Pre-Existing Madness
Jeffrey I. Barke, M.D.
I own a home in California near a major earthquake fault. As a result, I cannot purchase traditional earthquake insurance to protect our home against its catastrophic loss. My house, in effect, has a pre-existing condition.
California created a solution to this pre-existing problem following the 6.7 magnitude Northridge earthquake in 1994. It established the California Earthquake Authority. This not-for-profit, privately funded, publicly managed organization offers subsidized earthquake insurance through participating insurance companies. It now insures more than one million households and writes two-thirds of all residential earthquake policies sold in California.
Whenever healthcare reforms are discussed, pre-existing conditions often become an important focus of attention. A free market solution to healthcare problems — where quality improves and costs are reduced — must deal with the pre-existing condition dilemma. Simply mandating that health insurance companies cover all pre-existing conditions distorts the free market, increases costs and disincentivizes Americans from purchasing medical insurance when they are healthy.
Why would anyone spend money on health insurance while they are healthy if they knew they could purchase the same kind of financial protection without penalty when they become ill? It is the equivalent of buying fire insurance only after your house catches on fire or getting auto insurance immediately after the car crash. Think of how much money you could save?
Now of course there are situations where someone has a medical condition through no fault of his or her own: Type 1 diabetes, an inherited genetic condition, certain types of cancer. We need a financial solution for these and other pre-existing conditions. I see three ways to accomplish this:
Create a privately funded, publicly-managed high risk pool of money to cover these individuals — the California Earthquake Authority model.
Establish a high-risk public pool where taxpayer dollars are used to help subsidize the purchase of insurance and/or medical care for someone with carefully identified pre-existing medical conditions.
Improve how charity medical care is delivered so it is incentivized. Currently, when I donate my time at a local free clinic I receive no remuneration and no tax deduction either. But if I send a check for $1,000.00 to that same clinic to pay someone else to provide the same services I am willing to give for free, I get a nice tax deduction. How does that make any sense? Wouldn’t it be easier to change Federal and State tax codes to allow doctors a tax deduction or, even better, a tax credit for providing charity care. This idea could be extended not only to doctors but also nurses, hospitals, and other medical care providers.
During the debate on ObamaCare, many public policy specialists looked at alternatives to a government-run medical system for those with pre-existing conditions such as those found in Canada or the United Kingdom. The Mercatus Center, for one, published a series of essays on tackling the pre-existing condition issue. In short, there are many creative solutions for this issue that do not require a government mandate.
Underlying any future discussion on free market solutions to healthcare issues is remembering what medical insurance is meant to do. It was created to protect against financial ruin in the event of an unforeseen medical catastrophe. It was never intended to act as a means of prepaid care for every conceivable medical need.
Just as we do not buy auto insurance to pay for new spark plugs, tires, or wiper blades when the need for these items arises, so we should not expect health insurance to cover all possible medical issues when they occur. Financial resources are limited, medical needs are unlimited.
Until we start to view health insurance in much the same way as we look at other types of insurance (auto, homeowners, earthquake, and life), we may never get to a market based, high quality, low cost solution.