Why Pre-Existing Conditions Cannot Be Legislated Away
With a critical vote supposed to go ahead this week on the Graham-Cassidy health-care bill, public discussion must grapple with the points of conflict over passage. In short, the Graham-Cassidy bill repeals the individual and employer mandate tax penalties that form the backbone of Obamacare, reforms Medicaid, and gives states flexibility in designing health-care subsidies and insurance rules that suit their residents’ needs.
The most controversial of the liberalization measures included in this package is the deregulation of Obamacare’s pre-existing-condition regulations, in which Graham-Cassidy gives states leeway to modify as they see fit.
Pre-existing conditions are medical conditions that started before a person’s medical benefits came into effect. Given the high-risk nature of some of these individuals’ pre-existing conditions, some insurance companies simply do not cover these expenses.
Naturally, this insurance practice evokes strong emotions across the political spectrum. Many a politician channels populist rhetoric by promising to stiffen regulations on insurance providers that do not cover pre-existing conditions. Even President Donald Trump stated in a tweet that “I would not sign Graham-Cassidy if it did not include coverage of pre-existing conditions. It does! A great Bill. Repeal & Replace.”
Although this may sound well-intentioned, like all government interventions in the economy, the devil is in the details. The harsh reality is that the current discussion about pre-existing conditions is really a debate over whether politicians or market forces should determine prices. Most pre-existing-condition regulations entail some sort of price control that disrupts supply and demand signals in the medical-insurance market. Essentially, these politicians want insurance companies to do the impossible, to completely take risk out of the pricing equation.
To achieve this, politicians push for arbitrary community standards that keep premiums artificially low for old people — who tend to incur more medical expenses — while otherwise young, healthy people are over charged to subsidize the premiums of their elderly counterparts.
The law of unintended consequences will eventually rear its ugly head, and younger people will opt out of redistributive insurance schemes. Their exit creates a death spiral of sorts, where premiums will eventually sky rocket for the elderly and those remain.
The solution to this dilemma is a wholesale deregulation of the health insurance sector, not more top-down control, to liberate supply and lower prices across the board. Graham-Cassidy has promising features in terms of deregulation, but it simply does not go far enough to address key structural problems with the American medical sector.
Ultimately, the best way to provide affordable medical care is through free-market competition at all levels. That means doing away with or at least loosening onerous licensing schemes, burdensome state regulations on health insurance, and Byzantine prescription-drug policies.
Debates on healthcare should be based on facts, not demagogic talking points. This week will be prove fateful in determining the future landscape of the American healthcare sector. Time will tell if bolder, free-market reforms will be subsequently considered in the case that Graham Cassidy becomes law.
Image: Alex Proimos.
