Risk, Pre-Existing Conditions, & the Cost of Health Insurance

Even before  passage of the Affordable Care Act (ACA) in 2010, the debate re coverage of pre-existing conditions was a hot topic. News accounts of people with serious, perhaps life-threatening medical conditions being denied coverage were heart-wrenching and frightening. So was the thought of being dropped by an insurance company after developing an illness requiring expensive, long-term treatment. No one wants to see someone’s life destroyed by an illness, or driven to bankruptcy by the cost of care. Add in the volatile nature of an ever-changing job market, and you have the stuff of nightmare scenarios. So, when the ACA banned such practices by insurance companies, a collective sigh of relief was heard from many quarters.

Unfortunately, the Law of Unintended Consequences accompanied the ban. People with complex health histories tend to utilize health care to a far greater degree than the young and/or healthy. Without being able to adjust premiums by risk, insurers raised premiums for everyone. No one likes higher insurance payments, but sicker people get a bigger return on their investment. That good deal encourages them to utilize their insurance to the maximum. Healthy individuals, especially young, healthy individuals, get little more than a bigger monthly premium. As a result, many young people simply didn’t sign up, and with a relatively modest penalty for refusing to comply with the law’s mandate to carry health insurance, it made sense for those young and healthy individuals to skip buying coverage until/unless they got sick or suffered serious injury.

Not surprisingly, plans sold on the healthcare.gov Exchanges ended up with large numbers of older, sicker patients, and not enough young, healthy patients to balance out the pool. Insurers started hemorrhaging money due to excessive payouts, and when an Obama Administration bailout for insurers failed to materialize, many insurers abandoned the ACA Marketplace. Those that remain offer fairly narrow choices re doctors and hospitals in an effort to control costs. In a way, we are moving back to the Health Maintenance Organization (HMO) model championed by Senator Edward Kennedy in the early-to-mid 1970s. HMOs were heralded as the way to provide affordable care (sound familiar?), and they did offer significantly lower monthly premiums. Unfortunately, the choice of doctors and hospitals were so severely limited, and the quality of care so erratic, they came to be universally hated. Consumers soon abandoned them en masse.

With the election of Donald Trump, the very real possibility of  repeal of the ACA roused supporters of the law. They insisted that the ban on adjusting premiums or denying coverage based on health history be carried over to whatever system replaced it. Many Republicans seem only too happy to comply, citing the popularity of the provision. But, is it really necessary to distort the market for everyone in order to insure coverage for those with a pre-existing condition?

Estimates of the number of people served by the ban run as high as 27% of the US population, so at first glance, it seems a significant challenge to effect change. However, it must be remembered that those individuals enrolled in government-sponsored plans, like Medicare, don’t have to worry about such exclusions, and for the most part, neither do those covered by commercial health insurance provided by their employer. Those two groups dwarf the number of people served by the Exchanges, so we’re talking about a much smaller number.

A replacement for the ACA could fix the perverse nature of the current law. While insurers wouldn’t be able to deny coverage, they could charge higher premiums based on the risk those individuals present. Reform proposals call for publicly-funded premium support for those with higher risk, allowing the remaining people in the insurance pools to benefit from lower premiums. This would avoid the present distortion, where a relatively small segment of the risk pool drives premiums higher for everyone else, especially the younger, healthier folks insurance pools so desperately need in order to remain solvent.

OK, you say, sounds reasonable, but what about the problem of insurers dropping clients after they’ve developed an expensive, chronic condition or been seriously injured?  It’s really not an issue of a pre-existing condition for the original insurer, so what keeps an unscrupulous company from dumping anyone who develops a serious, chronic health issue on another insurer?

Good question, because a person dropped by one insurer as too expensive, isn’t going to be an especially attractive customer to another insurer. The answer lies in allowing the original insurer to drop an individual, but requiring that original insurer to pay the difference between what the client’s original plan cost, and the cost of a comparable plan from the new insurer. That provision will cause companies to think long and hard before dumping someone who had the misfortune to get sick or be injured.

For those subsidized, higher premiums, combined with other incentives to keep clients with serious medical conditions healthy, could actually produce better outcomes than hoped for under the ACA’s outright ban. Insurers would have financial motivation to pursue clients whose complex health histories demand greater maintenance, but also bring in higher revenues, especially if that complex patient can be kept healthy. Equally important, it doesn’t penalize someone for being healthy.

Raymond T Kyle

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