We need to take a look at what happens to the price of health insurance when insurers are not allowed to exclude pre-existing conditions from coverage. A lot of people believe that if the government removes waiting periods and stops insurers from excluding pre-existing conditions, that the price of health insurance will remain unchanged. This is wrong in so many ways, and tackling this issue by way of the government imposing new regulations that prevent insurance companies from excluding pre-existing conditions would be another round of misguided government regulation that would drive up costs. There’s no wonder they wanted a government backed option that could keep the rates down on the backs of the American taxpayer.
Think about it this way. If you have health issues when you pick up a new health insurance policy, the insurance company sees a guaranteed expense. If you would have purchased health insurance when you were healthier and then kept it, the insurer could have gotten some of those good years they need to run a profitable business. In those healthy years, they bring in the necessary funds to cover the claims that come in the client’s bad years.
If the government removed insurers’ right to price their products correctly by rating health risk, they would have to make up for unforeseen expenses. By stopping insurers from excluding pre-existing conditions from coverage, the government would be forcing insurers to spread the risk and price of doing so to everyone. If they didn’t, they would be insolvent in a few years when the claims started piling up.
One of the products we market is a limited medical plan. There are two options a client can purchase. One has a 12 month pre-existing condition requirement while the other covers everything from day 1. At age 18, the product with the pre-existing requirement has a rate of $109/month. At that same age, for the product with coverage from day 1, the price jumps to $159/month, and it pays the insurance agent selling the product 25% less to try to keep the rates down. What we are looking at is a 45% rate increase that could be made worse if they didn’t lower the commission paid to the agent by 25%. It’s a significant increase.
The government needs to put regulations in place that allow for greater ease of portability across state lines so that a client can maintain one health insurance policy for life instead of having to get a new health policy every time they move. If the government can do this, the consumer won’t have to deal with insurance companies excluding pre-existing requirements from coverage nearly as much. If you want to stop insurers from excluding pre-existing conditions from coverage, you would create a more robust insurance plan that would cover existing health issues, but it would also cost significantly more.
And let us not forget that the cost of health insurance has been the major issue in recent times.
I wrote this article about one year back. At the time that we were running with this limited medical plan, that same company also had a Guaranteed Issue Term Life product on a five year band (ie. every five years the rate the owner of the policy pays would go up). The product was built for the workplace to cover groups, yet for only us did they decide to allow individuals to purchase this product if you became a member of a fraternal organization. The cost of membership was next to nothing, and the monthly rate was, on average, nearly 40% cheaper than any fully underwritten product on the market, yet it had no health questions!
You can only imagine what we were thinking. It didn’t pay all that much, but boy did it fill a niche that didn’t exist prior Suddenly, a person that was virtually uninsurable could get $50,000 of life insurance 7+ times cheaper than the nearest competitor. This was a foot in the door for agents, and an incredible value for clients. As I saw it, we were creating a pool of for the uninsurable with a product that cost less money by nearly 40% than anything on the market for the healthy folks. What, you don’t think that sounds like a smart business move for the insurance company?
This is a good example of how things could end up if our government creates pools for the uninsurable (whether intended or not). In this case, there was a tidal wave of business that came in in the first two weeks, and we brought in over $5 million dollars of liability in less that time. When the third week of business finally rolled around, the insurance company realized the mistake they had made taking on such a liability when only getting around $1500 total a month in premium from folks that had major health issues. Suffice it to say, business was halted that week.
To the credit of this insurance company, they honored every policy written, but you can see clearly, how this is bad business even in such small quantity. Imagine if this pool was allowed to stay open for business and included every unhealthy American.