Thursday, March 18, 2010

Rhetorical question: If I wreck my car but don't have insurance, can I then sign up for an insurance policy which will cover repairing the damage from that wreck which I already had? [It's a rhetorical question---no, I've not had a wreck, and yes, I have car insurance]

As most know, a car insurance policy doesn't obligate the insurance company to repair damages sustained before you took out a policy with them. Most people are acquainted with this and understand the reasonableness of this practice.

What if we ask the same question about health insurance instead of car insurance?

It is my understanding, from what the president has said in interviews (http://www.foxnews.com/printer_friendly_story/0,3566,589589,00.html), that his healthcare reform proposal (the actual text of which I've been unable to find) would require that health insurers allow me to purchase heath insurance which would compel them to pay for pre-existing conditions.

Insurance is about transferring risk. I pay the insurance company to assume a certain defined risk (whether the risk of me wrecking my car or contracting swine flu, depending on the insurance). If it isn't risk, but a known past event, why would they take that on at a known loss?

I think of it as a wager or bet: I bet I'll get sick enough someday to need more medical care than I can pay out of pocket at the moment. The insurance company is betting that most of the people to which they sell insurance will stay healthy at any given time. The premium I pay every month balances the odds between us, to mutual benefit. My premiums over the course of a year are less than the cost of health care I'll need over the year if I stay healthy, and are far, far less than the cost of health care I'll need if something catastrophic happens.

Now, there are a zillion factors (malpractice suits, the ubiquity of health insurance insulating patients from the real prices, etc...) which skew the prices of health care from being as affordable as they could be, which in turn raises the cost of insurance premiums. On top of that, many of the current laws and regulations on health insurance server to limit consumer's choices and allow prices to inflate.

But what about situations where health insurance companies will cover pre-existing conditions if the applicant can prove he's had continuous health insurance coverage for some specified amount of time?

The exception to the pre-existing condition exclusion for someone with continuous coverage makes sense to me: It's unlikely that such a person is buying health insurance only after they've found an issue (when they've already had the wreck, in car terms). This arrangement removes the incentive to avoid having insurance until you know you have a medical condition.

So, if a woman who is already expecting, and knows it, wants to buy insurance to cover the expenses of prenatal care and childbirth, should the insurance company be required to sell such a policy to her?

Let's say the prenatal care and birth will cost about $10,000 (That would probably be a bargin, but it's easy for me to calculate. This is also assuming no c-section). Selling her this policy means that the insurance company knows they will be spending at least $10,000. So, for it to make any sense for them, they would need to charge at least that much in premiums from her over the remaining months of the pregnancy. Say she's 2 months along; that leaves 6 months. Premiums would need to be $1,667 per month for the insurance company to break even. If she could pay that, why would she need insurance? She could just pay the doctors directly.

Now, what if on top of this the government sets limitations on insurance rates? Let's say the government arbitrarily says "no woman ought to have to pay more than $500 a month for insurance to cover maternal care." In this case, the max the premiums would bring in would be $3,000, while the expenses will be at least $10,000. What if she waits until later in the pregnancy? In fact, why wouldn't she wait until later, since they have to cover her anyway?

If those are the laws, why would any health insurance company continue to operate? They'll all shut their doors and we'll all be on the government plans. I suspect that's the goal, anyway.

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