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Henryk A. Kowalczyk Headshot

We Need Life Cycle Health Risk Insurance

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Among opponents of the health reform proposal, the public option draws most of their criticism. Pundits speculate whether Obama will drop it or not. All the energy put in debating the public option is futile. It misses the problem.

The problem is that we have 47 million uninsured. For humanitarian reasons, when they show up at the hospital door we cannot turn them away. We end up with many people using medical services but not paying for them. It causes high health insurance premiums for those who still have insurance, resulting with even more people who cannot afford to buy it. As the President once said, it affects all of us, and every one of us is just one job change away from losing health insurance.

What is most upsetting is being denied health insurance based on preexisting conditions. Life is a preexisting condition. We are denied insurance because, for the bureaucrats in insurance companies, a calendar year is a convenient term for an insurance contract. It has no correlation with the human life cycle. Instead of one-year health insurance, we need lifelong health insurance. One may notice that presently insurance companies do not offer policies of this kind. This is the core of the problem.

When scrutinizing health insurance policies as we have them now, one can almost say that they are not insurance policies at all. A big portion of them cover routine medical care. We pay a high monthly premium so that when, once a year when we see a doctor due to bad flu, we pay a $20 co-payment instead of the full charge of around $100 per visit. For all practical reasons, this part of a typical insurance plan it not an insurance at all. It is a health maintenance plan: something similar to the extended warranty plans offered for cars, TVs, refrigerators, etc. Most people do not buy these plans, as it is better to put some money aside and spend them when the major repair is needed than paying in advance.

Only a small portion of our current health insurance plans are indeed insurance, as they cover the high cost of our major health problems. For one year only. If we acquire a chronic illness, we are screwed, as we could be dropped at contract renewal based on preexisting conditions.

What we really need is a life-cycle health risk insurance covering only expensive medical care. After agreeing on this, we can debate if it should it be offered as a public plan or as private insurance. Waging a war over the public option before even agreeing what it should be is like debating something that we agreed to disagree on, without defining what it is. There is no chance for any constructive conclusion.

This health risk insurance would step in and cover expenses above some predetermined per-year limits, cumulative limits for consecutive years, and cumulative limits over the person's lifetime. For minor medical care and for preventive care people could pay as they do now. Some would pay out of pocket as needed. Some would sign up for health maintenance plans. Many would use Health Saving Accounts, which gained popularity in recent years, and would perfectly complement health risk insurance. The poor would continue using Medicaid.

Lifelong health risk insurance could work only if it were common. However, in order to be common it does not need to be mandatory. We can make life cycle health insurance obligatory and punish those who would not obey, as we currently do with car liability insurance. However, despite the fact that most states require car insurance, we still have a meaningful population of uninsured drivers. Life is never as perfect as envisioned by bureaucrats. Hence, instead of a stick, we might use a carrot and offer hefty tax breaks for people who buy health risk insurance. This would require changes in the tax code, but we would stay within the established practice that health insurance premiums are tax deductible.

Many chronic and expensive to treat diseases are related to obesity, smoking, drug overuse, and generally unhealthy lifestyle. An insurance company providing health risk insurance would make a bigger profit if most of those they insured would lose weight, stop smoking, and start exercising regularly. Hence, they would make policies which promote a healthy lifestyle. The trick in reforming the health insurance system lies not in taking away profits from insurance companies, but in changing the paradigm in such a way that their greed would guide them to provide better health care.

It does not work this way now as too many regulations constrain free market mechanisms, giving too much advantage to those players who can pay their lobbyists the most. Many politicians, when approaching any problem, see additional government regulations as the only possible solution. It never even crosses their mind that some problems could be the result from previously introduced regulations, and that the best solution might be in eliminating some of the existing regulations, not in introducing new ones. Many people see the possibility of resolving or at least mitigating our major health care problems by removing presently existing constrains on competition.

This was not the point of view of the authors of the health reform proposal. Now, when the cards are on the table, support for the public option is fading away as opponents focus their critique on the government's overreaching. On the other hand, vocal opponents advocate market based solutions; however, none of them has brought any comprehensive proposal as an alternative to the public option. If President Obama would limit the public option to basic life-cycle health risk insurance as outlined here, he can have the last punch in this heated debate. First, health insurance companies do not currently offer lifelong health risk insurance; hence - by definition - the public option would not compete with insurance plans offered by the private industry. Second, the onus in the debate would be shifted onto the opponents of the government proposal, as they would be asked to produce a commercial option for life cycle health risk insurance. Unless this happens, Obama may say, the public option is on the table.