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Commentary

The Better Solution for ‘Pre-Existing Conditions’


     
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Do you remember the debates over the Affordable Care Act, aka ObamaCare? Now that repeal of the law has become a major campaign issue, it may be helpful to remember why Congress passed it in the first place.

Early in 2010, as the climactic votes neared, a parade of the legislation’s defenders—from the House, Senate and Obama administration—appeared across the media. All had the same message: pre-existing conditions. They named the names of families ”victimized” by companies that had refused to sell them insurance, had canceled their coverage or had refused to pay their medical bills.

The message surely resonated, but how many people have actually been affected since the law passed? The Affordable Care Act established a federally funded risk pool—the Pre-Existing Condition Insurance Plan—that allows individuals with such disqualifying conditions to buy a policy for the same premium a healthy person would pay. About 82,000 people have signed up as of July 31, according to the Kaiser Family Foundation’s statehealthfacts.org.

That is not a misprint. Out of a population of more than 300 million, some 82,000 have the problem that was cited as the principal reason for spending $1.8 trillion over the next 10 years and in the process turning the entire health-care system upside down.

The risk pool surely comes as welcome relief to those who need it. A lot of them are really sick and are running up expensive medical bills. But the three-year cost is about $5 billion, as budgeted in the Affordable Care Act—a tiny fraction of the law’s overall burden. Nevertheless, the federal risk pool will be closed down in 2014, when ObamaCare will begin prohibiting insurance companies from charging premiums based on the health conditions of applicants.

Mitt Romney has vowed to repeal ObamaCare if he is elected president, but his plan for addressing pre-existing conditions is similar to it in some respects. Mr. Romney says he would require insurers to ignore pre-existing conditions for anyone who has been insured continuously for a certain period of time, such as through an employer’s plan.

But when insurers are forced to charge the same premium to all applicants, regardless of expected health-care costs, prices will be wrong for everyone—and both buyers and sellers of health-care policies will have perverse incentives.

On the buyer’s side, healthy people who are overcharged will underinsure, buying less coverage than they otherwise would. They may even decide to go without insurance, since the ObamaCare penalties for being uninsured are weak and people can always buy a policy after they get sick. People with expensive health problems will overinsure, buying more generous coverage than they otherwise would.

Insurers, on the other hand, will try to sell policies to the healthy, on whom they expect to make a profit, while avoiding the unhealthy, on whom they expect to incur a loss,—and they will change the design of their plans to accomplish this goal.

Preventive care and wellness checkups with no deductible or copayment, for example, will attract and keep the healthy; insurers may even provide memberships in health clubs. But failure to include the best cancer-care center or the top heart clinic in a plan’s network will discourage the sick from enrolling. Insurers may also underprovide for unhealthy people by failing to include the latest cancer drugs in their offerings.

These same incentives are present in the current system, but most people have insurance brokers or employers acting as their protectors. In a few years, however, the brokers will likely leave the market altogether and many employers will drop their coverage. Along the way, the federal government will put enormous pressure on insurers to keep their costs down. Then you will be on your own, facing a system that has no interest in spending money on you.

On health insurance generally, Mitt Romney surely has the better approach. He would give the same tax relief to individually purchased insurance as to employer-provided coverage. That would put portable insurance (owned by the individual) on equal footing with group insurance that must be forfeited when people change jobs. Portability would alleviate the problem for individuals who change or lose their jobs but have medical conditions. Also, repealing ObamaCare would mean that people wouldn’t be able to game the system by waiting to buy insurance until after they get sick.

For those who have not been continuously insured, Mr. Romney favors risk pools. This is a cheaper and less destructive solution to the problem of pre-existing conditions. But here the danger is that risk pools must be structured judiciously, lest they also encourage the healthy to remain uninsured.

There is an even better idea: to insure yourself against the possibility of becoming uninsurable, as suggested by economists including the University of Chicago’s John Cochrane on this page in April. Under this approach, policies would be guaranteed to be renewable and include the right to buy another policy in the future. If your health condition worsens, a new insurer would be free to charge you a higher premium. But the old insurer would pay the extra premium caused by the change in your health status.


John C. Goodman is a Senior Fellow at the Independent Institute. The Wall Street Journal and the National Journal, among other media, have called him the “Father of Health Savings Accounts.”

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