What About Pre-Existing Conditions?
University of Chicago finance professor John Cochrane answers that question in today's WSJ:
The bills being considered in Congress address the pre-existing condition problem by forcing insurers to take everybody at the same price. It won't work. Insurers will still avoid sick people and treat them poorly once they come. Regulators will then detail exactly how every disease must be treated. Healthy people will pay too much, so we will need a stern mandate to keep them insured. And this step further reduces competition.
Private, competitive insurance markets are a superior way to solve the pre-existing-conditions problem, and the only hope to lower costs.
A truly effective insurance policy would combine coverage for this year's expenses with the right to buy insurance in the future at a set price. Today, employer-based group coverage provides the former but, crucially, not the latter. A "guaranteed renewable" individual insurance contract is the simplest way to deliver both. Once you sign up, you can keep insurance for life, and your premiums do not rise if you get sicker. Term life insurance, for example, is fully guaranteed renewable. Individual health insurance is mostly so. And insurers are getting more creative. UnitedHealth now lets you buy the right to future insurance—insurance against developing a pre-existing condition.
These market solutions can be refined. Insurance policies could separate current insurance and the right to buy future insurance. Then, if you are temporarily covered by an employer, you could keep the pre-existing-condition protection.
Innovations like these would catch on quickly in a vibrant, deregulated individual insurance market.
Originally posted at Carpe Diem.