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Those keeping up with Obamacare are well aware that one of its most popular provisions prohibits insurers from denying health coverage to those with pre-existing conditions.  This can no longer happen today under Obamacare’s watch.  People can no longer be priced out of the insurance market based on health status.  In fact, insurers can no longer inquire about a policyholder’s medical history on their health insurance applications.  

Prior to Obamacare’s passage, the pre-existing condition problem generally occurred when a high-risk individual transitioned off an employer-sponsored plan and was unable to gain coverage in the individual market.  Either the insurer could not take on that individual’s medical expenses, or conversion policies — policies offered to individuals who lose employer coverage for whatever reason — were simply unaffordable since they are risk-adjusted based on health status.

According to North Carolina’s Department of Insurance Consumer Guide, a pre-existing condition is defined in the following way:

Under federal and North Carolina law, a pre-existing condition is one for which you received medical advice or treatment within six months prior to enrolling in the plan.

Before today’s gargantuan health reform, North Carolina did enforce a few mandates and laws that protected high-risk individuals from being excluded by small group plans.  In 1992, the Legislature passed the Small Employer Group Health Coverage Reform Act.  As further specified in the state’s health insurance consumer guide, this law mandated that all insurance companies who offer small group health insurance must extend it to all small businesses with up to 50 employees in their network area (so long as the employees resided within that defined territory).  The Act further evolved to prohibit such insurers from denying coverage to the self-employed who have pre-existing conditions.  The Act also limited how much premiums could vary between each small employer. 

And then came HIPAA (Health Insurance Portability and Accountability Act).  In 1997, North Carolina further amended its law by adopting federal HIPAA standards.  Under this law, any employee could switch from his previous employer plan to a new employer health plan or individual plan without being medically underwritten, regardless of health status.    

While these and similar pieces of legislation have helped some individuals, they have also raised prices for all consumers. Obamacare’s attempts to crack down on access barriers in the individual market by inserting more laws, mandates, and government price controls will do the same.  Conservative "repeal and replace" proposals address the issue as well.  Senator Burr’s co-sponsored Patient CARE (Choice Affordability, Responsibility, and Empowerment) Act essentially keeps intact Obamacare’s protection clause for this population wanting to gain an individual market policy and not have to rely on an employer-sponsored plan.  The CARE Act proposes that within the scope of a one-year enrollment period, after a policyholder maintains continuous coverage for 18 months, he or she can transition to any type of plan (individual or group) without denial for a health condition.   

Believe it or not, an even better remedy can alleviate this chronic problem.  And it does not incorporate sundry regulations.  It is known as health-status insurance, and University of Chicago economist John Cochrane has written extensively on this matter.  

Basically, health-status insurance in tandem with medical insurance creates a secure and portable health insurance policy.  Medical insurance covers your medical expenses, while health-status insurance insures you from being denied coverage in the event your health status drastically changes.    

Reason magazine paraphrases Cochrane’s illustrative example below:

Cochrane offers the example of a 25-year-old who will likely incur $2,000 in medical expenses in a year. His medical policy component would thus cost about $2,000 per year, plus administrative fees and profit.  For purposes of illustration, Cochrane then assumes the 25-year-old has a 1 percent risk of developing a chronic medical condition that would increase his average medical expenses to $10,000 per year. In that case, he would be able to buy medical insurance for $10,000 per year — which is a big financial hit. That’s where health-status insurance comes in: It insures that you can be insured in the future.

The 25-year-old could pay for insurance against the 1 percent risk that his premiums would jump by an additional $8,000 per year. To pay for his increased insurance premiums until age 65, Cochrane calculates that at a 5 percent interest rate, he would need a lump-sum of $148,370. To cover a 1 percent risk, the premium for the health-status component of his insurance would be about $1,480 per year, so the 25-year-old’s total premium — medical and health-status — would be about $3,500 per year.

And for those who already suffer chronic health conditions, the government could initially contribute a defined amount of money into a high-risk individuals’ health status insurance account and then step aside to allow for private insurers to compete for consumers.   

Stay tuned for more details next week on just how health-status insurance represents a legitimate market-oriented solution that caters to those with pre-existing conditions and helps them afford coverage for any unfortunate health conditions that may occur in the future. 

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