By Ronald E. Bachman
The purpose of insurance is to purchase protection before the onset of a problem. You can’t buy hurricane insurance when a named storm is headed your way; an imminent claim from a known “pre-existing condition” precludes the purchase of coverage.
Health insurance is different. Pre-existing conditions are prevalent. Some are born thus; many acquire chronic conditions and others deal with the normal disabilities of aging.
By analyzing medical records and policy application information, health insurance companies determine whether individuals or groups seeking health coverage have a pre-existing sickness or illness. This is called “risk selection.”
Insurers have the power to exclude anyone from purchasing needed health coverage. In the past, many abused this power, “cherry picking” very healthy customers. These abuses increased the number of uninsured. Individuals were at a disadvantage if they left a job where they had coverage; buying an individual policy was subject to “risk selection.”
This imbalance of power because of pre-existing conditions no longer makes sense. Genomics and DNA testing assess individuals’ predisposition to illnesses, from dementia to cancers. Consumers can now anti-select against insurers just as insurers have anti-selected against consumers.
At least four options in this changing environment can tackle pre-existing conditions and “guaranteed coverage” (covering someone regardless of their health status).
- Large group coverage under a single contract
- Mandated private-market health insurance
- Mandated government-provided nationalized health systems
- Empowering individuals with a “Guarantee of Coverage” including pre-existing conditions, if they are unfairly denied coverage
Pre-existing conditions are covered by large “self-insured” employers after a limited period of ongoing treatment or recovery. Large companies and association groups utilize a large-group approach to cover employees who are initially actively at work (thus healthy enough to work) and may have a waiting period before full coverage begins.
With self-insured companies, the employer, not an insurance company, is responsible for claims and plan solvency. They are specifically excluded from most requirements of the Affordable Care Act (ObamaCare) and regulated under the federal ERISA law.
This option works but does not provide guaranteed coverage or coverage of pre-existing conditions to “fully insured” small groups or individual policies.
Private Market Mandated Coverage
ObamaCare’s individual and employer mandates (50 or more full-time employees) provide guaranteed insurance. If a small employer does not offer health insurance, individuals originally had to purchase their own coverage. This individual mandate has since been eliminated from ObamaCare, abd young and healthy individuals can avoid insurance.
In addition, the self-insured exclusion is now being used by groups as small as 10 lives under arrangements known as level-premium plans; a young, healthy group that survives a basic risk-selection process can avoid most of ObamaCare. Employer coverage has morphed into a combination of reinsurance products that mimic self-insurance close enough to qualify for exemption from ObamaCare.
If a group has poor risks or later develops high claims, the group shifts to guaranteed coverage for pre-existing conditions under ObamaCare. Consequently, mostly high-cost, less-healthy lives are accumulating in ObamaCare, leading to higher premiums.In the actuarial world this is known as a premium “death spiral.”
Government-Provided Health Care
Government-provided health care like “Medicare for All” and other nationalized health proposals would mandate government insurance for all citizens, eliminating all private insurance and the employer self-insured option.( Medicare’s limitations generally require individual purchase of a Medicare Supplement to compensate.)
With most proposals, government becomes a “single payer” for medical services. Some countries have implemented various structures to deliver care and directly pay providers, but many have long waits, restrictions on services, high taxes, and a lack of accountability under a government bureaucracy.
Empowering individuals is a voluntary, free-market system that can actually solve the guaranteed issue and pre-existing coverage problem. Individuals apply and negotiate with insurers for coverage.
Empowered individuals would retain private insurance (fully insured and self-insured) and existing government coverages (e.g. Medicare, Medicaid, CHIP/PeachCare).
First, the applicant can approach any participating insurer to negotiate coverage at discounted, standard or upcharged premiums.
Second, an individual denied or unable to negotiate coverage or premiums can submit an appeal to a public-private mediator. If the insurance company’s final offer is not considered fair, the individual would receive a “Certificate of Guaranteed Coverage” that covers pre-existing conditions. That certificate, submitted to any insurer, would oblige the insurer to offer coverage at their standard rates or a predetermined reasonable upcharge.
Third, an individual deemed truly uninsurable would receive comprehensive medical care under a government-subsidized “Impaired Health Support Coverage.”
Empowering individuals would assure access to guaranteed coverage for everyone with any pre-existing condition. They would be directly accepted by an insurer, provided a “Certificate of Guaranteed Coverage” or provided government subsidized “Impaired Health Support Coverage.”
In this system there is no individual or employer mandate; participation by individuals and insurers is entirely voluntary. This option provides a voluntary, free-market, limited-government solution to guaranteed issue and coverage for pre-existing conditions. Implemented properly, it can stabilize markets, lower premiums, and provide universal access to quality coverage and health care.
Ronald E. Bachman, President & CEO of Healthcare Visions is a Senior Fellow at the Georgia Public Policy Foundation. The Foundation is an independent think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (November 2, 2018). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.