What is a Pre-Existing Condition?

doctor-with-co-workers-analyzing-an-x-ray_1098-581

Obligatory image of a doctor

As moderates and regular Republicans argue over how soft or hard the Obamacare repeal and replace should be, one of the things almost everyone agrees upon is ensuring that so-called pre-existing conditions should be covered. But what does that even mean? Why do so many people want them covered? What would happen if they werent? And how does it affect the economics of insurance and healthcare?

Before being prohibited by Obamacare, it used to be legal for health insurance companies to deny coverage or drop someone if they had what was called a pre-existing condition. Like “certified pre-owned vehicle”, the phrase sounds a bit sketchy. They arise because of the convoluted way healthcare is run in America. Healthcare can be expensive, and rare. Thus, it makes perfect sense to insure for it, at least the unexpected events like serious injury or disease. During the Great Depression and World War II, businesses wanted to pay their workers more, but the government prohibited this. They were, however, allowed to offer benefits. One such benefit, also agitated for by unions, was health insurance. Businesses could reward employees more and employees could get great health coverage. It was also tax-exempt, which is, ironically, one source of the problem.

Employer-based health insurance was fine when you stayed with a job for lifetime, but now its more common to switch jobs. My mom has worked at least a dozen jobs in her life. Fortunately, my dad had a very good health insurance plane. Health insurance can be carried over when you leave a job, but you have to pay out of pocket, which can directly be very expensive. And then, you often cant get your new job to pay for it because they have their own arrangement, often with a different provider. This is where the problem really starts to take shape.

A pre-existing condition is when you have some sort of disease or condition that needs treatment prior to joining an insurance pool. Usually this does not affect people because they are on insurance before they might develop any conditions. The insurance would then cover it because they had paid in. However, it would be financial insanity to insure something that already exists. You cant insure against such in any other industry. You cant insure a burnt house or a wrecked car. Unfortunately, as I noted above, sometimes people leave their insurance. When they join a new policy, they may now have a pre-existing condition, which cant be insured. Had they stayed on, they would have been fine, but its often hard to stay on insurance.

This once near-universal policy was widely derided because of horror stories of children and old ladies being denied cancer treatment, but in fact, like many American health care scares, it did not happen that often. Usually only when people decided to go it alone, or when they got sick and wanted healthcare. The reasons for this are very complicated. Nevertheless, its easy to catch a case of the feels with this, and libertarians need to remember to have a heart. This does not mean support taxes, spending, and regulation, but recognize unfairness and problems, and then find a market solution for them.

Since Obamacare was passed, it is no longer legal to deny someone coverage based on pre-existing conditions. This is one of the reasons premiums have surged recently and will continue to. Regular people are now paying for those who left insurance and returned, having developed a medical condition. And while Republicans are eager to repeal parts of the law, this is one part that almost everyone except the Republican Freedom Caucus is inclined to keep.

Going forward, market solutions need to be found for this very real problem. Health insurance needs to be vastly overhauled. Individual and employer coverage should be treated the same. It should be easier to port your insurance, so you arent tied to a job and wont be dropped. It would be cheaper if employers gave workers the money instead of the insurance. Then they can shop around for the best package that fits them and their family. This requires rewriting of the tax code, and might involve taxing benefits (which could be counteracted by lowering taxes broadly), or allowing tax exempt health savings accounts. It would also help to allow buying insurance across state lines. This will increase competition and lower costs. We also need to stop using insurance for routine care. You know you have a few yearly appointments. Those are easy to save up for and pay out of pocket. It is madness to insure for them: you are paying someone else to hold your money AND invest* it. Currently, insurance is an annual contract, which makes absolutely no sense. We all need to insure ourselves for several years, why not have a five or ten year plan? This would help people out a lot with reducing costs, saving time, and also thwarting the PEC problem.

The two keys to solving pre-existing conditions are improving portability of insurance and lowering the costs of insurance generally. If you can take your insurance between jobs, there wont be any opportunity to develop a pre-existing condition. And if insurance is much cheaper (if it only covered rare and expensive events instead of routine care), more people would sign up in the first place. All the problems with American healthcare could probably fill a very lengthy book. Just briefly explaining one aspect of it has already filled a page and a half.

*Most insurance companies dont make any money from premiums. They make money from the interest the premium pools earn when invested.

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