State Sen. Kathleen Vinehout just doesn't understand health insurance. She first entered the fray by complaining about the fact that, after she left a job with insurance to go into politics, her son required expensive medical care that was uncovered. In what may be the only story that Shark and Shepherd will ever break, I disclosed that, during the period that she went uninsured and her son came to require care, Vinehout had contributed sizable sums to her own campaign. Her tragedy amounted to a complaint that someone else would not provide her with something that she would not pay for herself.
In this piece in the Tomah Journal, she still doesn't quite get it. She is upset with insurance companies who refuse to cover preexisting conditions. They ought to be required to do so. She laments the fact that "[n]ot only can an insurance company deny coverage to a person suffering from illness, but there are no limits on how long someone can be denied coverage of the very problems for which they most need health insurance."
Here's the obvious problem. Insurance is a form of polling risk. We pay premiums when we don't need it so it will be there when we do. We choose to pay a smaller amount now to protect against the possibility of a larger cost later. The result is that those who don't incur the insured against risk subsidize those who do. Because no one knows ex ante which class they will fall into, it makes sense for all to participate.
This does not work until you wait to buy insurance. At that point, you are not pooling your risk, you are simply trying to shift your loss to someone else. A person who has cancer or, like the Reddess has a raft of athletic injuries requiring frequent orthopedic care, can't really buy anything that can be called insurance. If there is a high probability that a potential insured will incur, say, $ 30,000 in annual costs, any premium that is less than $ 30,000 is not enough. The individual will simply be buying the right to present her bills to someone else and not paying enough to cover the cost.
If any one insurance company decided to cover persons with preexisting conditions, then it would quickly assemble a book of business comprised largely of sick people. It must either dramatically increase premiums or go out of business. If the state requires insurers to take on persons with preexisting conditions, people have an incentive to wait to buy insurance and the same things happens.
If you don't quite follow, imagine what would happen if I was able to wait until I had an accident to buy auto insurance.
But, Sen. Vinehout says, insurers deny coverage to persons with "old" preexisting conditions. They are "too" conservative. Maybe they are. But it is hard to believe that insurers, who have every reason to accept profitable business and who are in competition with others who will penalize them for making the wrong decision, need to be told by the government when they are being too restrictive.
She complains about the following "hideous" practice of insurance companies:
You paid all your premiums and are up-to-date on all requirements of the policy. The insurance company receives your claims for the new health problem and begins digging back into your medical history -- looking back months or even years. The company then alleges you failed to disclose or should have known about some pre-existing condition for which you are now receiving care. The company denies the payment of your claim based on these allegations.
Well, if you lied about a preexisting condition then you haven't complied with the "requirements of your policy." If you didn't lie, if it turns out that you did not have the preexisting condition or were unaware, say, that treatment for x implies condition y, the insurance company isn't going to win this one. Although the matter is complicated with employer-provided group health plans (with respect to which most preexisting conditions can't be excluded), a company that denies a claim in bad faith runs the risk of liability exceeding what it would otherwise be required to pay under the policy.
As I have blogged before, there are complications with application of the insurance model to health care. First, most employer-provided plans are not really insurance against the risk of expensive that will be incurred by some and not others. They cover routine costs which we know everyone will incur and health care costs, unlike auto accidents, are far more certain. They tend to come as one gets older. Health insurance is not only a subsidy of the sick by the healthy but a subsidy of the old by the young. This gives it the element of a forced savings plan in which you pay into a fund that you will probably have to draw on one day. But like other forms of insurance, if the healthy and young can opt out, it won't work.
Second, while we are willing to let someone be stuck with the cost of a wrecked car if they failed to insure it, we are not willing to let them die if they failed - or could not afford - to insure their health. That is why, in the United States, persons who are uninsured are not uncared for (albeit, in some cases, not as well as those who are insured.)
This creates difficult policy questions. You want to find a way to create insurable pools while still maintaining a market for health care because that is the best way to control costs and spur innovation and attention to consumer demands. Everybody agrees that we aren't quite there, but the cause is not evil, mean and greedy insurance companies.
This suggests one final point. Isn't what Vinehout in engaged in here the "politics of fear?" Isn't it demonization of the "other?" Isn't she evading difficult problems by seeking a scapegoat?