The Death of Insurance

    The debate over ObamaCare has often devolved into a gripe session on the failures of health insurance industry.  Liberals and Democrats have argued that the insurance industry is interested only in making money, not helping sick people.  At times, the rhetoric used calls into question whether the concept of insurance is even understood.  Kathleen Sebelius, Secretary of the Department of Health and Human Services, recently addressed the National Summit on HIV and Viral Hepatitis Diagnosis, Prevention, and Access to Care.  While discussing the need for better detection, prevention and treatment of the conditions in question, she said the following about the health insurance industry:

For years, we had a health insurance market in which insurers made profits by trying to avoid sick people.  This was great for insurance companies, but it was terrible for the people with the greatest health needs, including those with HIV/AIDS and viral hepatitis.  In effect, the people who needed health insurance the most were the ones shut out of the market.
This wasn’t right, and the health care law is bringing these days to an end. Starting in 2014, the law bans insurance companies from turning anyone away because of their health status.

     Secretary Sebelius is the highest government official in the United States responsible for overseeing the health insurance industry, and yet her first sentence above, meant to sound disparaging, is the very definition of how the private health insurance market works.  This is no more terrible than saying we have a life insurance market in which insurers made profits by trying to avoid people who are about to die.  And how many homeowners policies were insurance companies writing as Hurricane Sandy roared up the coast last month?  None.  It would have been irresponsible.  And yet, as Secretary Sebelius notes, beginning in 2014, this is exactly what health insurance companies will be required to do.

    I have written recently about proposed ObamaCare guidelines HHS has released for public comment.  One group of provisions specifically addresses the changes to which Secretary Sebelius referred:

Health insurance issuers in the individual and small group markets would only be allowed to vary premiums based on age (within a 3:1 ratio for adults), tobacco use (within a 1.5:1 ratio and subject to wellness program requirements in the small group market), family size, and geography.  All other factors – such as pre-existing conditions, health status, claims history, duration of coverage, gender, occupation, and small employer size and industry – would no longer be able to be used by insurance companies to increase the premiums for those seeking insurance.

    These restrictions are mind-boggling.  Existing insurance companies must have their underwriters working overtime trying to figure out how they can possible stay in business in the long-term.  (Short-term, they may benefit from the flood of new customers, although that remains to be seen.)  But how could anyone contemplate starting a new health insurance company knowing where the bar has been set?  I do not know the statistics on health insurance startups, but I'd be willing to bet as long as these restrictions are in place, they will be rare.  So rare, in fact, that as other companies exit the market in the coming years, a shortage will develop that will increase calls for European-style national health care.  Which, come to think of it, was likely the goal of ObamaCare all along.