Wednesday, March 24, 2010

Pre-existing conditions, Cornyn and the health-care marketplace

A commenter on my Cornyn post raises an excellent point:
However, when I envision ideas for forcing insurance companies to accept pre-existing conditions, what I really see is two fold. One, pre-existing conditions for children (and there are many ways to handle this). The second, and the one I think hits more to your point, is for those individuals who have had insurance prior to their condition, and even were treated with help from their insurance during their condition, but then lost their job and, when attempting to apply for insurance at another company, they are denied.

This is a person who constantly paid into a fund to insure against these type of issues. However, since our system so closely ties health insurance to your job, it's possible that you can be a victim of the no 'pre-existing conditions' problem even though you're not one of the 'risk takers' who tried to go without insurance.

I think there's room for stipulations on coverages of people with pre-existing conditions (proving they maintained health insurance for a reasonable amount of time; loss of insurance due to situations other than just cancelling; etc..).
Obviously, someone who has paid for insurance all along, and is willing to continue paying, should be able to maintain coverage. If that requires regulation of insurance companies in our current system, I'm amenable to having that discussion. If that's ALL that Senator Cornyn's saying, well, that's not unreasonable, given our current circumstances. I do not get the impression that that's what people think when they hear about pre-existing issues coverage, though. Maybe I'm wrong.

That said, that's a problem that's a result of too much government interference in the marketplace, not too little, and the current legislation makes it worse, not better.

Philosophically, I don't believe that the government should be telling insurance companies what to do - the market should. And I believe that, in the absence of government caused market distortions, people would buy insurance and keep insurance and their employers and the government wouldn't be involved. Companies that dropped sick people wouldn't keep healthy ones, because people talk, information spreads and no one's going to pay for coverage that isn't there when you need it, and they'd go out of business. People wouldn't need to change insurance upon changing jobs. They'd go out into an insurance market that was competitive, choose a policy according to their situations, and pay the premiums themselves with no employer involvement, hence no portability issues.

But the government introduced market distortions when it imposed wage freezes and price controls in the 1940s, and employers added health insurance as a benefit in order to incentivize employees to whom they were forbidden by law to give raises. That has mushroomed into the current system where everyone gets health insurance from his employer rather than buying it himself.

And, of course, they had to keep sweetening the plans, introducing more market distortions. Stop and think about this for a moment - you go to the doctor and have an annual physical. Why on earth do you need or want an insurance provider involved in that transaction? Shouldn't that be an expense that you shoulder alone, at a price negotiated by you and your doctor? If you have a child with an ear infection, why is the cost of that antibiotic borne by the collective premiums rather than you? There's a massive disconnect between the consumers of health services and the payers for health services.
The problem of third party payment, or a disconnect between the end-user, the provider of services and the payor, is one that was best articulated by the economist Gordon Tullock. Tullock argued that there is little incentive in an insurance-based system for user of services (the employee) to question price or even inquire about it. Perhaps the late Nobel Laureate Milton Friedman said it best when he stated there is little incentive to question price when someone else is paying the bill.
If that's a problem (which it is) is it ameliorated or exacerbated by what Congress and the President did this week?

I think the answer's pretty clear...

Anyway, it's conceivable that Cornyn's comment wasn't quite as idiotic as it sounds, but again, only if applied to people who are actually paying for coverage when they get sick. Someone who is not covered who then attempts to get coverage upon getting sick, well, that isn't "insurance."

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