On a more serious note, as of September 23, 2010 the Patient Protection and Affordable Care Act, or Health Care Reform Bill, activated the first wave of laws aimed at improving our bloated health care system. Among the handful of new policies is a mandate that no child 19 or under seeking individual health insurance can be denied coverage due to a pre-existing condition. This of course, sounds like a good thing. Any sane, rational person can see the necessity of this law; however, that argument only holds up when analyzing the new law in a vacuum and fails to acknowledge the second requirement needed to effectively provided children with this benefit.
The law, as it is currently written, is sending out a giant, oversized invitation of adverse selection to the American public. This is a fancy insurance term that means bad stuff can happen. To give an example of adverse selection as it relates to the no pre-existing condition law for children, let’s go back and look at everyone’s favorite American family Mr. and Mrs. Tom Smith and their two children.
Let's Look at an Example
Tom’s four-year-old son has been diagnosed with a congenital heart defect that will require surgery. Tom is self-employed and has his own individual health insurance policy. However, since the new law passed, Tom removed his children from the policy to save money on the premium and figured he could add the children back on when needed. Now faced with a procedure that could easily exceed $50,000, Tom will be able to call up his insurance agent as he is leaving the doctor’s and add his son back on the policy.
You are probably asking yourself, “What is wrong with that?” This seems like an ABC Family happy ending; Tom was able to put his son back on his insurance and will no longer be faced with the possibility of paying for the procedure himself.
Hold on Just a Second
Before you reach for the nails and wooden cross, let’s take a step back and look at the big picture for a moment. First, insurance companies do not print money. Insurance, by definition is the transfer of risk; meaning, that in exchange for your small to moderate premium payment, you receive protection from large, unforeseen bills. What a lot of people don’t understand is that a large percentage of a person’s monthly premium goes towards paying claims for people with serious medical conditions.
Tom purchased his $3,000 family deductible Health Savings Account plan back in July 2010 and is paying a monthly premium of $493.19. By removing his children from the policy, Tom was able to save $193.07 a month, $2,316.84 annually and $11,584.20 over a five-year period. When you look at these numbers on an individual level they pale in comparison to the average cost of major medical procedures. However, if you were to take those numbers and multiply them by every insured family in America, then you are talking about some serious money; money that would have paid for thousands of heart surgeries for children just like Tom’s son.
The Result
This has forced all insurance companies to do away with child-only policies. Now, children must apply with a parent over the age of 19 to be considered for coverage. Even with the abolition of child-only policies, insurance companies still face the very real possibility of insured American families jumping on the adverse selection bandwagon. This, ultimately, could lead any insurance company into a financial disaster. A disaster that would render the company incapable of paying claims for any of its members.
How do you we guarantee children coverage without blowing up the system?
The answer is actually pretty simple. The law needs to include an open enrollment period where once- or twice-a-year parents have the option to add or remove their children from the policy. This simple amendment would prevent someone from adding their child to the policy on the way to the hospital and only paying one month’s premium in exchange for thousands of dollars in claims. This easy adjustment to the law has been brought up to the necessary officials; however, no further action has been taken.
We can all agree that the law in the purest form has the best intentions; however, we all wish the implementation was handled with a little more care and expertise. So, the next time you hear someone rambling about the “big, bad insurance companies” trying not to provide children with health insurance, take a minute and inform them of the potential ramifications of the new law as it’s currently constructed.
