Existence and Pre-existence

The first three words of the first item of Donald Trump's healthcare plan are "Completely repeal Obamacare".

I was surprised to see this stated so starkly and unambiguously.  Because if this were to happen, along with everything else, the pre-existing condition ban would go away.  This could cause several million people, including people in mid-treatment, to lose their insurance.  And many of these people are people paying their own premiums with no subsidy from the government.

Most people think they know what "pre-existing condition" meant.  But it was far worse and more complicated than most people know.  The pre-existing condition problem was part of an overall underwriting philosophy that covered both individual policies and small groups (defined as 2 to 50 employees).  The Affordable Care Act not only eliminated pre-existing conditions as a means to deny coverage, it eliminated the underwriting of small groups, which had been underwritten in a way that carried the pre-existing condition philosophy into the commercial group market itself.  To explain how this worked, and what it would mean to go back to the way things were until only recently, I'd like to tell you a story about how I think I saw the old system kill someone once.

Underwriting in health insurance companies is the science (or rather, the art, since everyone does it a bit differently) of assessing future health risks for an individual or a group.

Underwriting individuals used to be pretty easy.  When an individual applied for health insurance, they filled out a form that included many questions about their health history.  If the person had ever, in any time of their life, suffered any illness or condition that was even a mere symptom of something that could lead to anything more than minimal claims in the future, that person was excluded from insurance.  And if that person passed the test and got insurance and nonetheless became seriously ill, the original application and medical history was audited closely again to see if anything was left out originally.  If the underwriter determined that this was the case, the person could be excluded from insurance retroactively.  This was how pre-conditions worked as far as most people understand them.

Pre-existing conditions also used to work this way in the small group market.  However, by the mid 1990's most states required that if a group was to be insured, all of the members in it had to be insured.  So what small group underwriters did was look at the individual risks calculated for each member in the group and aggregate them to come up with a composite risk score for the whole group.  This composite score was how they determined the premium.  Risk was, in theory, spread among all of the members.  However, the smaller the group, the smaller the population into which to spread the risk, and therefore the higher the premium.

If someone in the group ever became seriously ill, the underwriters would recalculate the risk score and put in an increase when the group renewed its contract at the end of the year.  The underwriters would be unable to recapture through a premium increase what was lost in claims for the prior year, but they would raise the premium has high as they could.  This would frequently mean that the group was unable to renew its insurance with that carrier and would have to look elsewhere. But since they had a person in the group with a current illness, they would usually find it hard or impossible to find anyone else to give them a quote; at least a quote that they could possibly afford.  So the group would lose its coverage altogether. Legally, this was not exactly the same as denying coverage (or cancelling coverage) to someone with a pre-existing condition, but it had the same effect.  There are some who referred to the whole individual and small group underwriting process as "cherry picking" in that it attempted to eliminate the sick and keep the healthy.  And it was.

The story I have to tell you is about groups that fell on the line between the individual market and the small group market. There are many small businesses in the United States that have only one or two employees.  Insurance companies used to hate these groups, because being so small, if someone in the group became sick there were hardly any other people in the group to spread the risk to.  These tiny groups paid the highest group premiums.  However, high as they were, they were, in general, lower than individual premiums. Because there was a line between individuals and groups and because they were covered by different rules, there was something that the underwriters could do with a two or three member group that they couldn't do with the other groups.

It was a policy at one insurance company that I worked at (and anecdotally it was common to most insurance companies) that if a person became seriously ill in a two or three member group, an immediate membership audit was demanded. The function of this audit was to see if the group size had changed.  The logic of the audit was that if a proprietor got really ill with cancer or something, the proprietor would either have to fire their worker or, if the worker was a relative, that relative might have to leave the job to devote themselves to the care of the sick worker.  If the group size dropped to one person, it automatically dropped out of the group world into the individual world and the group's insurance would be immediately terminated.

The people who did this were rewarded by the company, because the termination of such a group had an immediate impact on the company's bottom line.  Insurance companies are always closely watching people with large claims, because the company has to put aside reserves to cover these claims in the future.  At the time, part of my job was to help set these reserves, so I had access to these claims.  While the illnesses generating the claims were indicated in the report, the size of the reserve (which was estimated by medical staff) indicated the seriousness of the illness.  If a very sick member could have their insurance terminated, the estimated amount would be immediately released from the reserves.

The first one that I saw get screwed in this way (the first of many) was undergoing intensive therapy for a metastasized cancer.  We had already paid out several hundred thousand dollars for this man.  But there were several hundred more to go.  The cancer was such that internally, people expected that he would not survive in any case.  But if they spoke about the fairness of what we were doing to him, they "supposed" that "maybe" he might be able to end up on Medicare or Medicaid.  However, no one checked. (And I wasn't in a position to).  Maybe he would have died anyway.  But was he better off having his insurance revoked?  I somehow doubt it.

According to the Trump plan:

However, it is not enough to simply repeal this terrible legislation. We will work with Congress to make sure we have a series of reforms ready for implementation that follow free market principles and that will restore economic freedom and certainty to everyone in this country. By following free market principles and working together to create sound public policy that will broaden healthcare access, make healthcare more affordable and improve the quality of the care available to all Americans.

I will point out that all of the rules that allowed what I have described to happen were a product of the free market.  There were no regulations to prevent this and no regulations that required it to happen.  After Obamacare, the new regulations require that pre-existing conditions be eliminated but also that small groups no longer be underwritten one by one.  Instead, the entire individual and small group populations of each entire state, regardless of what insurance company they have, are aggregated into a single risk group and the total risk is spead amongst them all.  And the thing that happened to the man I spoke about can no longer happen.  It no longer matters whether one is ill or not. It no longer matters if other people in one's company are ill or not.  And it no longer matters what the small group size is.

What Trump is hoping is that the number of people who were not affected by pre-Obamacare underwriting practices, who were not bothered by pre-existing conditions or did not see their relatives get sick or die because they were un or under insured, is larger than the number that got screwed.  He's not out to improve healthcare.  He's out for a plurality

But should he win the election, he and whomever helps him turn back the clock will have blood on their hands.

unagidon is a contributing editor to Commonweal.

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