Why Pre Existing Conditions Must Go

In response to my previous post on healthcare reform, a reader writes in from India

…Why should an insurer agree to insure a pre-existing condition? It does not make sense to expect a business to agree to a proposition wherein it knows it will have to pay out 10x on a premium of x….

Insurance by its very definition is protection against the unknown. If the condition and its medical costs are known why take such a customer on board?

Methinks that the reason insurance premiums went up at your small business is because these guys figured out that they will now have to shell out treatment money for everyone and hence they are trying to do a CYA before overall costs go up.

For medical issues, I think either
– a public run healthcare or
– government rights to a percentage of facilities/medicines at institutions that it then distributes among the needy works best.

If there is no government healthcare in the US, it is only logical that average insurance premiums will go up for everyone if the insurance business is expected to mix humanitarian issues with cold-hearted business decisions.

The humanitarian side is actually the governments job. Making money is the private insurance business’s job. Why mix the two?

The main argument the reader makes is perfectly rational. Why should an insurer take on a pre-existing condition when they know they are going to make a loss on it?

They don’t have to today. And that is why we have over 30 million people uninsured.

Health insurance is a system. It needs to be designed to meet certain objectives. Take the internet, for instance. If it is open, egalitarian and free today, it is because it has been designed that way. If we had left it to the carriers to define the rules by which internet traffic is priced, things would have looked very different today.

The big question here is what do you want your country’s healthcare system’s objectives to be. And this is where the US departs from almost every other developed country. The US doesn’t even come close to universal healthcare. More than 10% of the country is not insured. And healthcare is 17% of the economy. Canada’s is 7% and they have a longer life expectancy.

But let’s not go into the issue of cost of healthcare, because that is an even bigger ball of wax that the current bill only begins to address. Except to note that in the US, because of the high cost of healthcare, if you are not insured, you may not be able to afford to go to a doctor. And a chronic disease will likely bankrupt you.

Many of my readers live in India. To them, this might be a storm in a teacup. India has no healthcare insurance to speak of. You get sick, you pay for your own treatment. The cost of healthcare is much, much lower, but even then many people can’t afford the cost of their treatment. But India cannot afford to provide its citizens a safety net on health. At this time, its focus, is rightly is on economic growth. There will come a time when these difficult issues will need to be addressed, but that time is not now.

The US, on the other hand, can afford such things. It provides social security which gives you a minimum living income when you are unemployed and after retirement. It provides complete healthcare coverage at the government’s expense after retirement, called Medicare. It provides free public education till high school for everyone.

But the US does not provide universal healthcare. Most other developed countries do. Some like Canada and the UK have government run healthcare. Others, like Switzerland have private healthcare but universal coverage. Their healthcare systems may differ, but the developed world does not let its citizens lose their life’s savings because they got sick. Except, that is, the United States.

Now, if universal coverage is the objective, you must either have a government run healthcare system like Canada’s or insurance companies have to accept pre-existing conditions. If insurance companies didn’t accept pre-existing conditions and the government had to pick up the tab for them, we would essentially be incentivizing the insurance companies to get rid of sick people and send them over for government aid. Eventually, this would be one huge transfer from tax payers to the insurance companies.

On the other hand if insurance companies had to accept everybody, with no other change, premiums would rise, healthy people would drop out of insurance, and premiums would rise further until the system breaks.

The only way to make this work is to force insurance companies to accept pre-existing conditions and at the same time make it unlawful for people to not have insurance which is called the individual mandate.

In my previous post, I may have bellyached about insurance companies. But really, they are products of the system we have today. They use pre-existing conditions to deny coverage because they can. They use millions of dollars to lobby lawmakers to stop healthcare reform because they can. But what Americans can do is put a stop to this. Tell your elected representatives where you stand on healthcare.

Oh, and one more thing. My company’s insurance did not go up because insurers are being forced to accept pre-existing conditions. That hasn’t begun yet, and though some people think that the huge premium increases being reported are because the insurers want to reset the baseline quickly, I don’t think that is why our premiums went up. It was probably because, on our small account, Aetna was losing money. The sum of premiums over the year was exceeded by expenses.

In the late 90s, we had a similar rate hike when I was at Infosys. We were already a sizable employer in the US and so the massive rate hike wasn’t because we were too small and they didn’t care if they lost our account. It was, and we were told as much, because our employees were having too many babies! We had a young workforce, almost entirely H1-B visa employees. There might have been some eagerness to have a baby while they were here with their spouses so that the child got a US passport. Consequently, the pregnancy rate was way over what the insurers pregnancy tables told them. And pregnancies cost a lot. So they decided that they had to lose the account. If you priced it high enough, we would leave. And we did.

That’s what healthcare insurance has become today. Sifting through the population to get to the healthy population. It’s a broken system and needs to be fixed.


  1. Mohan says:

    I don't know. I haven't had much experience with US healthcare system, but one thing I do wonder is why are the costs so high that people can't even imagine living without insurance? As you noted, healthcare costs are quite low in India even in the cities and quality is pretty decent. So, instead of trying to fix the insurance system, I think it might be better if the US government simply allows hordes of Indian doctors to migrate to US. That should bring down the cost to reasonable levels.


    1. Ha ha. The stereotypical doctor in the US is already Indian (South Asian, at any rate).

      Doctors' fees are only one component of the cost. Procedures, diagnostics, hospitals, medicines – everything costs more. Probably holds out some hope for medical tourism, but the distance is a big barrier. Plus, the US system, unlike the UK, doesn't involve long waits for surgery. The cost is high but the patient typically doesn't bear it unless they aren't insured. In which case it is unlikely they will be able to find the airfare.


  2. Krishna says:


    In the US, Physicians and hospitals are scared stiff of the legal implications of faulty diagnosis. You check in with a slight fever, they’ll run all kinds of pathology tests to rule out every major disease. In India, they first treat you with a paracetamol and if fever doesn’t subside, they’ll ask you to undergo tests for malaria, typhoid or cholera. That explains the high costs.


    1. Defensive medicine is only one explanation for high costs and it is not the biggest one. Atul Gawande is a very influential voice on healthcare costs (he is also a practising surgeon). His article in the New Yorker has been widely quoted. http://bit.ly/az75Eq


  3. Krishna says:


    You can’t be serious with that title. If pre-existing illnesses are given a go by, insurance will no longer remain a contract of indemnity that it purports to be, instead it will become gambler’s alley. While summary rejection of healthcare cover can be questioned, insurers are within their powers to exclude illnesses (not just charging a higher premium) that are prone to frequent hospitaliztion if known at the time of admission (of the policy) from its coverage. It’s an unknown, random risk that should be sought to be covered, not a certainty.


    1. Not only am I serious about that title, so are American lawmakers. It seems that we are just hours away from a vote and the bill will pass with a majority.


      1. Krishna says:

        Basab, it'll be a bad news either way. If it doesn't make a good business case, insurers will either have to load up the premium or go out of business. Either way American citizen will have to brace up for tougher times for no fault of his except to blame its rulers for having drained out the exchequer waging expensive wars and the famed Wall Street for having wiped out any shreds of the nation's bankability. So is the case of Europe. No point in comparing these bankrupt nations for offering sustained universal healthcare because they simply can't afford it any longer. So, wake up and smell the coffee….!


      2. Krishna – From Pre existing conditions to the demise of Western Civilization is one long leap!


      3. Krishna says:

        At least that's how the House debates went… Check out the NYT link I gave of the Op-Ed by an ex U.S Bureaucrat (Budget staff)…


  4. Mohan says:

    Krishna, then probably that's another thing to fix. Put a cap on how much the patients can sue the doctor for. Just because we can't sue doctors here in India for millions of dollars, it is not like patients are dying left and right. But I don't think it is just that. From what I have heard, doctors in US make hell of a lot of money. Increasing the supply of doctors should bring down that component of the cost at least.
    Bottom line is, at least as far the cities are concerned, we have world class health care available here in India at a fraction of the money it costs in US. It shouldn't be hard to replicate it in US given the political will to do what it takes.


    1. Krishna says:

      Mohan, you can't put a cap on the victim's travails. You can only stop the offender from fooling around. I am not a qualified Doctor to tell them what they should do but having lived my life for the last 45 years, I have seen enough good Doctors that do diagnosis on the basis of seasonality. For eg. In India, during monsoon, it's quite normal to have some common cold, fever or cough and they don't advise you to get a CT scan done. They try out with an initial dose of paracetamol and if the symptoms persist, further tests are advised. In the US, it's just the other way round, i.e. a process of elimination thro expensive tests to arrive at a simple diagnosis. Now that calls for urgent "Healthcare Process Angioplasty" as I would choose to call it :-)))


      1. Actually tort reform – which would include caps on damages – was a Republican agenda which fell by the wayside. It should be done, it probably will. But the point to make here is that Healthcare in the US is a complex bundle of issues that need to be addressed. This bill was just the beginning.


  5. Krishna says:

    Soon after I replied why US can't afford this bill, I saw this NYT article wrtten by Douglas Holtz-Eakin, who was the director of the Congressional Budget Office from 2003 to 2005, that endorsed my view.

    "How can the budget office give a green light to a bill that commits the federal government to spending nearly $1 trillion more over the next 10 years? The answer, unfortunately, is that the budget office is required to take written legislation at face value and not second-guess the plausibility of what it is handed. So fantasy in, fantasy out."


  6. Vishal Doshi says:

    I’m not really interested in the US healthcare system and haven’t followed the debate much; but this para in your post makes me wonder:

    “Many of my readers live in India. To them, this might be a storm in a teacup. India has no healthcare insurance to speak of. You get sick, you pay for your own treatment. The cost of healthcare is much, much lower, but even then many people can’t afford the cost of their treatment. But India cannot afford to provide its citizens a safety net on health. At this time, its focus, is rightly is on economic growth. There will come a time when these difficult issues will need to be addressed, but that time is not now.”

    I think there’s an information gap here.

    1) India can afford to provide a safety-net, let’s just do some really simple napkin maths: (loads of generalizations , no attributed sources, may need tweaking, no guarantees…:)

    Low cost insurance (but not “cheap” or “bad”) from say Iffco-Tokio is ~Rs. 500 p.a; you do have call them and do some negotiating to get this price, but still, it’s available now. Assuming this is sufficient for Iffco-Tokio to make a profit after paying out claims (else why would they be in business?) implies annual cost of providing “basic” health-care in India for all Indians is:
    Rs. 500 * 1 billion = Rs. 500 billion (Rs 50,000 crore or equivalently $10 billion)
    Our GDP is what? $1.5 trillion? (i.e Rs 68 trillion = Rs. 68000 billion = Rs. 68,00,000 crore)
    Cost of universal insurance in terms of GDP = 50,000/68,00,000 = 0.7% of GDP
    Cost of universal basic health care is no more than a rounding error in terms of India’s GDP. We can afford it right now. Do we have the political will? Systems? Infrastructure? Not sure, but it’s a different issue. (see point 3 of this post btw).

    2) “The cost of healthcare is much, much lower, but even then many people can’t afford the cost of their treatment.”

    Sure there’s garib people. Sure there are people who can’t afford the cost of treatment, but there’s something wrong with the picture. ~50% of Indian’s can afford a mobile phone; we have 525 million connections as of Dec 2009 (sez Wikipedia). If we assume ARPUs at Rs. 500 right now (go on check this number), this implies ~50% of Indian’s can afford insurance on their own, right now, without help from the government. In 2-3 years time? I’d say close on 90%. Obviously napkin math etc. So yeah many can’t, but the many isn’t as big a number as you’d think.

    3) “The cost of healthcare is much, much lower”

    Since India provides much, much, much^trillion times better value than America when it comes to healthcare, why not give people choice? Let ‘em come to India if they need healthcare. It’s a heck of a lot lower cost and the quality I figure is actually better.

    I say, I figure the quality is better based on a very small sample; me and perceptions I have of friends. I’ve lived in London for the last 8 years. I’ve been to the doctor a few times, both NHS and private (was working for a big bank, which was providing private medical as part of annual compensation etc.). I’ve been to the doctor in India a lot of times. In fact I’d mostly wait till I was back in India before going to a doc, cuz then I could choose who I wanted, instead of picking whoever my employer or government chose. Doc’s in India are better. They have to be, because you can choose to visit them or someone else. Sure, not everyone can afford to go to “good” docs, sure theres a lot of people who are stuck with quacks etc. But look at this way. I was in the top-1% of the UK in terms of income. And I got better healthcare in India. And so did my friends (admittedly in this sample, the friends who’ve had treatment from both sets of doctors’ is err… all Indian… but still…). Also assuming that UK and US healthcare quality is comparable.

    So if India provides better value, shouldn’t America’s healthcare plans have a massive outsourcing element? How else are you going to be able to afford it?

    Being a student at IIM-A, I get to read a lot of cases. Have you read of Aravind Eyecare?
    “2,313,398 outpatient visits were handled and 270,444 surgeries were performed at the Aravind Eye Hospitals in 2006. Two-third of the outpatient visits and three-fourth of the surgeries were serviced to the poor, free of cost.”

    Or Narayana Hrudalaya? Perhaps someday IIM-A will get around to making our cases accessible etc, but in the mean-time here’s an HBS case: http://www.narayanahospitals.com/images/Harvard%20Business%20School.pdf

    “Narayana Hrudayalaya has one of the largest experiences in the world in Performing surgeries for Aneurysms i.e Abnormal Dilatations of the aorta,In the year 2007 Narayana Hrudayalaya performed the largest number of heart valve replacements in the world”.

    “Narayana Hrudayalaya performs more operations than all Heart Hospitals of Malayasia and Singapore put together”

    • NH provides about 40% of surgeries free of cost to people who can’t afford to pay.
    • Open Heart Surgery is priced at $2,400 and this price is sufficient for NH to generate enough surplus to be able to provide for the 40% of people who cannot pay. UK costs ~$70,000. US costs? ~$150,000 for the same surgery.
    • Quality? Lower failures/deaths/complications than anywhere else in the world, largely because of how experienced each doctor is. (Stat is from case discussion in class, cannot remember the source, but NH publishes all its stats, so should be verifiable).


    1. Vishal – Thanks for the comment. I am flattered that you spent the time to write such a detailed one (and relieved that my commenting system Intense Debate stood up to the test!)

      You raise some good points about the cost and effectiveness of healthcare in India. I have written about Narayan Hrudalaya before http://bit.ly/cMZQOr and I do think that there are things that India can teach the world on low cost effective healthcare.

      But I can't agree with you that health insurance can or should be provided in India at this time. The cost is just too high. Your numbers don't look right to me. Rs. 500 is less than the cost of a health check up at Hinduja Hospital in Mumbai. I don't know what Tokio-Iffco insurance covers, but if it doesn't cover diagnostics, surgery, hospitalization, procedures, or if it puts a cap on medical bills, then that's really not very useful.

      The other thing to consider is that a healthcare safety net, may not be a high priority for the government. First in line would be a national pension system, which is currently underway. Just like Social Security was done in the US before Medicare.


  7. papa-jones says:

    Gentlemen ….I must say India is not so developed a nation so its diseases and other ailment levels are quite quite low ….I bet an Indian still has the inborm immune and rejevunating system so intact that they dont need an external medical system …its all in the body given by nature …also the society by far is much better to keep each other charged up and feel good .

    India should take example of developed world and put a complete stop to crazy and unthought developement else we will all cry in tears ….and healthcare will become a big issue wich till now touch wood Indians didnt care much for .


  8. rameistein says:

    Hi Basab, I am not sure how optimistic you are about our country's future but the way its debt levels are rising the credit economy collapsing at an alarming rate and the general unrest in society …I feel American system for world shouldnt be followed as example anymore …..
    And this I feel is true for the doctors diagnossing diseases here …..I feel the society is sick here …


  9. rameistein says:

    Jiddu Krishnamurti once said, "It is no measure of health to be well-adjusted to a profoundly sick society."


  10. Vivek says:

    Right now the government is mixing up government function with healthcare.

    universal healthcare is a state function. Insurance, however is a business running on profit-loss benefit. Insurance, by it’s nature is distributing unknown risk. When a risk is known, it needs to be mitigated, not insured against. No one will be willing to share insurance for a risk with a person with known risk factors, and it’s not fair either.

    But either way, as long as the government can bring healthcare to everybody, it should be fine. call it insurance, NHS, doesn’t really matter.



  11. Sid says:

    I personally think everyone should be made to run for half an hour every morning and the cost of healthcare will come down drastically.


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