

The real reason health insurers won’t cover people with pre-existing conditions - newmediaclay
http://www.slate.com/articles/business/the_dismal_science/2012/03/pre_existing_conditions_the_real_reason_insurers_won_t_cover_people_who_are_already_sick_.single.html

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ars
This article demonstrates a very common mistake: People think health insurance
covers health bills.

It doesn't. It covers unexpected health bills, which is a very different
thing.

Any type of situation that is expected to happen can not be covered by
insurance, it needs to be covered by savings instead.

However many people want insurance premiums to be a type of forced savings
plan, which is why there is such a huge argument in the US about health
insurance.

Those opposed to government regulation want to handle the savings on their
own. Those who like government regulation want it to force people to save for
health care costs.

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tptacek
Without sparking off a huge thread on free markets versus socialized medicine,
the idea behind single payer health insurance is that nobody has to worry
about "expected health bills", because everyone shares a giant risk pool in
which uniformly low premiums end cover everyone by shifting expenses from
people who do get sick to the (larger) pool of people who don't.

Part of the philosophical idea behind single payer is that people have minimal
control over financially devastating illness and injury, and one thing society
can do that individuals can't is allow everyone to share the risk,
transforming a small probability of an untenable expense into a certain
probability of a manageable expense.

You're right, and usefully so, to point out that private health insurance is
treated like a utility instead of an insurance plan; knowing that also allows
consumers to select high-deductible plans, and to take advantage of HSAs for
tax-advantaged funding of the health care bills they do expect.

But single-payer insurance can handle both problems (routine billing and
catastrophic coverage) coherently.

~~~
chernevik
Individuals can share risk, that's what insurance does.

The transformation of insurance into a savings scheme puts considerable
distortion on that model. It becomes impossible to see what payment is for
expected treatment, and what is for risk assignment. The model then encourages
people to use more ("I've already paid for it") and to pay no attention to
cost. And it encourages the attitude that any problem should be paid for. It's
hard to exaggerate the impact of these effects on health care's crazy cost
structures.

The real problem isn't people who are riskier, it's people who are costlier.
Someone with a prior condition isn't a risk, they're a cost. Insisting they
should have "access to insurance" is simply insisting on cost redistribution.
The circumstances under which that cost redistribution is a good idea socially
should be an entirely different question than the efficient structure of
health care payments.

These concepts are deliberately obscured by the political rhetoric around
"health insurance", precisely to obscure the cost shifting nature of the
project and to create a sensibility that the problems is somehow the greed of
financiers. (Obscuring the cost drivers is also a goal, it's a very large
industry that employs a lot of people, many of whom, at many levels, stand to
lose a good deal if the system were ever seriously rationalized.) It's a very
effective rhetorical strategy, especially given the abstractions around risk,
but it shouldn't be confused with an actual discussion of the economic
problem.

~~~
tptacek
This is a concern that could be addressed by providing guaranteed issue and a
mandate for high-deductible health insurance, and then leaving it to the
market to resolve the financing of everything below that high deductible.

That system is in fact not too far from what we're trending towards in the US.

~~~
chernevik
I don't see how you can say that. We're currently headed towards comprehensive
insurance whose holders pay very little out of pocket. Consumers will have no
incentive to limit consumption or make cost / quality tradeoffs, and none to
police providers for cost.

And "guaranteed issue" is never _insurance_, it's cost sharing. Because it
takes the known costs of some individuals and spreads them to others. It is a
mandated subsidy. Doing it through "insurance" introduces opacity into the
system, which obscures from the electorate the costs of the choices they're
making, and reduces accountability throughout the entire system.

~~~
tptacek
Employees at many large companies today already have the option of high-
deductible insurance; scaling the new, as-yet-unimplemented guaranteed issue
system "back" to require a mandate only for high-deductible insurance (and
thus guaranteed issue only for high-deductible insurance) would not be a major
change.

You are articulating the "moral hazard" concern with universal health
insurance. I am recognizing moral hazard, and saying that it can be addressed
in a universal system simply by setting the threshold that the system pays out
at a higher number.

~~~
chernevik
I'm not talking about moral hazard.

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joedev
The entire concept of insurance is to share risk. (Egyptians had the bright
idea to combine grain together onto shared barges so if one sinks, none of us
loses our entire cargo.)

Risk carries an element of unpredictability. If a scenario is predictable,
there is no risk to be shared, ergo by definition a scenario with little risk
(e.g. known diagnosis and treatment plan) is absolutely and unsurprisingly not
fitting for insurance.

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tptacek
I read this yesterday and was unimpressed; it seems that the finding here is
"adverse selection", which is more or less the classic canonical problem in
insurance.

Did I miss something?

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davidw
My read of it is that it's not just adverse selection, but a situation where
instead of both parties having a vague idea of what their costs may be, one
party now has a really good idea about their costs, and is therefore in a much
better bargaining position.

~~~
tptacek
Sure; adverse selection and asymmetric information are two sides of the same
coin.

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sunsu
Great article! I just don't agree with the author's confidence in the "guiding
hand of the government" in his conclusion. I would much rather have the
freedom to purchase future options to buy healthcare rather than have my
freedoms removed because the of the fear that the "average 20-year-old" may
not have enough foresight to think about his/her future.

~~~
DanBC
There's no reason they have to be exclusive. The UK has dual public / private
provision of healthcare.

(Personally, I would never use private health care in the UK. I know people
who have.)

~~~
anarchotroll
If you can opt out of public helthcare, then it is fine. But if you can opt
out, I wouldn't call it "public" anymore.

If you can't opt out, then choosing private basically means paying for both.

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anarchotroll
It just doesn't make any sense for a health insurer to cover people with pre-
existing conditions. Insurance is all about risk; if you have a pre-existing
conditions, there isn't a risk involved anymore, since you already know you
have a problem (unless the provider doesn't cover anything that derives from
that pre-existing condition which would also increase processing costs).

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RyanMcGreal
All the more reason to take economics out of it and provide health coverage
via universal single payer insurance.

~~~
davidw
I'm pretty happy with the health care system here in Italy. It's _so_ much
less of a hassle than in the US: get sick? go to the doctor, no paperwork, no
forms to fill out (which, in Italy, is really something of a minor miracle),
but "economics" are always with us, because health care is a scarce good.

~~~
RyanMcGreal
> health care is a scarce good.

It's true that every health care system rations care. The difference is that a
universal system rations based on medical need (triage) whereas a market
system rations based on ability to pay.

~~~
simplefish
This is not true.

Your ideal universal system may ration on medical need. There might even be
one in existence that does so...

...but I really doubt it.

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drucken
Extremely well-written article.

It also clearly demonstrates one of the reasons why markets alone are simply
not sufficient/appropriate for some problems. The rest of the developed
countries outside of the US have long understood this with respect to health
care.

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tomx
As a UKer, it strikes me the US system of health insurance is just
inefficient, even if only from a time management perspective.

Do 300M people really have to negotiate their own insurance, and research
carefully all the terms and conditions and so on?

~~~
anonymoushn
No, generally we have less than four options for insurance provided by our
employer. When we are not employed, most of us cannot afford to carry
insurance.

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zyfo
Isn't this common knowledge? I'm pretty sure this was something that was
mention in a seminar on information asymmetry when I studied Microeconomics
101 a couple of years ago.

~~~
guan
It's still an information asymmetry story. From my cursory reading, the
contribution is to identify what kind of information asymmetry is involved in
healthcare, namely that it's more about the cost of treatment than about the
probability of illness.

I know that health insurance is often used to teach asymmetric information
models, but it wasn't always obvious that it's a good example. Someone selling
a used car might know a lot more about the car's hidden costs than anyone
else, but does the typical buyer of health insurance really know more about
his or her probability of illness than a sophisticated insurer with good
doctors and actuaries and a lot of data?

This led some economists to argue that the problem in health insurance markets
is not asymmetric information, but rather too much information—the insurer
already knows you will be a bad risk. This research makes it clear that there
really is asymmetric information and spells out what it is.

