Doctor on health reform law: ‘You can’t insure a preexisting’

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.