Pre-existing Conditions and Health Care Reform

Originally published at Politicsunlocked.com on July 1, 2009

Neccessary reforms or free-market intrusions?

There are three different classes of people in the health care marketplace in the United States: those receiving employer provided-health insurance, those who individually acquire health plans and those who remain uninsured.

Each group has a different stake in the outcome of health care reform. While costs impact all three, some crucial issues only affect one segment of the health care population, and “exclusions” and “rescissions” are important issues for those who purchase health care individually.

So-called “exclusions” typically relate to pre-existing conditions. Thus, in buying a health care policy, the insured is typically unable to obtain coverage that will pay for medical care as it relates to a pre-existing condition. This is less frequently an issue for the younger segment of the individual insurance market, such as college graduates, who are young and, statistically speaking, not yet burdened with many illnesses. Although if you are 22 and have a medical condition, you will face the reality of not having insurance for that condition unless you are employed by a company that provides insurance. Employer-provided plans generally do not have any pre-existing illness exclusions, but such employment may not be available in all fields or areas of the country, and especially in the current economic climate, many young people are graduating from college without full-time employment prospects in the near term.

Older Americans, not yet eligible for Medicare, are in a very difficult situation when in comes to purchasing individual insurance. They seek insurance in order to protect them from high costs in case of catastrophic illness, but also to aid in the payment for care related to typical illnesses and conditions that afflict people as they age.

Insurance companies are private, for profit, businesses. They compete to obtain clients who are healthy and who will pay the most premiums while requiring the least care, doing this through marketing campaigns, but also through exclusion of pre-existing conditions. Customers do not have good options, and deciding to not purchase insurance and relying on public health facilities and emergency room care can be risky and inconvenient.

One of the goals of President Barack Obama’s reform proposals is to eliminate exclusions for pre-existing conditions in individual insurance plans. This will interfere in the free-market private decision making of insurance companies, but it will be a risk born by all equally. In fact, insurance company executives have at times spoken out in favor of elimination of exclusions so long as it was done in a way that affected all insurers equally.

“Rescission” relates to “exclusion” because it refers to the cancellation of insurance when the insurer determines that the insured was not accurate in the insurance application. This is typically done when the insurer discovers that the insured person seeks payments for conditions that were pre-existing but were not revealed in the application. However, insurers also cancel contracts when they find technicalities in the applications that do not relate to pre-existing illnesses. For example, if someone failed to mention that he/she had a knee condition in his/her application, but then submitted an insurance claim related to heart surgery that was otherwise covered, the insurance company might research the insured’s medical history in search of any inconsistencies which would allow them to cancel insurance and avoid payment on the costly heart surgery.

During testimony by insurance company executives last week, outraged congressmen demanded that insurance companies stop rescissions based on technicalities. However, all three executives at the hearing refused to make that commitment. This is another issue likely to be worked over by legislators as they craft reform packages.