Pre-Existing Conditions

President Trump recently signed a variant of Obamacare into law. Despite being pretty consistent with the law it replaced, many articles (and many comments responding to those articles) have brought up all of the old debate topics that popped up when Obama signed the original massive healthcare bill.

One topic in particular that seems to consistently divide people is insurance coverage of pre-existing conditions. If someone wants to buy health insurance but already has a medical condition for which health insurance would help alleviate costs, some argue that it is cruel to deprive them of the opportunity. Who needs it more, after all?

Answering this concern is straightforward and simple, and it’s a good lesson in how to respond to fuzzy emotional complaints (which are a terrible grounding for law). There are straightforward economic reasons that it’s actually impossible for health insurance to cover pre-existing conditions.

By “insurance”, I am referring to a system in which a large number of people pay money in proportion to some risk they may incur into a fund and out of which fund a small percentage of those people may withdraw money should they realize the risk accidentally. Paying money “in proportion to risk” simply means that some people are more likely to incur whatever risk the insurance hedges against, and so pay extra as a result to balance the flow of money in and out of the fund. The reason the risk must be realized accidentally is to avoid fraud.

All insurance works this way. Millions of people pay a car insurance company to protect their cars. Younger drivers, elderly drivers, and drivers with a history of traffic violations all pay more. More expensive cars also end up costing more, regardless of who is driving them. Thankfully, most people don’t get into car accidents, and so most of the people paying into the system never get anything out of it but peace of mind (or, in some places, the ability to legally drive their car). If someone goes out and bashes their car with a baseball bat in order to obtain a new one from insurance, their insurance company will decline the request; fraud would ruin the system.

Now imagine if suddenly, car insurance companies were required to cover cars which are already damaged. If you don’t have car insurance and you get into an accident, the car insurance company under penalty of law cannot decline you as a client. Nor can they hold you as a client indefinitely; you can always leave an insurance contract after a period of time. What would this do to the system?

Well, no one would buy car insurance until they got into a car crash. Why pay for something that does absolutely nothing for you? But can you see what this does to the equation? If 1000 people each pay $100 into car insurance each year and only 10 get into a car crash (we’ll estimate $10,000 as an average cost of each accident), then you have 1000 x $100 = $100,000 coming into the fund and 10 x $10,000 = $100,000 going out.

But if car insurance can be purchased on the spot even after a car accident to cover the car accident, 990 of those people won’t be paying anything. Why would they! They could get the benefits of insurance any time they actually needed them. The new equation is 10 x $100 = $1000 coming into the fund and 10 x $10,000 = $100,000 going out. $99,000 short to cover the expenses. The insurance company would foot the bill and would close. No company could take $99 in loss for every $1 of income.

This same analysis applies to medical insurance. No one would purchase medical insurance until they had a condition if it covered “pre-existing conditions”. This means that the only people paying into the fund are those who need to withdraw from it. You can hopefully see where this is going: “buying insurance” would cost as much, if not more, than paying out-of-pocket for all medical costs.

“But wait”, I hear you say. “What if the government also forced everyone to buy insurance?” This is exactly what they’d need to do. But now you’ve got an even bigger problem. First, in the United States, it is simply unconstitutional for the government to force citizens to buy a product or service. The Supreme Court, sympathetic to Obama, knew this. That’s why, despite Obama selling his Obamacare plan as something that would not raise taxes, the Supreme Court was forced to say that it increased taxes. Without forcing citizens to pay into the system, it would collapse.

But this isn’t the only problem, and it’s the reason the system collapses everywhere it is tried.

The more that insurance covers, the more expensive it is. That seems pretty straightforward. But the more it covers, the more expensive it also makes the services it covers. When insurance is used exclusively to pay for a particular service – and no one ever needs to pay out-of-pocket for it – that service increases in price. There’s no competition or bartering going on. The insurance company can raise rates and there isn’t much you can do about it.

This leads to a single-payer sort of system, where insurance companies simply can’t keep up with the demands of the government and are eventually just made into a government bureaucracy of their own. This costs incredible amounts of money (as it automatically raises the costs of services without limit), and is unreliable over longer periods of time and over populations with varied wealth and medical needs.

Much of this is beyond the scope of the problems with single-payer health care, but you can see already how it is all tied together, one problem necessitating a solution which itself becomes a problem, etc. The point is, any insurance which purports to cover “pre-existing conditions” isn’t insurance. It’s just an extra cost and added hassle on your way to paying the full cost of whatever service you want.