When it comes to healthcare policy, pretty much everyone running for federal office in 2020 — from Representative Alexandria Ocasio-Cortez to President Trump — seems to agree on one thing: the need to mandate coverage of preexisting conditions at standard rates.
It’s one of the few tenets of Obamacare that most Americans — even most Republicans — like. And no one likes the idea of anyone being bankrupted, much less deprived of medically-necessary care, because that person has a condition which makes coverage unaffordable, if not altogether unavailable. So, from political and popular perspectives, it is understandable. But from provider, policy, and pecuniary perspectives, let me tell you what it isn’t: coverage of preexisting conditions at standard rates isn’t insurance.
Years ago, I was seated next to an insurance executive on a flight, and he proceeded to tell me this story about the origin of insurance: Thousands of years ago, somewhere in Asia, farmers, fishermen, and craftsmen would load their produce, fish, and handmade items into small boats and transport them by river to what essentially were “farmers’ markets” for sale and barter. And frequently, en route to those markets, one or more of the boats would capsize, due to overloading, leaking, or weather conditions. So, in order to spare any one farmer the loss of his entire inventory if his boat were to capsize, farmers divided their loads among one another’s boats, and thus was born mankind’s first “insurance.”
Now, I don’t know whether his story is true, but it captures the essence of the concept: insurance is a means of distributing loss that might happen (i.e., risk), not a loss that already has happened or is certain to happen.
Fast forward to modern times, and think about what homeowner’s insurance is: it’s a contract between you and an insurer whereby you agree to pay the insurer an amount of money that’s relatively small in relation to the value of your home, and in exchange, the insurer agrees to pay you the value of your home if it happens to catch fire and burn down while the contract is in force — an unlikely event, but one which would be devastating to you financially if you had to bear the full cost of it.
It’s a bet; you essentially bet a small amount of money that your house will burn down, while the insurer essentially bets a large amount of money that it won’t. And the odds in the insurer’s favor enable the insurer to assume your risk for an amount of money that’s both affordable for you and profitable for the insurer.
Just as those farmers wouldn’t have allowed a peer to participate in their means of distributing risk on the river if they knew that the peer’s boat had a big hole in it (in which case the other farmers wouldn’t have put anything of theirs in his boat), no reasonable insurer would agree to insure your home if it were already on fire, unless perhaps you paid a premium greater than the anticipated loss. An agreement to pay you the value of your home if it burned down, whilst it were burning down, in exchange for your payment of just a fraction of that value, wouldn’t be insurance.
It’d be something — if it were voluntary, it’d be charity; if it were involuntary, it’d either be extortion by you or wealth-redistribution by government, a.k.a. “welfare” — but not insurance.
To call such a thing insurance and mandate that it be offered whenever actual insurance is offered is to alter the mathematics of insurance such that it quickly becomes unaffordable, if not altogether unavailable.
When it comes to health coverage particularly, that’s the very result which none of us likes, and those whose preexisting conditions are practically-uninsurable (in the traditional sense) aren’t the only ones to experience it; many people in the other (approximately) 90% of the non-Medicare-recipient population experience it, too. It’s a classic case of misguided government trying to address a problem which affects a minority of a population by crafting a one-size-fits-all solution which affects the entirety of that population (except of course those doing the governing).
Even if you believe that distributing health risk/care and the wealth that pays for it is among the purposes for which Americans established a government (and here’s another thing that few will tell you: it’s generally not — caring for the sick and injured, other than those who got sick or injured working for the government, is more a societal obligation than a governmental one), access to care can be made affordable for those with preexisting conditions without simultaneously making it unaffordable for most everyone else. Subsidized “high-risk pools,” administered at the state level, represent a much more efficient, much more effective policy alternative, but in order to move back in that direction, we must first acknowledge, all together now, all over America: Coverage of preexisting conditions at standard rates isn’t insurance.
Brian Russell wanted to learn how people could live together as peacefully and prosperously as possible, so he studied what makes us tick (and got a Ph.D. in clinical psychology), how public policy keeps us in line (and got a law degree), and what motivates us to do our best (and got an M.B.A.). Then, he put theory to the test, practicing both psychology and law, starting his own small businesses, consulting with business leaders and lawmakers, and traveling the world comparing what does and doesn’t work in 40 societies. Now, he shares his expertise in people, public policy, and productivity on national television and radio, in his book, "Stop Moaning, Start Owning: How Entitlement Is Ruining America and How Personal Responsibility Can Fix It," and here on questsin. Learn more at DrBrianRussell.com. To read more of his reports — Click Here Now.