Preexisting Conditions
by Joseph Rowlands

One of the more depressing looks at the Tea Party movement was a survey about what they thought of Obama's healthcare plan. The good news was that they were against it. The bad news was that they were happy to keep the rule preventing insurance companies from not insuring people that had preexisting conditions. The individual mandate, the portion that required all citizens of the United States to buy a government approved insurance policy was seen as the real evil.

The insurance companies treatment of people with preexisting conditions is very unpopular. The reason it is such a harmful policy is that insurance is usually purchased by an employer, and if you lose your job, you lose the insurance. This is a problem. If a company lays you off, or goes out of business, while you have a medical issue, it may be impossible to get reinsured. I know of one couple that was having a baby when the company went under. While they may have had some money set aside, the inability to get reinsured was a serious problem.

It doesn't help that hospitals rarely price services based on the expectation of going through insurance companies. For a variety of reasons, it tends to elevate the price of direct cache payments. Even the most basic services need to go through the insurance company, who can then negotiate lower overall rates.

So people need insurance, and yet the way government has structured the incentives, people get the insurance through their employers. That's just because a tax break is given to compensation given in the form of health insurance. If the companies gave you cash, which you then spent on the insurance, you'd have to pay the full rate of taxes on it. So there's a significant benefit in having the employer purchase it for you.

So with this system in place, a denial of insurance because of preexisting conditions can be unfair. You might pay into an insurance policy for years, but when you get sick, you might get laid off from your job and lose your insurance. The point of insurance is to pay even when your healthy so that if you do get sick, you'll be covered. But the system is broken.

While that may be the case, it is hard to believe that people can think a law banning insurance companies from rejecting people for preexisting conditions is reasonable. It's especially disquieting when they think they can get rid of that while not creating an individual mandate or further government involvement.

Insurance requires that people pay into the system even when healthy, so that when something bad happens, they'll be covered. It works because the something bad doesn't happen very often, but when it does, it's too much for one person. Insurance reduces the risks by spreading out the costs.

So what happens if people can simply wait until disaster strike and then sign up for the "insurance"? How can the insurance exist if nobody is signed up except those who have outrageous costs? There's no larger group to spread out the costs. Each person would have to pay the full burden.

Maybe there's some fantasy that the insurance companies will pay for it. But where would they get the money? We think of insurance companies as having a lot of money, but they only get that money when insurance is working normally.

Preventing insurance companies from excluding preexisting conditions would lead people to remain uninsured until they needed it. And if that were common enough, the insurance companies could not cover the costs. It would lead to bankruptcy. There's no way around it. If you keep the costs the same, but remove all of the money coming in, they can't stay in business. And it's pure fantasy to think that they would.

What happens when the insurance companies go bankrupt or go out of business? Without any private insurance, it's almost certain that the government would feel the need to step in. That's because of the nature of insurance. When disaster strikes, the costs are enormous and usually far more than one person can handle.

And that means preventing insurance companies from discriminating against those with preexisting conditions will go one of two ways. The first is the complete annihilation of the private insurance industry. The only alternative is to add more regulations to fix the first. If the problem is that people are choosing not to buy "insurance" until disaster strikes, then the solution is to force them to beforehand. That is the individual mandate.

Without the individual mandate, the path is clear. No more private company insurance. And so for those who want less government in health care, they would achieve the opposite. They would create an opportunity for the government to step in as the only one willing to offer insurance, and nationalize the whole thing.

Those tea party participants or other free-market admirers who support a ban on recognizing preexisting conditions would lead us further down the path of government control. But that shouldn't be surprising at all. The ban on preexisting conditions is not a policy that reigns in government. It is the use of government force to coerce companies. There's nothing libertarian or free-market about it. It's like any other use of violence to get something you want.

Yeah, maybe you really, really want it. And so maybe you think you deserve it. And you decide that using force in this case is okay, because you don't think what they're doing is very nice or fair or whatever. But that's the slippery slope of government control. It is the attraction to using the force of government to get what you want. It's an easy solution. But when it creates its own problems, you feel justified in using it some more. And some more. And some more.

A ban on companies discriminating based on preexisting conditions is a violation of the rights of the companies and shareholders. And like any use of force in the market, it hurts others as well. It hurts all of the people who are currently insured and expecting the insurance to cover them in the future. That won't happen if you destroy the insurance companies. You can't just create costs and expect no consequences.

So is the tea party really free-market or limited government? Or are they just against some policies and for others? Are they against the individual mandate because it'll apply to them, but they don't mind regulations of insurance companies because it's not them?

If you don't like the preexisting conditions problem, then get insurance on your own instead of going through your company. It's expensive, but it's yours. Just because the government creates incentives to act one way doesn't mean you have to.

And if you really want to use politics to effect change, then work on getting rid of the distortions that government has created. Get rid of the tax breaks for employer-based insurance. Maybe just give everyone an additional fixed deduction, and then each person can choose to act how they want to. Without the tax breaks, there would be no benefit for the employers to get in the middle of you and your insurance.

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