The inability of some Americans to obtain health insurance for pre-existing medical conditions continues to be used by Obamacare supporters as justification for the mammoth legislation. The truth, however, is that the problem was nowhere near as big as portrayed, and the solution doesn’t require 2700 pages of legislation or $1 trillion in new government spending.
Over 90 percent of Americans with private health insurance are covered by employer group plans where existing rules governing the application of pre-existing condition exclusions are not an issue. Before passage of Obamacare, the law specified that individuals with employer-sponsored insurance cannot not be denied new coverage, be subjected to pre-existing-condition exclusions, or be charged higher premiums because of their health status, when switching to different coverage. Thus, group market, pre-existing-condition exclusions only apply to those without prior coverage, or to those who wait until they need medical care to enroll in their employer’s plan.
These existing rules represent a fair approach: Individuals who do the right thing (getting and keeping coverage) are rewarded; individuals who do the wrong thing (waiting until they are sick to buy coverage) are penalized.
The problem is that the same kind of rules did not apply to the “individual” (non-group) market—about 9.4 percent of the total market for private health insurance. Thus, an individual can have purchased non-group health insurance for many years, and still be denied coverage or face pre-existing condition exclusions when he or she needs or wants to pick a different plan.
The obvious, modest and sensible reform is to simply apply to the individual health insurance market a set of rules similar to the ones that already govern the employer group market.
Instead, Obamacare prohibits the application of pre-existing condition exclusions under any circumstances, thus encouraging everyone to wait until they are sick before buying health insurance. These perverse incentives are a recipe for disaster. To limit the effects of that disaster (of their own making), lawmakers included an unpopular individual mandate to buy health insurance in the health care legislation.
The consequences of new insurance restrictions that go into effect this Thursday—particularly the requirement that insurers can no longer exclude coverage for pre-existing medical conditions for children—offer a foretaste of what is in store when the same, misguided rules apply to the entire market in 2014.
Due to high uncertainty, several large insurers have chosen to discontinue child-only policies because of the new requirement. The Washington Post’s N.C. Aizenman reports, “the result over the next several years could be that the pool of children insured by child-only plans would rapidly skew toward those with expensive medical bills, either bankrupting the plans or forcing insurers to make up their losses by substantially increasing premiums for all customers.”
Current health insurance rules do not work for everyone, but the solution is not for the federal government to take over private health insurance. Congress can correct the gaps in the current system to make the market work better for those it serves without destroying the market for others. As becomes clear as insurers shy away from child-only plans, heavy regulation will stifle choice and competition in the health insurance market rather than protect patients.
There are several reasonable health insurance reforms that could be pursued instead in order to ensure equity and stability in the marketplace. The right approach to health reform is for lawmakers to set basic rules that are balanced and fair to both consumers and insurers — instead of imposing the kind of poorly thought-out, overly-regulatory “solutions” in Obamacare that make existing problems worse.
