A modest health care reform proposal

One of the things on most people's health care reform to-do list is fix the pre-existing condition problem. In real life, this problem is a lot smaller than it used to be. For the most part, so long as an individual has continuous health care coverage, he or she can change insurers and have any pre-existing conditions covered. The problem comes when the individual stops paying for health insurance and then develops a health problem. For obvious reasons, insurance companies aren't going to just start covering a person who is already sick or injured. That's like providing auto insurance after the crash.

Fixing this problem isn't easy. Senator Claire McCaskill, speaking Wednesday about a scaled down health care bill, described the difficulty pretty clearly:

Smaller packages are hard because they are all so interrelated. You can't do pre-existing conditions unless you do a mandate. And you can't do a mandate if you make insurance affordable. So someone has to explain it to me. Do you think everybody around here wanted a bill this big?

Just to make clear what the Senator is saying: If Congress mandated that insurance companies cover pre-existing conditions and did not mandate that everyone buy insurance, many people would simply not buy insurance, wait to get sick or injured, then sign up and leave the insurance company with tens or hundreds of thousands of dollars of bills that haven't been paid. Mandating that everyone buy insurance fixes this problem, but it leads to the following hideous policy cascade:

A) Because all individuals will be required to buy insurance, there must be a public option. Otherwise people will be forced to buy insurance from private companies with no brake on what private companies will charge for it. Even assuming a transparent and functioning insurance market (an entirely different issue) -- mandated coverage will "artificially" increase demand, drive up prices, etc.

B) Under a universal insurance mandate, lots of people who can't afford (over-priced) insurance will nevertheless be forced to buy it. So, compassion (or, perhaps, simple practicality) requires that we subsidize that purchase for them. If the mandate didn't drive up insurance prices, that subsidy certainly will.

At which point, the costs of health care reform and the bureaucratic burden -- to control both demand and prices -- spin wildly out of control.

Herewith is a modest attempt to get along with these people (reform advocates) -- a smaller, cheaper fix for the pre-existing condition problem.

(1) Everyone who doesn't buy health care insurance must pay into a "pre-existing condition" fund.

(2) The fund will only cover the costs of catastrophic pre-existing conditions and will only pay those costs when a person decides to start buying health insurance. There is room to argue about what's catastrophic, but at a minimum expenses related to a condition would have to exceed $5,000 -- and a $5,000 deductible would apply.

(3) Actuaries would make sure that the premiums paid in (1) would cover the expenses incurred in (2).

For most people health insurance is not their highest priority. There are other things they prefer to buy. If they aren't willing to provide for ordinary health expenses -- if they'd rather get a car -- fine. And -- above the poverty level -- they can then be expected to pay out of pocket what others have insured for. Up to a point. If they suffer something catastrophic, that they are unable to personally finance then, as all the policy wonks have been saying, people without insurance should not be able to ride free on our compassion.

This should not be an excuse to provide a subsidized, full coverage plan for every American. Instead, keep the program small. The program should cover one thing: catastrophic pre-existing conditions. Treat it like Social Security -- make everybody pay in to the program. Manage the fund federally, or at the state level, or even privatize it. Just keep the program small enough so that it doesn't become a pretext for a trillion dollar transfer of wealth from those who do pay for insurance to those who don't.

One of the things on most people's health care reform to-do list is fix the pre-existing condition problem. In real life, this problem is a lot smaller than it used to be. For the most part, so long as an individual has continuous health care coverage, he or she can change insurers and have any pre-existing conditions covered. The problem comes when the individual stops paying for health insurance and then develops a health problem. For obvious reasons, insurance companies aren't going to just start covering a person who is already sick or injured. That's like providing auto insurance after the crash.

Fixing this problem isn't easy. Senator Claire McCaskill, speaking Wednesday about a scaled down health care bill, described the difficulty pretty clearly:

Smaller packages are hard because they are all so interrelated. You can't do pre-existing conditions unless you do a mandate. And you can't do a mandate if you make insurance affordable. So someone has to explain it to me. Do you think everybody around here wanted a bill this big?

Just to make clear what the Senator is saying: If Congress mandated that insurance companies cover pre-existing conditions and did not mandate that everyone buy insurance, many people would simply not buy insurance, wait to get sick or injured, then sign up and leave the insurance company with tens or hundreds of thousands of dollars of bills that haven't been paid. Mandating that everyone buy insurance fixes this problem, but it leads to the following hideous policy cascade:

A) Because all individuals will be required to buy insurance, there must be a public option. Otherwise people will be forced to buy insurance from private companies with no brake on what private companies will charge for it. Even assuming a transparent and functioning insurance market (an entirely different issue) -- mandated coverage will "artificially" increase demand, drive up prices, etc.

B) Under a universal insurance mandate, lots of people who can't afford (over-priced) insurance will nevertheless be forced to buy it. So, compassion (or, perhaps, simple practicality) requires that we subsidize that purchase for them. If the mandate didn't drive up insurance prices, that subsidy certainly will.

At which point, the costs of health care reform and the bureaucratic burden -- to control both demand and prices -- spin wildly out of control.

Herewith is a modest attempt to get along with these people (reform advocates) -- a smaller, cheaper fix for the pre-existing condition problem.

(1) Everyone who doesn't buy health care insurance must pay into a "pre-existing condition" fund.

(2) The fund will only cover the costs of catastrophic pre-existing conditions and will only pay those costs when a person decides to start buying health insurance. There is room to argue about what's catastrophic, but at a minimum expenses related to a condition would have to exceed $5,000 -- and a $5,000 deductible would apply.

(3) Actuaries would make sure that the premiums paid in (1) would cover the expenses incurred in (2).

For most people health insurance is not their highest priority. There are other things they prefer to buy. If they aren't willing to provide for ordinary health expenses -- if they'd rather get a car -- fine. And -- above the poverty level -- they can then be expected to pay out of pocket what others have insured for. Up to a point. If they suffer something catastrophic, that they are unable to personally finance then, as all the policy wonks have been saying, people without insurance should not be able to ride free on our compassion.

This should not be an excuse to provide a subsidized, full coverage plan for every American. Instead, keep the program small. The program should cover one thing: catastrophic pre-existing conditions. Treat it like Social Security -- make everybody pay in to the program. Manage the fund federally, or at the state level, or even privatize it. Just keep the program small enough so that it doesn't become a pretext for a trillion dollar transfer of wealth from those who do pay for insurance to those who don't.