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If Insurance Companies Can't Utilize Pre-Existing Conditions, Then They're Not In The Insurance Business

When both Republicans and Democrats agree on something, it is not a cause for celebration but a reason to heighten scrutiny over the measure in question. One such initiative that has garnered a bipartisan seal of approval is the Affordable Care Act’s provision that forbids insurance companies from utilizing pre-existing conditions to determine who they wish to insure. This position—which is pure populist demagoguery—is designed not to improve the functioning of the health care industry but to destroy it.

The health insurance industry, by allowing individuals to purchase security against serious incident health conditions, provides a crucial and heroic role as evidenced by its continued success and profitability. By employing a business model that functions by balancing risks against premium payments, insurance companies allow those who are able to avail themselves of their services to minimize the time (and income) they devote to concern over healthcare costs. Obviously, in order to continue to exist, insurance companies—like all enterprises—must create value by operating at a profit. In order to guard against loss and protect their profitability, insurance companies must meticulously evaluate risk and determine the likelihood of outcomes that will negatively impact their ability to operate. Such calculations are far from sinister, but are an absolute necessity of continued existence and, as such, perfectly moral.

As part of a way to mitigate against excessive risk, insurance companies may elect to not insure an individual whom they judge possesses a high likelihood of incurring costs because of a pre-existing condition. When insurance companies are barred—by law—from considering pre-existing conditions in their evaluation of potential customers, what is being prohibited is the exercise of judgment. In the place of the expertise of insurance actuaries, government fiat is substituted. This ability of insurance companies to discriminate is essential because insurance companies are, properly, in the business of making money. It is the very profitability of insurance companies that allows their continued existence and the ability of many individuals to procure insurance policies. If insurance companies ceased to be profitable, their extinction would shortly be forthcoming and all individuals would be worse off.

What this decree of the Affordable Care Act will do, and is designed to do, is completely distort the entire insurance industry by rendering painstaking risk calculations irrelevant. Such a shackle on business operations will substantially diminish profitability, hence insurance companies’ advocacy for an individual mandate in order to countenance the added expense of insuring high risk individuals.

Certain policymakers, whose ultimate goal is single payer government healthcare, understand the economic calculus that underlies the consideration of pre-existing conditions and fully realize the deleterious effect this ban will have on the industry. These policymakers, in order to claim the “moral” high ground in their efforts to destroy an obstacle (i.e. the insurance industry) to their goal of single payer healthcare, harness and rely upon the populace’s mistaken belief that profitability in healthcare is a sin and that healthcare should be provided to all irrespective of any concern save need.

However, by arguing against the current system, supporters of universal government healthcare are aiming at a straw man because, since nothing close to a free market in healthcare exists, the current actions of the insurance and healthcare industries— two of the most highly regulated industries—are not representative of what might occur in a truly free market. In a free market, individuals with pre-existing conditions would likely have several options to choose from. For example, freed from onerous regulations, insurance companies might charge higher premiums, offer delimited coverage, or offer other innovative products that make financial sense. Moreover, if a free market in healthcare existed, costs of healthcare would drop exponentially, rendering much of the concern over pre-existing conditions moot. For those who truly needed it, charity care would remain an option.

While it may be popular for politicians of all stripes to rail against the profits of insurance companies and argue for further tightening of the noose of regulation, the resultant destruction of the industry that will ensue will erode health quality while paving the way for full nationalization of the industry—an outcome necessitated by the pre-existing condition of altruistic collectivism that animates the demagogues responsible for the steady erosion of the free enterprise system.


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