A pre-existing dilemma

Broken Arrow Family Drug blog

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  • 16 March 2010
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    A pre-existing dilemma

    Imagine the following scenario –

    For years, you’ve faithfully paid your auto insurance. You have policies for liability, comp and collision, and uninsured motorist. It’s expensive, but you need your car to get back and forth to work, and you understand the need to protect yourself in case an accident occurs. You love your car, and take extra-special care to make sure the maintenance is done to keep it running well.

    Your next-door neighbor is a great guy. You have cookouts with them, and the kids play with each other virtually every day. He’s almost like a brother. He’s got a decent job, but because of all of the other expenses in his life, he’s unable to care for his car in the same way you care for yours. Car insurance is too expensive to be a priority in his life. As a matter of fact, he hasn’t had insurance on his car for months.

    Last week, your neighbor had an accident in his vehicle. Fortunately, no one was injured, but his car was messed up pretty badly. It’s going to cost over $8,000 to repair the car to a usable state.

    Your neighbor asks you the name of your auto insurance agent. “Why would you need that?”, you ask. “Your car is already damaged.”

    “I want to see if he’ll cover my damages,” he says. “You never know.”

    Later that day, your neighbor comes back and says that he signed a new insurance policy on his damaged car, and not only is his monthly premium the same as yours, but the insurer has agreed to pay the $8,000 cost to repair his car, even though he wasn’t insured at the time of the accident!

    The next year, your monthly insurance premium increases. You call your agent to find out why the premiums went up so much. You are told that in an effort to get all cars that are on the road into proper working order, your insurance company is now paying for ANY damaged car to get repaired if they sign on to a new policy – and that your increased premium is in order to pay “for the common good”.

    How do you feel? Is this fair or not?

    Now replace the concept of car insurance with health insurance. The hot debate right now is that it is unfair for health insurers to refuse coverage to folks who already have a “damaged car”. Cries that we must resolve this inequity ring through coffee houses and the halls of Congress.

    In today’s Tulsa World, there is a headline article in which 4 Tulsa-area residents are asked what they would like to see in the new healthcare bill. Two of the four stated that they wanted pre-existing condition clauses eliminated, and a third implied it.

    I want you to take a close look at the article. One of the interviewees states that she once had a policy with a $125 monthly premium – and she dropped it because it didn’t cover what she wanted.

    Another stated that her monthly premium was $368 per month for a FAMILY policy – but it was too expensive.

    A third stated that she had a policy, but couldn’t afford the deductible and copays.

    If the goal of changing the healthcare landscape of this country is to provide coverage for EVERYTHING for LESS THAN $125 per month, let’s just give up now. It’s not going to happen. There is no free lunch.

    Setting aside the unrealistic expectations of the three interviewees, let’s look at a simple example of why requiring coverage for pre-existing conditions will make EVERYONE unhappy – including those who would be newly covered. My apologies to those who are business owners who provide insurance to your employees. You know how this works, but there are many out there who don’t.

    Let’s say we have a pool of 5 people who are buying health insurance from Extra Value Insurance and Liability Company (EVILCO). Each family is paying $1,000 per month for a family insurance plan. Thus, the pool is paying $5,000 per month in premiums to EVILCO.

    On average, the people covered in this group see the doctor 5 times per month. Between lab tests, office visits, and prescriptions, EVILCO pays out about $2,000 in benefits per month. One person in the group had to have an unexpected surgery, which cost EVILCO $30,000.

    So in one year, EVILCO took in $60,000 in monthly premiums, and paid out $54,000 in benefits, leaving a gross profit of $6,000.

    A new person asks to join the pool. After talking with this person, everyone LOVES him. He’s a great guy, and would do anything to help. Unfortunately, though, he has a daughter with cystic fibrosis. He’s uninsured right now, and his daughter’s medical bills are about $3,500 per month. He wants to join your group so that he only has to pay $1,000 per month, but get his daughter covered. Being the nice people you are, you let him join the group.

    Now here are the next year’s numbers for EVILCO –

    EVILCO takes in $72,000 in premiums, and pays out $96,000 in benefits.

    Because you added a person with a pre-existing condition, the insurer now posts a loss of $24,000. Now, you don’t particularly care that they lost a lot of money on your group, but in order for EVILCO to remain in business and keep providing some sort of insurance, something must be done to balance the scales. EVILCO has a couple of choices –

    1. Raise premiums. In order for EVILCO to break even (and not post ANY profit), they would have to raise each family’s premiums by about $340 per month.

    2. Decrease coverage. EVILCO could stop covering certain things, and force the families to pay for those items out of their own pockets. In doing so, they may be able to keep their premiums the same, but they would still have to decrease services BY THAT SAME $340 PER FAMILY PER MONTH in order to break even.

    3. A combination of the above two. Raise the premiums a little, but require the families to pay a larger share of their own costs. Most insurers have been using this approach.

    Can you see the math here? There is a huge COST to covering those with pre-existing conditions.

    Do I empathize with those who have pre-existing conditions? Yes. Absolutely. There are a lot of folks I know who have conditions that are completely out of their control (not lifestyle-related). We MUST understand, though, that there is a COST to adding folks with pre-existing conditions to existing insurance policies. The cost of your insurance WILL go up if insurers are required to cover those with pre-existing conditions, regardless of what those in Washington try to tell you.

    Folks who have neglected physician visits because they didn’t have coverage will go to the doctor when they are finally covered. This increases COSTS. If they haven’t been taking their medicine, they will begin to fill their prescriptions again. There is a COST to that. If they’ve had a bad knee that needs replaced, they’ll finally have the surgery – and it will COST someone. Utilization of the healthcare system will go up, and there is a cost. And even if you take ALL the profit from ALL the EVILCOs in the U.S., you won’t come close to covering it.

    The current political discussion seems to center around how it is evil for insurers to NOT cover those with pre-existing conditions. Politicians portray it as morally wrong to not cover everyone. If you feel there is a MORAL obligation to cover folks with pre-existing conditions, then let’s have that discussion – but be prepared to explain why others are morally obligated to pay more in insurance premiums in order to cover them.

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