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January 12, 2010

Explaining The Mandate

It's worth reviewing some of the basics about the health insurance bill.

There are basically two entirely different ways that the health care system currently hurts the sick and the poor. The first is that health care costs are skyrocketing, and responsible health care is getting more and more expensive. But the second is that when serious medical problems do occur, people can go bankrupt and lose their life savings. This is a structurally different problem, in that it is possible to make premiums more affordable without doing anything to protect people from medical bankruptcy.

There are several health insurance practices that make medical bankruptcy possible, such as pre-existing conditions, rescission, and annual/lifetime maximums. In order to protect people from medical bankruptcy, these practices need to be ended.

Here is the problem. The reason these practices are in place are because they make it cheaper for health insurance companies to pay out claims. If they exclude people with pre-existing conditions, they have protected themselves from paying predictable medical costs. If they kick someone off a policy after they get sick (rescission), they've saved themselves a lot of money in expensive care. If they have annual or lifetime caps, they save themselves from having to pay the most expensive of claims, from people who have already racked up hundreds of thousands of dollars in expenses.

If they instead had to pay all of these costs, they would undoubtedly be passed along to consumers in the form of higher premiums - even higher than they are now.

What would the result be of this? As health insurance premiums get more expensive, the population becomes more likely to gamble by choosing not to buy health insurance. The healthier someone is, the more likely they are to gamble. When a healthy person leaves, it means the average health of the people left in the insurance plan is worse, which makes the premiums even more expensive. And then it happens again - more healthy people leave, premiums go up. This repeats, and accelerates. The reason we know this is because it is already happening.

The only way to solve this is to get more healthy people into the insurance plans. Then premiums go down for everyone. That is why the mandate is required. Without the mandate, we simply cannot afford to end pre-existing conditions, rescissions, and plan maximums, and it will still be far too possible for people to suffer bankruptcy just from getting injured or sick.

Posted by tunesmith at January 12, 2010 11:44 PM

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