it. People can pay medical costs with pre-tax dollars if and only if they pay with employer-owned insurance. If they pay out of pocket or through individual policies, they must use after-tax dollars. With payroll tax and income taxes, that means they pay about twice as much. How can that be fair?

People tend to have much longer relationships with groups other than their employer: churches, credit unions, or fraternal organizations, for example. Why can’t they get group health insurance in that way? This type of group policy could offer advantageous guaranteed renewability to keep healthy people in the program.

And why should people get a huge tax advantage if and only if they funnel payments through a third party?

Meanwhile, there are people who have problems now. And there is a solution that already works, without the system-wide destruction of ObamaCare. Many states have high-risk pools for the uninsurable. In Colorado, the monthly premium for a 35-year-old man with income under $50,000 is about $204, around $50 higher than premiums in the regular market. In New Jersey, with guaranteed issue/community rating like that in ObamaCare, the regular monthly premium is $2,150.

Forcing insurers to cover pre-existings without allowing enormous premium increases will bankrupt them. Perhaps driving private insurers out of business is the real agenda. However, imposing a “solution” that multiplies costs bankrupts everybody.

Those who are counting on that single payer hovering in the background need to remember that the government is already bankrupt—a very dangerous pre-existing condition.

The most popular provision of ObamaCare may also be the worst. The whole Act needs to be repealed.

15 Responses

1. Eric Wilson Says:
   January 17th, 2011 at 12:14 pm

   ABSOULUTELY CORRECT! What I have been saying for years.

2. Ben Stille Says:
   January 17th, 2011 at 2:02 pm

   They have tried non-employer based groups in the past. It has been an huge failure, wherever tried. If you want to make reform without bankrunpting the insuraance companies, locking people into workplace policy or forcing single payer there is only one way. Extend HIPAA provisions to all policies and make part of the HIPAA Provision that all insurance is guanteeded issue. For the layman, if you have 18 months of continuos coverage you don’t have any prexisting conditions when entering a new group plan. If you were to do this it would force everyone to buy insurance, make insurance transportable and take away the adverse selection risk for the insurance companies.

   Ben

3. Paul S. Bunkin Says:
   January 17th, 2011 at 6:22 pm

   A NJ resident purcased single person guraranteed issue health insurance in 1997. She had previously been uninsurable. Her monthly premium was $266.00 then; it’s now $2,000.00 per month. NJ has no insurance mandates. Requiring insurance companies to take everyone regardless of health histories without requiring insurance mandates will cause the plan to fail. If millions of healthy persons are not buying now they will surely not buy if they can hold off buying until they are ill or potentially ill under the guaranteed issue provisions of the PPAC act.

4. politicaljules Says:
   January 17th, 2011 at 10:24 pm

   Brilliant

5. Eric Wilson Says:
   January 18th, 2011 at 2:09 pm

   Ben:
   I agree with you on the HIPPA extension. I have been saying that for a few years. Extend that from group plans to individual plans. Where I do not agree is why should it be a your companies job to insure you. It used to be a “perk” to hire good employees. Most often our companies are not paying for our car or home insurance, why should health be any different? I would say extend Hippa and if you had insurance you can get insurance, but if you did not have insurance than either you can be denied or have an 18 month waiting period.

   Paul:
   You make a good point and from what I understand in Massachusetts that is exactly what is happening. People pay a fine until they get sick, buy insurance, have the insurance company pay for it, get well, cancel the insurance and start paying the fine. The system does not work properly.

6. Steve Says:
   January 19th, 2011 at 1:48 pm

   The car analogy needs work — covering pre-existing conditions is not like asking an auto insurer after the fact to pay to repair your car; medical bills you have before coverage are not expected to be paid. Once the car is repaired, you are not able to get new auto insurance because the car was involved in an accident. Using the car analogy differently, if auto insurance worked like health insureance, every time you get an oil change, the service station could replace all the tires, even if not needed (well, new tires are always better, but were the old tires not road worthy?) because insurance is paying for it. You wouldn’t pay for the new tires (you’d claim he was trying to rip you off!), but if your insurance company were paying, what the heck, new tires! Lastly, going back to the car wreck, let’s say I did not have car insurance at all — I wouldn’t have to spend my own money to repair my car, I can walk into an “emergency car repair room” and all your tax dollars pay for it anyways. Whether increased premiums or increased taxes, the sick and injured will get care. Whether that’s fair or not is another question….

7. Amber Marvin Says:
   January 20th, 2011 at 1:10 pm

   The private health insurance industry has already come up with a great solution – HIGH DEDUCTIBLE POLICIES which have low premiums, plus you are allowed a Health Savings Account which (unlike the Flexible Spending Account) rolls over every year. So if your annual deductible is $1,200, you just need to put $100/month to your HSA & then you’ve got enough to cover the deductible, and future deposits need to only be high enough to cover expected over-the-counter medical needs. Then personal responsibility takes over as people will actually KNOW how much health care actually costs because they are paying for it IN FULL out of their HSA, & if something catastrophic happens that exceeds the annual deductible, THAT’S when the insurance company takes over & pays, which is how it should be! Both the healthy & pre-existing benefit by these policies, so why does government want to take personal responsibility out of the equation??

8. John Says:
   January 24th, 2011 at 5:22 pm

   What would happen if the law was changed so that anyone with prior coverage would be guaranteed insurability with no pre-existing? This could be used whether the prior was group, or the replacement was individual. It would eliminate a lot of the troubled cases where the loss of the group, or COBRA sent them out in the cold. But they were paying in the system before, should be protected.
   Also, the entire real issue needs to be more focused on cost of medical care instead of cost of insurance. My Dad, when told by his doctor to come back in 3 months for a diabetes checkup said, “Nope, make it 4 months.” Really changed the cost, time, inconvenience. A lot of savings could be met this way — do we ever hear it?

9. Carol Says:
   January 25th, 2011 at 9:47 am

   While I agree that allowing pre-existing would be a detriment to the insurance companies, I also feel the pain of the individual who has a pre-existing condition. My 26 year old son is an insulin dependent diabetic who recently changed employers and has a 1 year pre-existing clause on his policy. He takes 2 types of insulin which costs him $350-$400 per month. How many 26 year olds do you know that can afford this? Something has to be done – I know there are a lot of people in this sinking boat!!

10. Mark Says:
    January 25th, 2011 at 11:36 am

    Paul – I agree with your overall premise that all health insurance premiums will be lower if everyone (both healthy and sick) buy health insurance. However, I would like to point out to you that insurance mandates have been in effect in NJ since the early 1990s, several years before the plan you write about was in effect.

    John – as Ben states, there is such a law already in place. The HIPAA law allows people to go from one group insurance plan to another without pre-existing condition limitations if they go 63 days or less without coverage. Those who go longer than that will have limited pre-ex coverage. I agree that one of the issues that needs to be focused on is the cost of care. Another issue that should receive more focus is people’s lifestyles. The best way to lower medical claims is to prevent them from happening in the first place.

    Eric – some individual plans are already HIPAA compliant. The problem is those plans cost more than regular individual plans, which are already pretty expensive. Perhaps the way to go would be to force all individual plans to be HIPAA compliant.

11. Eric Wilson Says:
    January 27th, 2011 at 11:18 am

    Mark:
    Kind of what I was saying many states have hippa or risk pools that are expensive, I was saying ( or trying to say) extend the HIPPA to individual plans so that if had insurance for 18 months, you cannot be denied coverage. I think it would be fair if you PAID into the system so to speak, then you can get coverage, if you went without insurance and then tried to get it once you were sick, either then you could be denied or make you pay for the insurance for 18 months or 24 months before they pay a dime for the pre-existing conditon.

12. Confused Says:
    January 31st, 2011 at 6:21 pm

    Why does their need to be a new system at all? This doesn’t have anything to do with wanting to insure the uninsured. If that was the case, they could just modify the rules for medicaid so that everyone was covered and the people who priviously were excluded because they made to much, could pay the government.This way the cost could be controlled and everyone would be covered. The focus could then be on fixing the remittance issues that plague it so doctors would get paid in a timely manner. Their is need to recreated the wheel. The argument that insurers balk at covering pre-existing illnesses doesn’t seem to make them have an opinion about people who pay for years and never use it. That is the upside and the basis for the insurance model as a business, that more people will pay than those who file a claim. To deny a pre-existing condition is an attempt to holdon to the tremedous profits they make from the people who never use there insurance for hospitalization. It doesn’t hurt them to pay for a check-up..but if you are seriously ill or injured ad require hospitalization then their is significant cost(debateable).

    Hospitals are paid 200% of the medicaid billing. I have for years offered to factor that billing for a piece of the 100% profit they get, so as to mitigate the slow remittance issue. No one took the offer.

13. Kim Hrubes Says:
    February 1st, 2011 at 8:16 am

    Amber is dead on! People have no idea what is being paid for their health care. With HSAs, people pay the first $1200 or whatever deductible they choose making them very aware of the cost for doctor visits, prescriptions, tests, etc. It might even get them to shop for the best price on prescriptions and tests! This would bring down the cost of services through competition. I also agree that we need to allow individuals to deduct health insurance premiums from their income tax. This levels the playing field with company paid insurance. It will also incent people to buy their own insurance which will follow them where ever they go and frees them from being “job locked”.

14. Tom in Palm Springs Says:
    February 3rd, 2011 at 8:14 pm

    I thought your article was an argument against insuring people with pre-existing conditions, “a relentless law of economics – you can’t insure a pre-existing.”

    Then you go on to give many examples demonstrating just the opposite of your premise. The fact is pre-existings are insured all the time. Most employers allow a new employee to enroll himself and his family into group coverage. No questions asked.

    High risk uninsurables in Colorado and New Jersey get insurance probably through a government program as you have described it.

    Many states have government funded programs for the uninsurables.

    By the way, why can the government force you to buy car insurance but not health insurance.

    And that story about buying car insurance after an accident is tiresome and used by those against health care for all far more than the President’s heartbreaking stories of people who played by the rules and got sick after they lost their coverage in this recession.

    I got turned down for a pre-existing condition. On the application I was honest and said occasionally I get an ache in my neck and take an advil. Response: “coverage denied because you have an ache in your neck and take advil.”

    The healthcare bill may not be perfect, but it is the beginning of reform. Social Security started out less than perfect and became one of the most successful government programs.

15. Tom In Palm Springs Says:
    February 7th, 2011 at 5:23 pm

    Darn this internet. It allows you to research facts and write the truth. For example,

    NJ State plan for uninsurables (federally subsidized)
    Male, age 35, non-smoker, $0 deductible, 20% co-pay, $429.51/month
    pre-existing covered from day 1

    Standard market in NJ same person, PPO $1,000 deductible, $15/office visit
    %595.58/month no pre-existing coverage

    Cover Colorado
    Male, age 35, non-smoker, $1000 deductible $0 co-pay with discount (earns less than $50,000 a year) $228/month with pre-existing coverage

    Private plan Colorado same 35 y/o Deductible $3000 then 100% coverage thereafter, $262 month, no pre-existing

    IN BOTH NEW JERSEY AND COLORADO THE STATE PLANS THAT COVER PRE-EXISTING CONDITIONS ARE A BETTER DEAL.

    Where did you get Obama’s $2,150 monthly premium for a 35 year old?

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