Health Care Debate II

Here's a quote from President Obama's health care talk in Portsmouth, NH, yesterday (per seacoastonline):

"A recent report actually shows that, in the past three years, over 12 million Americans were discriminated against by insurance companies because of a pre-existing condition. Either the insurance company refused to cover the person, or they dropped their coverage when they got sick and they needed it most, or they refused to cover a specific illness or condition, or they charged higher premiums and out-of-pocket costs. No one holds these companies accountable for these practices."

Where to start...

(1) Insurers ARE held accountable -- in several ways, but especially through the competitive marketplace.

(2) Insurers are not endowed with a bundle of money which they can to choose to either pay out or not. Pricing of an insurance policy is predicated on the frequency and severity of potential losses stemming from the risks being underwritten and insured in the policy. The policy -- which is a legal contract -- spells out the conditions, exclusions, etc., under which the indemnification relationship between the insurer and policyholder will operate. Generally, and in theory, when an insurer makes a coverage decision regarding whether a policy should respond to a particular situation, it is based upon the provisions of the policy (which, again, is a legal contract). (This is not to say that an insurer never acts "inappropriately" -- but that's a different issue that has little, if anything, to do with the broader public policy debate.)

(3) It is not "discrimination" for an insurer to enforce a pre-existing condition exclusion in an insurance contract. Such exclusions, when a part of an insurance policy, are there from the start. They are common, agreed to, and they impact the level of premium charged for the policy. Among other things, the impact of a policy exclusion is typically to make the policy affordable (or more affordable) and/or prevent moral hazard and/or... Thus, elimination of such an exclusion is certainly possible -- but the premium would need to increase in order to cover the additional risk which the insurer is taking on.

(4) When one encounters statements along the lines that an insurer "refused to cover" someone or something, remember: an insurer is a financial firm with a fiduciary obligation to ALL its policyholders (and owners and other stakeholders). When the price of its product is based upon a certain scope of coverage, the insurer potentially violates that fiduciary responsibility if it pays out more than the contract specifies.

There are very real PUBLIC POLICY issues involved in the current health care debate. It is reasonable to discuss, AS A SOCIETY, whether a certain type or level of coverage should be mandated. Most of us have mixed feelings about these things -- it's hard not to, when there are ample personal anecdotes floating about involving health and medical care. But the debate needs to start from a fair and realistic perspective regarding insurance and its role in society and the economy.

- Rick