Wednesday, September 09, 2009

On Risk, Insurance and Intellectual Honesty

Mike will be doing yeoman's work tonight, watching and then reporting on the President's speech to a (you should pardon the expression) joint session of Congress. One of the key issues, and the one that seems to have garnered the most press and controversy, is the so-called "Public Option."
But equally burdensome is the concept of "guaranteed issue," especially when coupled with "pre-ex coverage." Very briefly, the idea is that no insurance company would be allowed to decline coverage for any individual, no matter how ill, and must immediately cover any pre-existing conditions.
To some extent, this already exists in the group marketplace. HIPAA requires insurers to take any group (with exceptions for specific industries and participation), and to cover any pre-existing conditions that group may be experiencing.
[ed: this is, of necessity, an oversimplification HIPAA]
Individuals who have "paid their dues" (that is: had previous coverage) are immediately covered for pre-ex, and those who have not gain that coverage after a year of continuous coverage.
So far, so good (maybe).
The issue at hand is that the health care "reforms" currently on the table extend those principles to the individual market. And therein lies the problem:
Insurance is a risk management tool. Yes, that seems obvious enough, but let's delve a bit deeper. Risk is about probability; that is, the likelihood that some event will (or won't) occur. Insurance takes that a bit further, applying the Law of Large Numbers, and underwriters use the result to help carriers price a given "risk." Thus, if you're a healthy 20-something male who takes no part in potentially dangerous avocations, the risk that you'll have a claim is relatively small, and your premium reflects that. If you're a 40-something woman with a history of high blood pressure, your likelihood of a heart attack is higher, and so is your premium.
If you've just come off of 3 months of chemo for an aggressive cancer, your risk of a recurrence is pretty high, and you'll be unlikely to find coverage (whether or not that's "fair" is another discussion). Insurance companies are in the business of making money - which is a good thing, since we want them to be around to pay our claim.
So what happens if the "rules" are changed, and there can be no underwriting?
In that case, it's no longer "insurance" - since there's no risk - but rather a socially endorsed redistribution scheme. While I would find that objectionable, it is at least understandable (see: "fair"). So why is it that pols who advocate for such a sea-change won't just come out and state the obvious: "we want to eliminate insurance from the health care equation."
I think we all know the reason for that.
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