Solving the Private Health Insurance Dilemma

According to the latest polls, the number one domestic issue in the minds of the American people is health care. There is a growing push toward universal health care, and the politicians know it. I am one who strongly favors this trend.

The biggest question is how to get from where we are to where we want to be. Some people want to completely scrap private health insurance in favor of enrolling everyone in a government run program. The greatest merit to this approach is its apparent simplicity. However, that is totally unfair to those who have invested their capital and labor in health insurance businesses. These people have invested in good faith and would suddenly have the financial rug jerked out from beneath them. I would not want the government doing that to me. Would you?

We have to know that derailing the private health insurance industry is as wrong as condemning someone's house to make way for a highway and providing no compensation except for a tax write off. It screams of injustice. It is unAmerican.

But private health insurance programs have their problems. Their inherent reason for existing is to make money. There is nothing wrong with that. Making money is not a sin, but it does put them at odds with providing the best possible health care. When they pay for prescriptions, doctor visits, hospital stays, medical tests, etc., insurance companies are cutting into their profits. So, naturally, they are going to try to keep these expenditures to a minimum.

One way private health insurers keep their costs down is by refusing to accept people who already have costly health problems. They know these people are going to be spending more money on their medical needs than they would be paying to the insurance company. So, it only makes sense that the company would not want them as customers. Generally, they refuse them. Even when they do take on these people as individuals, the insurance company will charge quite a bit extra for their coverage and may impose high deductibles and exclusions. It's just good business sense.

Even with group insurance, small groups will find their aggregate premiums raised when there are very many claims. Even a single claim for a high cost procedure, such as a liver transplant, can dramatically raise the premiums for the entire small group. The group may seek to reduce this premium increase by raising the deductibles and out of pocket expenses. But this can have the effect of discouraging preventive medicine and creating more costly expenses down the road.

The private health insurers face a dilemma as well. If they pay all the medical claims too readily, they lose money and end up going out of business. If they don't pay the medical claims reasonably well, they will lose their customers and end up going out of business. Under present laws this balancing act can only work to the insurance industry's favor if it is allowed to exclude higher risk customers.

What if a health insurance company acting alone decided to accept everyone regardless of medical history? What if it just decided to raise its premiums enough to stay in business? Two things would happen.

First, those people with no known health problems would leave that insurer to find someone else who had lower premiums. Second, those with serious health problems would rush to get coverage by that insurer. The company would be unable to keep pace with the expenses and would fold. Everyone loses.

What if a law were passed requiring ALL health insurance companies to stop considering pre-existing medical conditions? This would avoid the flight of the healthy to the lower premium companies since all the companies would be in the same situation. However, it would create another problem.

People who are able to get health insurance generally do so to avoid potential devastating out of pocket medical expenses somewhere down the road. If pre-existing medical conditions are excluded from consideration, then more people will wait until they know they are going to need the insurance benefits before they will spend the money on the premiums. This is especially true for those without much disposable income. Unfortunately, this would bankrupt the insurance companies.

The only way the insurance industry can work is if people pay for the coverage before they need it and even if they don't. It has been described as a gamble. The insurance industry is betting for you, and you are betting against you. The odds must favor the house or they don't play.

One intriguing proposal to resolve this problem has been to both require health insurance companies to stop eliminating pre-existing health conditions from coverage and at the same time require everyone to have health insurance. We resist this idea because it means the government intrudes even more upon our lives. Those who are healthy certainly don't like being forced to pay for something that is not providing an immediate benefit. But this proposal could work.

That's Wade's two cents.

Wade Houston
October 3, 2007