A common and legitimate concern about health insurance is not being able to buy insurance because of a preexisting condition. In this post I make the case that if government stopped subsidizing employer-sponsored insurance, more people would buy individual insurance policies when they are young and healthy. Such policies are guaranteed renewable, so pre-existing conditions would be less of an issue.
My understanding is that employer-sponsored insurance can either benefit or hurt those with preexisting conditions. On one hand, if an insurer wants to sell a policy to a group through their employer, they cannot exlude those with pre-existing conditions. There might be laws against such individual underwriting, but I imagine insurance companies who did this wouldn’t sell many policies to employers.
On the other hand, people can lose health insurance because of changes in their employment status, and hence any condition they have hence becomes “preexisting.” This could make it impossible to buy an individual plan, so they either must find a job that offers insurance, remain locked to a job that offers it, or marry someone to get insurance.
Current tax law and other controls favor employer-sponsored insurance over non-group plans and group plans through membership organizations. A common criticism of removing this tax bias is that people with preexisting conditions would have trouble getting coverage.
However, a recent study suggests otherwise. Authors Mark Pauly and Liebrethal write that:
for people in poor or fair health, the chances of losing coverage are much greater for people who had small-group insurance than for those who had individual insurance. We attribute these results to the offsetting effects of high loadings and guaranteed renewability in the individual market.
An earlier paper co-authored by Pauly describes guaranteed renewability:
Guaranteed renewability is a contractual feature in which the insurer agrees both to sell another policy to the insured person (if that person wishes to buy) at the end of the term of the current policy period and to charge a premium for that policy that is not affected by any individual loss experience or change in the insured person’s circumstances during the term of the current policy. …
So, in theory, guaranteed renewability is a way of diminishing risk selection for persons who can buy insurance before they become high risks. There is a real-world counterpart to this theory: Even before widespread regulation of guaranteed renewability, approximately 80 percent of insurance buyers were willing to pay the premium for contracts with this feature.*
So here’s a back-of-the-envelope sketch of how we’d buy insurance if government policy didn’t favor employer sponsored insurance:
First, employers could still offer insurance, but so could membership organizations like AAA, or one connected to your profession. (Buying through membership organization sounds much more preferable than through your job. Which would you prefer, to pay $50 a year to remain a AAA member just so you can buy the insurance, or stay at a job you don’t like just for the insurance?)
As for the non-group market, I could imagine policies, if they do not exist already, that can remove the pre-existing condition problem by being both guaranteed renewable and covering people from birth. Such a policy would cover pregnancy and delivery-related risks to both the mother and baby. This latter coverage for the baby can then extend to a separate policy for the child (as a dependent). When the child is old enough to be self-supporting (no longer legally dependent on the parents), the policy could have a feature such that it would automatically roll-over to be an individual policy, regardless of the child’s health history.
Your covered dependents have the option when they reach age 19, or up to 25 while a full-time student, to purchase their own plan without evidence of insurability.
If anyone can cite other plans that have this, please tell me.
* The authors also found that
all states but Hawaii, Idaho, and Kentucky forbid insurers from imposing follow-on rate increases that are based on health status at the time of renewal. In short, virtually all states say that they require insurers to abide by the textbook definition of guaranteed renewability.
Keep in mind that the authors also found most policies to have this feature even without the government’s making it a crime to purchase a policy without it.
For this data, the authors site an earlier Health Affairs article (Pauly is also a co-author), and the relevant data is in Exhibit 3. From my reading, I’d put the figure to be 60% rather than 80% as the 80% figure appears to includes non-cancelable disability coverage. This is different from mecical insurance, and I don’t think you can add percentages like that if the denominators differ.