PrintMarch 27, 2010
A Look at Preexisting Conditions
The Democrats have been very fond of touting one particular "benefit" of their health care system takeover legislation. Namely, they claim that the mandate which prohibits insurance companies from denying coverage for preexisting conditions will be wildly popular with the American public.
What exactly is a preexisting condition? Unless you happen to be in absolutely perfect health, you probably have a preexisting condition from the perspective of the health care system. If you are overweight, if you consume alcohol or use tobacco, if you wear corrective lenses, dentures, or a hearing aid, you have a preexisting condition. If you are over the age of 50, you are at greater risk for cancer and cardiovascular disease, so technically, this is a preexisting condition from an actuarial standpoint. Technically, being female is a preexisting condition (risk of pregnancy in childbearing years, greater risk of cancer or gynecologic problems after that). If you have a history of seasonal allergies, heartburn, intermittent joint pain, "chronic dry eye," or headaches, you have a preexisting condition.
Granted, we don't usually think of the things listed above as preexisting conditions. If you are receiving medications to treat hypertension, hyperlipidemia, hypothyroidism, osteoarthritis, osteoporosis, gout, GERD, anxiety, or depression, you obviously have a preexisting condition, but we seldom consider these as such. You can follow this into the gray area of diagnoses. Some of us may consider diabetes, asthma, rheumatoid arthritis, chronic pain, atrial fibrillation, bipolar disorder, and epilepsy as preexisting conditions, and they certainly are, but most insurance companies don't necessarily deny coverage because of them. It's all a matter of degree. Diabetes can manifest as mild Type 2 (adult onset), which can be managed with diet and exercise, or it can move all the way to cases that require insulin and multiple other drugs along with careful, frequent monitoring. Asthma may be mild and intermittent, requiring little intervention, or it may require daily dosing of multiple drugs. The same is true for virtually all of these diseases. None of these conditions can be "cured." They are "managed," and management varies by several orders of magnitude.
So what are real preexisting conditions? This is difficult to answer. In some cases, they may be defined as chronic conditions that will almost certainly progress in only one quite predictable direction. Examples would be Alzheimer's disease, AIDS, Parkinson's disease, and cystic fibrosis. In each case, management becomes increasingly expensive and eventual outcome is not changed. Chronic renal failure requiring hemodialysis is a fine example, but it is already covered by Medicare (irrespective of age). History of cancer, myocardial infarction, advanced congestive heart failure, or stroke represents other examples of high-risk preexisting conditions. Most of the risk from these preexisting conditions is absorbed by Medicare. There are, however, many people with all of these diagnoses who have private insurance, so there are no absolute answers. Without private insurance, procedures like transplantation and prosthetic joint-replacement wouldn't exist.
There is little doubt that denial of insurance coverage occurs due to preexisting conditions, but the truth is that this happens far less frequently than the Democrats advertised. Proportionately, very few individuals are denied coverage for preexisting conditions. If you wait until you're diagnosed with leukemia before you try to obtain health insurance, then you'll probably be denied coverage. If you've had insurance for many years and you're diagnosed with leukemia, then you will probably not be denied benefits. In fact, for the right price, you can buy insurance in almost any situation. Consider an auto insurance analogy. If you're a 20-year-old, unmarried male who drives a Corvette Z06 and you have citations for an at-fault accident and two speeding violations on your driving record plus a DUI conviction, you might find buying auto insurance rather difficult. You have "preexisting conditions." You can still purchase coverage, but you'll pay dearly for it. From an actuarial perspective, you present a much higher loss risk for the insurer than the 40-year-old married man who drives a minivan and has a perfect driving record. That is how insurance works. It's all about managing risk. If the government were to step in and mandate that both drivers shall have the same coverage for the same cost, what would be the result? One driver (or group of drivers) would be unfairly penalized and one would be unfairly rewarded.
Often it's not the patient's fault that he has a preexisting condition (although one could argue this in cases of AIDS or lung cancer or cardiovascular disease secondary to smoking). At the same time, it's not everyone else's fault, either. Mandating same-cost coverage for preexisting conditions is not insurance. It is, in fact, public welfare, and it could be managed more effectively, efficiently, and affordably independent of the insurance industry that serves most of the population. For example, take any medium-sized corporation that provides health insurance benefits for its employees and their families. This is its "insurance pool." The insurer evaluates the demographics and calculates the risk, and the corporation arrives at a premium for coverage. Corporations are very good at this. The insurers can usually calculate an appropriate premium to cover all the claims and still make a profit.
If the premium is too high, a competitor gets the corporation's health insurance business.
Now imagine what would happen if the government were to mandate that this one corporation's health insurance pool had to cover just three additional patients (at the same cost) who were denied coverage elsewhere because they will require a bone marrow transplant. The insurer not only sees its narrow profit margin disappear, but it will go deeply into the red. The next year, the premiums will increase dramatically to compensate for this loss risk. Though the demographics of the insurance pool of the corporation did not change, all employees and their family members will pay more because patients with preexisting conditions have been foisted on their insurance plan. Mandating coverage and who will be covered deprives the insurer of the ability to effectively manage risk. If an insurer can't manage risk, then he can't provide insurance.
What politicians fail to recognize is that benefits paid by private insurance subsidize the underpayments from Medicare and Medicaid. When there is no longer a private insurance industry to shift costs to, severe shortages in the availability of health care will emerge. We're already seeing an increasing number of physicians who are opting out of accepting Medicare. Walgreens in the state of Washington is no longer accepting new Medicaid patients. At the same time, the insurance industry is not guiltless. Insurers should not be able to cancel insurance coverage for those patients who suddenly find that they need the benefits for which they have paid. The insurance industry has also played a huge role in establishing the third-party-payer, comprehensive-coverage paradigm which has served as the single greatest driver of increased health care costs. Still, having the federal government mandating same-cost coverage for preexisting conditions will only hasten the demise of the best health care available on the planet.
