Monday, March 15, 2010

Will the Health Insurance Industry be the Next Subprime Mortgage Crisis?

I heard the news report on NPR this morning about the President's final push in Ohio where he blasts insurance companies for not giving coverage to people with pre-existing conditions and for raising rates. I can't find an NPR link, but here's a March 8 excerpt from the LA Times that quotes what is probably the same speech

Every year, insurance companies deny more people coverage because they have a pre-existing condition....Every year, they raise premiums higher and higher,” Obama says.

Wait a second. Does that mean he's asking that the insurance companies include people with preexisting conditions and keep premiums low? But if insurance companies bring people with pre-existing conditions into their risk pool, don't they have to raise premiums?

You can't have it both ways. Either exclude some people who will cost more and keep premiums low, or take them into the pool and increase premiums to cover it.

It sounds like the president is asking insurance companies to take on more known high risks but not plan their finances to cover it... Isn't that the same kind of market distortion that got the banking industry into the subprime mess?

Would the President have us set up the insurance companies for the same fall?

On another angle, what if I wanted to start an insurance company and cover, say, healthy non-smoking 25 year olds who want catastrophic coverage only? Could I do that, or would the government tell me I couldn't?

If we want to create a government social safety net for "uninsurables" I don't have a problem with that. But we don't need to take over everything.

(Full disclosure: The line I cut out in my quote above was "...Every year, they drop more people’s coverage when they’re sick and need it most..." Frankly, I think it's a fear-mongering, throwaway. If that's really a problem, it can be addressed with some regulation and oversight, not a takeover.)


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