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July 11, 2017

Freedom, Responsibility, and Preexisting Conditions

We want the freedom to decide whether or not to buy health insurance but we don’t want to take responsibility for the cost of healthcare when we get sick and don’t have insurance. Evidence: Americans hated the individual mandate in Obamacare enough to give Republicans control of Congress in 2010 and we are now insisting that Congress repeal the individual mandate WITHOUT leaving us uncovered for preexisting conditions. No politician of either party nor the President wants to tell us that we’re asking for freedom without responsibility. Not surprisingly there is no replacement for or repair of Obamacare which can meet these conflicting demands.

We don’t expect to be able to buy house insurance when we smell smoke. Banks mandate that we buy insurance before granting a mortgage.

We can’t get driver’s liability insurance after an accident. That’s why there’s a mandate for the protection of people we might hurt to buy liability insurance before we register a car. We don’t have to buy collision insurance for our cars; but we won’t get reimbursed after an accident we caused if we don’t. Fair enough and not buying may be a good economic decision if you can afford to replace your car. We certainly don’t expect to be able to buy insurance to cover a “preexisting” collision.

Just to be clear, I’m NOT talking about the problem of coverage for preexisting conditions if you change jobs and must change insurers or when you first leave your parent’s policy and get your own. As long as you have continued coverage from someone, there’s no actuarial problem in covering these conditions.

Insurance obviously only works if people buy it before they know whether they’ll need it. The premiums of the lucky ones who don’t collect fund the payouts for the unlucky ones who do have a loss (plus the expenses and profits of the insurance company). Obamacare acknowledged this by mandating that everyone buy insurance. This mandate actually makes the question of preexisting conditions moot. If you have to buy insurance, you can’t wait until you get sick to make the purchase. Everyone, healthy or not, is in the pool.

But Obamacare has its own contradictions which are causing its actuarial collapse. The cost of insurance for young people is so high and the penalties for not buying so low and so rarely enforced that young, healthy people are NOT buying. On the other hand, the premiums are kept low for older people (because of a hoped-forl subsidy by the young) so older, sicker people do buy. Insurance companies then pay more in claims than they collect in premiums. They either charge even higher premiums, which cause enrollment to drop further, or leave the insurance exchanges or collect a government subsidy or some combination of the three actions.

We can’t fix or replace Obamacare without facing the contradiction of wanting the freedom not to buy insurance without the responsibility of paying for care when we need it. Here are the options:

  1. Socialize all medical costs. Government pays them all. In essence, however, this amounts to an insurance mandate. We’d all be buying insurance but the cost would be hidden in our tax bills. Bernie Sanders will tell you that the cost will be in the tax bill of “the rich and the cawperations” but I’m afraid that money will also be needed for the free college he’s promised. We have already done this with the large percentage of Americans on Medicaid and, to a lesser extent, with us geezers on Medicare who did pay some (involuntary) premiums.
  2. Keep the individual mandate AND coverage for preexisting conditions and stiffen the penalty for not buying. Politics aside, this could work actuarily if premiums for younger people reflected the actual cost of insuring that age group; but then, of course, the cost to the elderly would go up. This solution is between a political rock and a hard place.
  3. Drop the individual mandate and leave those who choose not to buy insurance responsible for the medical costs they incur. Note that the indigent get “free” insurance in the form of Medicaid so they will not be affected. This does not mean that we leave people who gambled and lost to sicken or die; we can’t do that. Not buying insurance is a financial decision. The consequences of not buying should be financial as well. You get the care you need when you need it; you pay for that care either immediately if you can or over time if you can’t. Liens on assets and garnished salaries are as appropriate for collecting this debt as they are for any other.

The choice is stark: we either give up freedom or accept responsibility.

See also:

Freedom and Responsibility

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