Saturday, February 27, 2010

Pre-existing conditions in a nutshell

With all the talk about pre-existing conditions in health care, it's important to understand what exactly we are talking about.

There are actually two separate issues that are interchangeably discussed as "pre-existing conditions", and since they are very different, and have different solutions, it confuses a lot of people.

The first is an actual "pre-existing-condition". Meaning I have a chronic disease, for which there is a known cost of treatment. I then go to an insurance company, and ask to be insured. If they cover the condition I already have, and if my payments don't include the total cost of the known treatment for the chronic disease, the insurance company is being stupid. "I'll pay you $20 if you give me back $30" is not a viable business strategy.

Now, a lot of people want to be able to force insurance companies to cover such pre-existing conditions, because they don't think of insurance as insurance, but rather as a pre-paid medical debit card. Imagine though going to a car insurance company and asking for a policy for the car you just crashed. Or to State Farm to ask them for a homeowner's policy for your house that is underwater because of a flood?

Oh, sometimes people do this -- it's called insurance fraud, and we put people in jail for it. But for some reason, we want insurance companies to take less money than they KNOW it will cost to provide care. And the insurance companies are actually on board -- so long as we also force healthy people to pay the same insurance premiums. So under this new system, a person who the insurance company knows will cost $500,000 over the next 10 years pays $100,000, while 10 other people who are most certainly only going to cost $50,000 average also pay $100,000, and it all works out.

Except that the 10 people who don't need coverage are forced to get it, and are forced to pay way more than what that coverage is worth. We tax the healthy to treat the sick.

OK, the 2nd "pre-existing-condition" is not an actual illness, but rather the propensity for the need of treatment. Really, this is a "risk" issue. Maybe it's a genetic marker which indicates a greater risk of illness. Or you had one disease, which makes it likely you could get another. You had a heart attack, so you could have more heart attacks. You had a transplant, so now you are compromised and likely to get sick. You have high blood pressure, so it might lead to other problems.

In these cases, the insurance company doesn't have a known cost of putting you on their books, but they know that if they take 10 people like you, it will cost them say twice as much as 10 people who are NOT like you. In the real world of insurance, you and the other 9 like you would pay twice as much in premiums as the other 10, and you would still come out ahead if you got sick, because your cost of treatment would be spread across others with similar changes of illness.

Now, in one sense, the 1st case is just the logical end-point of the 2nd, where the "risk probability" is 100 percent. most risks probabilities don't come close to certainty, and how we handle risk pools is a fundamentally different problem than how we handle known costs.

Of course, on Thursday the democrats attacked the idea of having "risk pools" for medical insurance. I'm betting though that they would be the first to say that smokers should have to pay more for coverage than non-smokers. I'm betting that because it isn't a "probability", it is a pre-existing condition.

Meaning: Democrats have already put large taxes on tobacco, to cover the "increased risk of medical treatment" needed by smokers. The state offers "health insurance", and they collect taxes to pay for it, and they add taxes to things that they think will make the health care the state pays for cost more. Democrats are also pushing to tax candy and soda, because those two lead to higher medical costs.

But apparently, if an insurance company wants to charge a person more because that person is likely to cost more, they are being evil.


Anonymous said...

"Except that the 10 people who don't need coverage are forced to get it, and are forced to pay way more than what that coverage is worth. We tax the healthy to treat the sick."

Sounds good to me. A nice way to run a society. Everyone is charged similarly, and is given the right to care as needed. You're not sold the care, you're sold to right to care when you need it. Peace of mind. Security. And everyone pays the same for it.

Charles said...

"From each according to their ability, to each according to their need". Sounds good to you?

But you missed the point. The 10 people aren't paying for the "right to care as needed". They are paying for the "right to care they will NEVER NEED".