Health Insurance Hypocrisy

Either Obama doesn't know much about the economics of health insurance or he is intentionally being deceptive.

In his summary of the seven hours of discussion at the health care "Summit" on Feb. 25th, he stated that the people want a system that (1) covers pre-existing conditions, (2) and doesn't increase premiums. The second point was implied by his endorsement of a "cap" (price control) on "excessive" premiums. He also continued to argue that an insurance "exchange" would provide more competition in the market place. And he wants this "exchange" to provide a means whereby individuals can get coverage at group rates.

I hope it's obvious to everyone that when pre-existing conditions are covered by an insurance policy, the premiums have to increase. Even group policies are more expensive when pre-existing conditions are covered, but there are offsetting cost elements that makes group insurance cheaper than individual policies even when pre-existing conditions are covered. If pre-existing conditions are covered in individual health insurance policies, buyers are motivated to wait to buy insurance until they have an injury or illness that is very expensive. Without coverage for pre-existing conditions in individual policies, more people are motivated to buy insurance before they have a serious illness or injury. With group health insurance, a lot of the administrative work is done by the employer, which saves the insurance company enough money to offset the cost of covering pre-eisting conditions and to even reduce the premiums compared to individual policies. The bottom line is that any law that requires health insurance companies to provide coverage for pre-existing conditions will increase the cost of insurance for everyone.

As for putting some sort of a "cap" on health insurance premiums to prevent price gouging, that's a blatant form of price controls. If insurance companies can't cover their costs, they will either find ways to reduce benefit payments or they will exit the market.

As for the idea of an "insurance exchange" that will help individuals to get insurance at group rates, that will only happen if some intermediary between the customer and the insurance company provides the administrative functions that are typically provided by an employer with a group policy. It is a contradiction (or oxymoron) to argue that group rates can be provided to customers who buy one policy at a time. If pre-existing conditions have to be covered, there would be some savings in the cost of issuing a new policy (such as no health examination.) But that's not likely to be enough to fully offset the added cost for pre-existing conditions and for having to issue individual policies.

Finally, a government managed insurance "exchange" is certain to be regulated -- which will increase costs for everyone.

Just my two cents based on having worked as the CFO for an insurance company.

Vern