Posted on 10/07/2009 12:03:26 PM PDT by ElenaM
Many people, in the face of a family with a seriously ill child or a parent with a chronic condition, are quick to insist that all private insurance contracts cover all preexisting conditions. To explain the morality of this knee-jerk emotion, one must understand how modern insurance works.
For example, an employer has three employees: a 45 year old man, a 46 year old woman and a 25 year old woman. All premium calculations are based solely upon the demographics, conditions and claims risks for those three people. Using a simple example, let's say that the claims risk for this group is $36,000. The premiums for each will be $1,000 per person per month to cover claims risk.
The second example is a large employer with 2,000 employees split among all sorts of demographics. The claims risk of that group is divided among all 2,000 employees and their dependents. Again using a simple example, say the claims risk for this group is $200,000. Divided by the number of employees, it works out to $8.30 per person per month for claims risk.
(claims risk) ÷ (# of employees) = premiums
Simple mathematics dictates that the larger the number in the denominator (number of covered employees) compared to the claims risk (numerator), the smaller the premiums (result of the calculation.)
Keep in mind that claims risk assumes that the premiums cover all claims within a month as well as creates a pool of money that will increase over time to cover additional claims. The claims risk calculations dictated by various government entities is extremely complex with precious little variation permitted. I'm using a gross simplification for ease of communication.
Additionally, Federal law prohibits selling group coverage to any entity other than employers. A group of individuals in a non-employment group, such as a club or business-related group, cannot purchase health insurance. Similarly, it is against the law for health insurance companies to create a group for individual policyholders to increase the denominator in the premium calculation. Presumably this law originated in the 1950s as a reaction to mob use of insurance for money laundering, and if coverage were limited to employers the government had a way to ensure that only legitimate groups were receiving insurance coverage.
When an employer hires someone with a preexisting condition and is forced to cover that condition under the existing health coverage, the calculation is skewed. While the claims risk goes up substantially (the numerator), the number of covered increases only by one (the denominator.) Hence, all the employees' premiums go up to cover that one person. The new employee has contributed nothing to the money pool built by other employees' premiums over time but will immediately begin consuming that pool of money. For many conditions, e.g. AIDS, cancer, etc., the new employee will never contribute enough to the money pool to cover the care the employee will receive.
It boils down to one new employee demanding that all the other employees pay for the new employee's care outright.
This is why until 1996, employer groups were not required to cover preexisting conditions. No insurance company dared dictate such a scheme to its customers. The government mandated this coverage with HIPAA.
The moral question is should employees who have been contributing to an insurance pool while using minimal amounts of the pool for health care be compelled to pay in both increased premiums and a shrinking money pool for the new employee with a chronic preexisting health condition?
If we were asking the same question about any other financial transaction, the vast majority of answers would be a resounding "NO!" If a new bank account holder wanted to open an account using $5 out of all other account holders’ funds, the outrage would be immediate and deafening. Yet in this case the vast majority say, "Sure, why not?"
So what do you think? Is this moral or immoral? Why or why not?
Neither
amoral, it is simply a calculation of what the financing would cost, a risk/benefit analysis.
I see that we all have a preexisting condition in the eyes of the abortion industry because we are alive and did not die.
Agreed. Should I cover the risk of covering your already broken leg? Should I cover the risk of covering your already dented fender? Should I cover the risk of fixing your already leaky transmission?
Risk vs. certainty is NOT a moral question. It is an easily answered logic question.
I buy a new car, and have an accident, either through my own fault, or by accident. I then take a taxi to a car insurance company and DEMAND that they sell me an insurance policy on my totaled car, effective retro-actively to the time before I had my accident.
After all, it’s so much cheaper for me to pay $200 now to the insurance company, than pay $25,000 to replace my car.
Doesn’t that about sum the whole situation up?
By the way, I have two serious pre-existing conditions (prior trauma) that are not covered, and I am OK with that.
the problem here is that you are using a market to address a classic market failure: adverse selection. I do not have the answer, but three obvious ones are (1) a (truly) catastrophic fund everyone pays into, (2) government program or (3) private charity. Each has its flaws.
But it’s being presented as a moral question by those pushing for unlimited preexisting coverage.
I agree on the logic but unfortunately logic doesn’t seem to have nearly the sway it used to have.
6 couples go to dinner once a month. Some order an appetizer, others order drinks, others order both, others order neither. The check is split, no separate checks.
I’d support allowing insurance companies to comingle funds for individuals, but the government won’t allow it.
Why preface the issue as a moral question? It is a business decision. Should automobile insurance allow you to buy a collision policy on your car that has a preexisting smashed fender, then expect the insurance to pay for repairing it?
Should people be allowed not buy health insurance until they are diagnosed with cancer, then be able to buy insurance to cover their chemo treatments?
Did you know that in most cases, preexisting condition exclusions only last for one year?
Whenever we have changed insurance, pre-existing conditions were not covered only for a certain length of time. Is that not the case anymore?
Adverse selection is not a market failure, it is a market calculation. In a product, it is referred to as COGS - cost of goods sold. It is part of the calculation of expense involved in a product or service. Calculating the expense of offering a service that covers pre-existing conditions is based on the balance of employee welfare, employee retention, etc.
Yes, I’m very familiar with HIPAA.
I’m asking as a moral question because that’s how it’s being pushed. Moral and pure emotion—who could be against covering a child with a condition?
tell me more about how this would work (allowing insurance companies to comingle funds for individuals)
The law still limits it to one year.
to take your auto insurance analogy to the next logical step; your insurance company drops you or increases your rate. Do you want your health insurance to drop you after a yearly visit or after you child’s tonsils need to be removed, as the genius in the White House suggests?
I have tried to figure out which pre-existing conditions they are lobbying to cover.
Pre-ex already cannot be excluded so long as there is not a significant break (63 days or longer) in coverage, per HIPPA. This whole pre-ex idea was one of the tauted benefits of HIPPA, in addition to the privacy components of the law.
For group policies, if you haven’t been without coverage for more than 60 days you have no waiting period for preexisting.
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