The vexing question of how to cover preexisting conditions

We could require that people with preexisting conditions bear all the costs themselves, either by paying an actuarially fair premium or by forgoing insurance and paying their costs out-of-pocket. For some the increases will be modest, more an inconvenience than a crisis. Charity care might fill in some of the gaps, and federal law would continue to require that hospitals provide emergency care. Nevertheless, it is likely that many people would not receive the care they need. As a result, virtually no one favors this option.

Second, other people in the insurance market could pay the costs. That’s how the ACA works. The ACA mandates that healthy people, who are unlikely to use insurance, buy it anyway, and charges them much higher premiums than would normally be justified by their actuarial risk. The young and healthy essentially subsidize care for the older and sicker. This has the perverse effect of forcing some people who are struggling financially, such as those just out of college, to subsidize people who might be much better off financially. It also doesn’t work, as the ACA’s implementation showed, because not enough healthy people sign up to pay for the influx of sick people. Insurance companies then either drop out of the market, cut back on high-quality providers, or raise premiums. All of this in turn forces healthy people out of the insurance pool, threatening to create an adverse-selection death spiral.

Third, you can try spread the cost of insurance subsidies over the entire tax-paying population. That’s the theory behind high-risk pools. Individuals with preexisting conditions would be removed from the general insurance pool, allowing premiums for the rest of us to drop to levels reflecting our reduced risk. Most people’s premiums will go down, while those in the high-risk pools face much higher premiums. To be feasible, this option thus requires government to subsidize premiums for those in the high-risk pools. Before the ACA, some 226,000 Americans were enrolled in high-risk pools in the 35 states that offered them. Some state pools were well-designed and worked fairly well, while others had problems. It remains to be seen whether a new generation of high-risk pools would be better. The major problem with this option is that it attempts to preserve the illusion that people with preexisting conditions are being “insured,” when in actuality the uninsurable are uninsurable and there is little point in continuing to include insurance-company middlemen between them and their health-care providers.

Finally, we can take those with preexisting conditions completely out of the insurance market and have taxpayers pay directly for their care, including them, for example, under Medicaid.

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