Health Insurance and Pre-Existing Conditions

Guest Post by Dr. James Brook, D.O.

Many people seem to not understand what it means to require “insurance” companies to pay for people with pre-existing conditions. To do so would require companies to lose money. When companies lose money doing something, they have to stop doing that thing. Requiring “insurance” companies to pay for large immediate costs for a customer, in return for a much smaller premium, obviously requires them to lose money. I put the word insurance in quotes, because this scenario is not true insurance at all. The purpose of true insurance is to spread risk, so that an individual does not bear the full risk of devastating conditions. A small number of people develop very expensive conditions, and it is unknown beforehand who those people will be. Large numbers of people pool their risk by purchasing insurance. Then those who do incur large costs have those costs absorbed by the larger group of people, through their premiums. Premiums are based on the risk that a person has when entering the insurance pool, to the best of the ability of the insurers to determine the customer’s level of risk. Suppose somebody who had not previously been paying insurance premiums suddenly comes to find out he needs a knee replacement. Under the scenario of requiring “insurance” companies to pay for pre-existing conditions, the company would have to pay for this new customer’s knee replacement, while only being paid a premium that is a very small fraction of the cost of the surgery. The person who got his knee replaced could then stop paying premiums as soon as the surgery bill is paid. A premium has to exceed the predicted cost to the company. To avoid losing money, the company would have to charge an immediate premium that exceeds the cost of the surgery, since the probability of the cost is 100%.

What incentives then apply to patients? They are incented to not buy insurance at all, until costly conditions develop, and then apply for “insurance,” which the company is forced by government to provide. What incentive applies to the company? They are incented to stop doing business, because they are forced to lose money. Both of these things happened under Obamacare. People gamed the system, “insurance” companies lost enormous amounts of money, and they pulled out of the markets. All of this was entirely predictable, and indeed was predicted by many people. It is simple reality, based on incentives. It may feel good to require coverage of pre-existing conditions, but it is magical thinking to think that it can be done, while companies continue to stay in business. It may be heartless for companies to refuse to lose money on their customers, but would you go to work if you were forced to pay your employer to do it? If you are not willing to lose money by working, then you are being heartless to require it of others.

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Dr. James Brook is a Direct Primary Care physician in the state of Idaho, offering affordable primary care to patients willing to pay affordable, direct fees at the point of service.  Visit Dr. Brook’s website for information about his innovative health care model, and to learn more about his health care reform philosophy, clearly illustrated in his book, The High Price of Socialized Medicine.

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