Q: I don't see why pre-existing conditions should be covered. It would just give people who don't pick up health insurance until they get sick insurance, and it would makes us all pay more to insure those freeloaders. Right?

Partly right.

The freeloading is a real issue that has to be dealt with in the regulations. For example, 5 states (NY, NJ, MA, VT, ME) right now don't allow insurers to turn down or charge more for people with pre-existing conditions, but this is only provided they have had full comprehensive health insurance for a period (usually 1 year) prior. The purpose of that requirement is to make it a bad strategy for anyone to wait until they get sick to pick up insurance. (They might have to pay for a year of sickness and lose too much of, or all of their savings in that year.)

The thing to see about the pre-existing conditions problem is that we don't want to fix it to help those freeloaders who intend to just pick up insurance when they get sick. It's to help the people who just want to have, in an honest way, insurance all of the time, so they don't have to risk going bankrupt, and so they don't have to risk going without care. The problem can happen for such responsible people when a person has insurance from an employer, but the employer decides to stop offering insurance, or goes out of business, or lays you off. It can also happen to people who currently have non-employer insurance, if the insurer decides to stop writing policies in the state, or if they go bankrupt.

There is also a kind of funny thing, that few people are aware of, that can happen when people have non-employer insurance. What happens is when you buy the policy (with no pre-existing condition at the time), all of people in your "insurance pool" who are being insured with you are healthy, and rates are low. Then some people in the pool get sick, so rates for everyone rise to cover those sick people. Then insurance agents find the healthy people (who have no pre-existing conditions), and sell them new cheaper policies, leaving the rates to go sky high on the sick people, who have a pre-existing condition and can't get new insurance. (This actually happened to me once with one of my policies. When I called the insurance company to ask how high the rates might go, they switched me to an insurance agent who, since I had no pre-existing conditions, tried to sell me a new cheaper policy, from the very same company!)

Thus, as I see it, no one in this country is secure from a pre-existing-conditions financial wipeout, except people over 65 who have Medicare, people who are independently wealthy, and perhaps people who have secure Federal Government jobs. (However, mostly people are not that aware of the problem. The only people who tend to be aware are people like me who have really researched the laws, and people who have seen the wipeout happen to themselves or their friends or family.)


Can't we just lie on the insurance application, and say we don't have pre-existing conditions?

I don't advocate cheating, and at any rate, there is a good chance you will get caught. For one thing, insurers pool the medical information they have on you, for the exact purpose of not letting people cheat. (I can't say for sure, but if you even call an insurance company after seeing an ad, and discuss on the phone insurance in a tentative "just inquiring" way, they may be allowed to keep that information, and any insurer may be able to use it against you.)

Personally, rather than the people who cheat going bankrupt, I'm more worried about the people who don't cheat, but still get financially wiped out. For example, this CBS Evening News with Katie Couric story and video report.

I also get kind of worried that you might have a pre-existing condition, that you honestly forgot about, in this age when there are umpteen-thousand medical tests and possible medical conditions floating around. Further, potential condition such and such may have been picked up in a lab test, and your doctor might have forgot to tell you, or not wanted to worry you, or him/herself overlooked.


What about the free-market, choice, competition, and the profit-motive? Aren't they good?

The Obama Plan keeps the free-market, choice, and competition by having private companies run all plans.

In the current system, in certain cases, the profit motive causes a "market failure", which is very much like in the subprime mortgage business some people were giving mortgages to people who couldn't possibly pay them, making a profit on that transaction, and then selling the mortgages to institutions that didn't know about the problem.

The market failure with health insurance is that it pays for insurance companies to aggressively "cherry pick" for just healthy customers, and to aggressively advertise and hire sales people. These things are counterproductive to the consumer, and it pays a lot more to the insurance company to do these things than to adopt a strategy of just providing good, efficiently-run insurance would.

Unfortunately, profit oriented insurance companies tend to do whatever is needed to maximize profits, even when incentives are wrong. Thus, besides the above, the "claim payout ratio", which is one of the most important things to know, about getting good value in a health insurance policy, is something that is never advertised, and every insurer I have talked to recently about getting a policy simply will not tell me. (With good reason--on individual policies, the range typically is a miserably wasteful 60%-75%.) Further, in applying for my current policy, with Aetna, I was not allowed to see the policy, despite requests, until the day it took effect. (And on that day, they would only let me see it over the internet!)

You certainly can argue that if consumers were knowledgeable enough, the insurance companies would have had to let me both see the policy and know the payout rate. That's true--but consumers don't know that, there are too many people who would have to know to many things in this complicated society to make general consumer education (the regulation-free approach) work always, and enough people are just too lazy or perhaps undiscerning to make the strategy of withholding relevant facts counterproductive for the insurance company.

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Who am I? I am Norm Spier, a mathematical statistician who lives in New York State.

If you have any comments, or want to point out an error or oversight, please email me at norm@nastechservices.com


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Pre-existing conditions Q & A

Pre-existing conditions Questions and Health Insurance