Why a Free Market in Health Care Is the Best Way to Handle Pre-Existing Conditions

By: Guest Contributor - Mar 8, 2017, 5:08 pm
Free Market in Health Care
Let’s call those losses what they are: penalties for offering high-quality coverage (Personal Liberty)

By David Henderson

At a talk I attended when Obamacare was being debated, health economist John C. Goodman asked, “Would you want to be a patron of a restaurant that didn’t want you as a customer?”

He was getting at the fact that Obamacare would set up incentives for health insurers to avoid the sickest people because they would not be able to charge for pre-existing conditions. Under the individual insurance that existed before Obamacare, beneficiaries (my daughter was one) could buy guaranteed-renewable health insurance. If they developed a condition while insured, they could still buy health insurance at a premium that applied to the whole pool they were in when they originally bought insurance. If they developed a serious condition, why would insurers take them? Because, by contract, they had to. Why would they treat them well? Because they had an incentive to treat everyone in the pool well and could be caught for discriminating against people in the pool.

Obamacare looked good because insurers could no longer charge for pre-existing conditions. What to do? According to a study by Michael Geruso of the University of Texas, Timothy J. Layton of Harvard Medical School, and Daniel Prinz of Harvard University, health insurers under Obamacare have figured out how to game the system: how, in Goodman’s terms, to be the restaurant that turns away customers they don’t want. Here’s a segment of their abstract:

We first show that despite large regulatory transfers that neutralize selection incentives for most consumer types, some consumers are unprofitable in a way that is predictable by their prescription drug demand. Then, using a difference-in-differences strategy that compares Exchange formularies where these selection incentives exist to employer plan formularies where they do not, we show that Exchange insurers design formularies as screening devices that are differentially unattractive to unprofitable consumer types. This results in inefficiently low levels of coverage for the corresponding drugs in equilibrium.

The study is “Screening in Contract Design: Evidence from the ACA Health Insurance Exchanges,” NBER Working Paper #22832, November 2016.

Cato Institute health economist Michael Cannon lays out some of the implications in a recent op/ed titled “How ObamaCare Punishes the Sick,” Wall Street Journal, February 28, 2017 (March 1 for print edition.)

A long excerpt:

Predictably, that triggers a race to the bottom. Each year, whichever insurer offers the best MS coverage attracts the most MS patients and racks up the most losses. Insurers that offer high-quality coverage either leave the market, as many have, or slash their coverage. Let’s call those losses what they are: penalties for offering high-quality coverage.

The result is lower-quality coverage–for MS, rheumatoid arthritis, infertility and other expensive conditions. The researchers find these patients face higher cost-sharing (even for inexpensive drugs), more prior-authorization requirements, more mandatory substitutions, and often no coverage for the drugs they need, so that consumers “cannot be adequately insured.”

The study also corroborates reports that these rules are subjecting patients to higher deductibles and cost-sharing across the board, narrow networks that exclude leading cancer centers, inaccurate provider directories, and opaque cost-sharing. A coalition of 150 patient groups complains this government-fostered race to the bottom “completely undermines the goal of the ACA.”

It doesn’t have to be like this. Employer plans offer drug coverage more comprehensive and sustainable than ObamaCare. The pre-2014 individual market made comprehensive coverage even more secure: High-cost patients were less likely to lose coverage than similar enrollees in employer plans. The individual market created innovative products like “pre-existing conditions insurance” that–for one-fifth the cost of health insurance–gave the uninsured the right to enroll in coverage at healthy-person premiums if they developed expensive conditions.

There are lots of links in the above, so, if you want to know more about what’s behind his reasoning, do a Google on the title of his article.

He also warns policy makers who are hesitant about repealing the pre-existing condition rules:

If anything, Republicans should fear not repealing ObamaCare’s pre-existing-conditions rules. The Congressional Budget Office predicts a partial repeal would wipe out the individual market and cause nine million to lose coverage unnecessarily. And contrary to conventional wisdom, the consequences of those rules are wildly unpopular. In a new Cato Institute/YouGov poll, 63% of respondents initially supported ObamaCare’s pre-existing-condition rules. That dropped to 31%–with 60% opposition–when they were told of the impact on quality.

David Henderson is a research fellow with the Hoover Institution and an economics professor at the Graduate School of Business and Public Policy, Naval Postgraduate School, Monterey, California. He is editor of The Concise Encyclopedia of Economics (Liberty Fund) and blogs at This article was originally published on Read the original article.

Church-Affiliated Organization Denounces ELN Guerrilla Violence, Murders in Eastern Colombia

By: Julián Villabona Galarza - Mar 8, 2017, 3:37 pm

Español A Catholic Church-affiliated organization (the Pastoral Social of the Arauca Diocese in eastern Colombia), recently expressed its grave concerns about murders and the presence of the National Liberation Army (ELN), a communist guerrilla group, and other armed groups that have plagued the Arauca region since the beginning of 2017. So far there have been 17 targeted murders in this department, located in northeastern Colombia, along the Venezuelan border. This was stated by Father Deisson Ramiro Mariño Gómez, in charge of social and pastoral care at the organization Caritas Arauca. Mariño told Caracol Radio that 90 percent of those killed are civilians who are not participants in the armed conflict. There have also been some forced disappearances and threats that demonstrate the fragility of the current security arrangement in the department. The troubling developments in Arauca have generated concern throughout Colombia. Read More: ELN Guerrilla Admits it Planted Deadly Bomb in Central Bogota Read More: ELN Releases Soldier, Starts Negotiation with Colombian Government Mariño asked the armed groups to respect international humanitarian law. He also asserted that while military actions are part of the conflict, the civilian population should be excluded and protected, especially in light of the Quito dialogues that have recently begun between the Colombian government and the ELN guerrilla, which has a historical power base in Arauca. googletag.cmd.push(function() { googletag.display('div-gpt-ad-1459522593195-0'); }); Father Mariño told the PanAm Post, having contacted us in order to clarify inexact information in the original article, that his organization's mission is humanitarian and that they "called on the authorities to revise vacuums in prevention and protection for national and international organizations which are supervising" events in the region. Arauca is not the only department where this troubling pattern of violence has occurred. In Chocó, along Colombia's western Pacific Coast, and in Norte de Santander, in northern Colombia, criminal gangs and the ELN have been fighting for the territorial control of lands abandoned by members of the FARC guerrilla group, part of which decided to accept the political advantages offered to them by the the Colombian government in order to demobilize. Source: Caracol Radio. *Correction: this article was corrected upon Father Mariño's request, who clarified that he did not demand that government authorities investigate the murders, nor did he call for an increase in troop levels to bolster protection for Arauca's civil society.

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