The Contradiction

James Surowiecki's Financial Page in last week's New Yorker is the briefest, clearest, most encouraging thing I've read on health insurance reform. It also has the virtue of affirming my own notion of what's going on.

An especially nice passage about the debate's central contradiction:

Politicians on both sides of the aisle overwhelmingly believe, likewise, that insurance companies should be prohibited from taking preëxisting conditions into account when setting prices or extending coverage. Both the House and the Senate reform bills include language banning this. Even Republicans have been vehement on the subject: Senator Tom Coburn, of Oklahoma, has said that “everyone agrees” that we need to eliminate the use of preëxisting conditions, while Senator Chuck Grassley, of Iowa, declared that insurers have to be barred from “charging higher premiums to people who are sick.” The insurance companies themselves have accepted that the only factors they’ll be allowed to take into account in setting prices will be age, region, and whether or not someone smokes. The general consensus, then, is that even if you’re already sick, and guaranteed to run up huge medical bills in the future, you should be able to get health insurance at the same price as someone your age who’s perfectly healthy. Economists have a name for this: “community rating.” And the fact that it has such strong backing in Washington is heartening. Americans, and American politicians, have decided that people should have guaranteed access to insurance, and that they shouldn’t have to worry about losing it just because they get laid off or fall ill.

So where’s the contradiction? Well, Congress’s support for community rating and universal access doesn’t fit well with its insistence that health-care reform must rely on private insurance companies. After all, measuring risk, and setting prices accordingly, is the raison d’être of a health-insurance company. The way individual insurance works now, risk and price are linked. If you’re a triathlete with no history of cancer in your family, you’re a reasonably good risk, and so you can get an affordable policy that will protect you against unforeseen disaster; if you’re overweight with high blood pressure and a history of heart problems, your risk of becoming seriously ill is substantial, and therefore private insurers will either charge you high premiums or not offer you coverage at all. This kind of risk evaluation—what’s called “medical underwriting”—is fundamental to the insurance business. But it is precisely what all the new reform plans will ban. Congress is effectively making private insurers unnecessary, yet continuing to insist that we can’t do without them.