How to Eliminate the “Pre-Existing Condition” Problem
Steve Verdon at Outside the Beltway argues that pre-existing condition exclusions are necessary if health insurance is to be actual insurance. He concludes:
But when you pool people with pre-existing conditions with those who are healthy, you are basically providing a transfer of income form those who are healthy to those who have pre-existing conditions. So please, call it what it is. You want to give people with pre-existing conditions other people’s money so they can get treatment. Calling [it] insurance is simply a lie.
Although this may be true, this doesn’t mean our current system is working. There’s a common sense reform that should change this: apply HIPAA’s creditable coverage definition to the individual insurance market.
In the group insurance market, pre-existing condition exclusions are limited to rare circumstances. The 1996 HIPAA reform stated that they cannot be applied to anyone who has “creditable coverage” — which is essentially everyone who has group insurance coverage sometime in the last 63 days. Essentially, this is an alternative solution to the same underlying problem: people who purposefully forego coverage until they are sick.
To extend this definition to the individual market, you’ll have to include an actuarial determination that the original health benefits were sufficiently “rich” (i.e., a limited-benefit plans that only gives you $1,000 of coverage really isn’t insurance). And there would be a small adminstrative burden on health plans when they enroll new members. That’s it. To counter these costs, you also get administrative savings because you no longer waste manpower with as many denied applications which saves money in underwriting, as well. You also reduce the cost of rescission control.
In the long-run, everyone either buys in or they don’t. If they don’t, then pre-ex applies, as it should to keep individuals from free-riding. If they do buy in, however, they’re protected from pre-ex, also as it should be.
Just by extending creditable coverage definitions to the individual market, you defang much of the problem. It is such a simple and straight-forward solution to the problem that I’m surely way off base.