The Obama Administration is pushing an 8-pronged list of “Health Insurance Consumer Protections.”
No Discrimination for Pre-Existing Conditions
Insurance companies will be prohibited from refusing you coverage because of your medical history.No Exorbitant Out-of-Pocket Expenses, Deductibles or Co-Pays
Insurance companies will have to abide by yearly caps on how much they can charge for out-of-pocket expenses.No Cost-Sharing for Preventive Care
Insurance companies must fully cover, without charge, regular checkups and tests that help you prevent illness, such as mammograms or eye and foot exams for diabetics.No Dropping of Coverage for Seriously Ill
Insurance companies will be prohibited from dropping or watering down insurance coverage for those who become seriously ill.No Gender Discrimination
Insurance companies will be prohibited from charging you more because of your gender.No Annual or Lifetime Caps on Coverage
Insurance companies will be prevented from placing annual or lifetime caps on the coverage you receive.Extended Coverage for Young Adults
Children would continue to be eligible for family coverage through the age of 26.Guaranteed Insurance Renewal
Insurance companies will be required to renew any policy as long as the policyholder pays their premium in full. Insurance companies won’t be allowed to refuse renewal because someone became sick.
Matt Yglesias likes what he sees: “If you can make it stick, and if you can cash these eight principles out in a reasonable way, this would transform health insurance for the majority of Americans.”
No doubt. But I’m reminded of Inigo Montoya’s classic observation, “You keep using that word. I do not think it means what you think it means.” In the movie, “that word” was inconceivable. In this case, it’s insurance. Typically, we define it along these lines:
A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss.
The whole idea of insurance is that the company collects premiums up front in exchange for assuming possible future risk. Insurance that is required to cover pre-existing conditions really isn’t insurance at all. If I’m uninsured and wreck my car and go to GEICO to buy a policy, they’re not going to pay for the wreck I already had. If I die without life insurance, my wife can’t go to MetLife and buy a policy on me and get paid. Why? Because these loses are no longer potential or in the future; they’ve already happened.
Similarly, insurance companies naturally offer different rates based on projected risk. Women typically get cheaper auto insurance than men up through a certain age because men are riskier drivers. Young men get cheaper life insurance than old men. Smokers pay more for health insurance.
Mandating that certain types of insurance cover reasonable risks in the category is probably good public policy. Certainly, it’s unconscionable for insurance companies to take your money during the good times and then drop you once you’ve become ill or old, as any potential alternatives are going to charge based on your new status.
Further, I think it’s a good idea for health and dental insurance to cover routine preventative care to forestall emergency care down the road. But plans which do that should be allowed to charge accordingly. After all, they’ve got no guarantee that you’ll be a customer in the long term and that they’ll therefore amortize the investment.
And why shouldn’t people have the right to buy a cheaper, no-frills plan rather than having an expensive, Cadillac plan as the entry level option? Doesn’t that actually exacerbate the problem of the uninsured?
Update (Steve Verdon): In addition to James’ point that what these “reform” measures seek to create is not insurance (Arnold Kling uses the term insulation, as in insualtion from costs), several of these items are at cross purposes. For example,
No Discrimination for Pre-Existing Conditions
Insurance companies will be prohibited from refusing you coverage because of your medical history.No Exorbitant Out-of-Pocket Expenses, Deductibles or Co-Pays
Insurance companies will have to abide by yearly caps on how much they can charge for out-of-pocket expenses.No Cost-Sharing for Preventive Care
Insurance companies must fully cover, without charge, regular checkups and tests that help you prevent illness, such as mammograms or eye and foot exams for diabetics.
As James noted, when there is a pre-existing condition what we are talking about is not insurance. Instead we are talking about paying for someone’s total health care expenditures. To use the language of insurance the premium is equal to the total cost of treatement. Since this would be exorbitant, everyone elses premium has to go up which is cost sharing, and depending on the costs possibly leading to exorbitant out-of-pocket expenses, deductible or co-pays.
Then there is this part,
No Gender Discrimination
Insurance companies will be prohibited from charging you more because of your gender.
What if women do cost more? After all they do do one thing men don’t: have babies. If they are paying the same rate as men, then it must be that men’s premiums are higher…thus cost-sharing.
Basically, this is just a continuation of the same old things that have been playing a role in getting us to the position we are in. Cover everything and anything, and don’t let insurance companies charge the correct prices. Insurance companies can screen for people with pre-existing conditions, they have small armies of actuaries who can tell who cost how much on an expected basis. The reason we have some of the problems we do is that people’s health care choices are often divorced from the costs associated with them. For example, in the Netherlands and Switzerland people have to buy their own insurance (in the Netherlands there is partial payment from employers). Could this out-of-pocket expense help people select policies that are more suited to their actual situation than that cover a huge assortment of services and benefits they might not want? The problem with people like Matthew Yglesias is that they are operating under the misapprehension that “yes, we can” grow the world’s food supply in a flower pot.
