With U.S. House passage of the American Health Care Act (AHCA), round one of the health care debate is in the books. Alas, there seems to be even more smoke and obfuscation than usual. Much of it revolves around “pre-existing conditions.”
Some of our political leaders don’t seem to understand some basics. Consider two health insurance customers. Dick is a 61-year-old male smoker with a history of cancer, hypertension and diabetes. Jane, is a 28-year-old female in excellent health. From this information, actuaries predict probable health events for each of them and an actuarially fair premium for each.
In a free market, we’d expect Dick to be charged a premium based on his age, health history and health status, and it would be a lot higher than Jane’s premium. The problem emerges when Dick’s premium is so high—say more than his annual income—that Dick cannot afford it. And it is quite understandable that most people have few objections to the government’s helping him out.
But you don’t “insure” against his precondition. It’s something he already has. Nor can you make Dick’s medical history go away by wishing it weren’t there. Somebody—presumably Jane and other members of the insurance pool or the taxpayers—must pick up Dick’s tab for his health care.
Obamacare tries to “insure” those with expensive medical problems by cramming them into an “insurance” pool along with the healthy. Obamacare is a Rube Goldberg contraption, which is insurance in name only. It gives insurance companies bribes called “risk corridors.” It mandates that young, healthy folks like Jane buy health insurance at a jacked-up price or pay a penalty. It offers subsidies to individuals based on income, not medical need. It isn’t working and never stood a chance of working.
If society is determined to help those with expensive medical problems, the way to do it is … well, by helping those with expensive medical problems. Group them together and subsidize them directly. The term is “high-risk pool.” And that’s what the AHCA proposes. Leave insurance where it belongs, spreading the risk among those whose future medical problems haven’t yet occurred. Premiums for this large majority, the not-yet-seriously-sick, will drop dramatically.
So let’s cool the rhetoric about how “24 million people will die” because they will “lose their insurance.” Americans with “pre-existing conditions” never had real insurance in the first place. Their costs are subsidized, and they will continue to be subsidized.•
Bohanon is a professor of economics at Ball State University. Styring is an economist and independent researcher. Both also blog at INforefront.com. Send comments to firstname.lastname@example.org.