Op-Ed: The 'uninsurable'

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By Merrill Matthews

While much of the health care reform debate centers on the 47 million uninsured Americans, there is an equally important subgroup that must be part or the solution - the uninsurable - i.e., those who have been denied health insurance coverage because of a pre-existing medical condition, or whose condition results in premiums much higher than the standard.

Democratic presidential candidate Barack Obama (and also Hillary Clinton and even California Gov. Arnold Schwarzenegger, a Republican) has said he would forbid insurers from denying anyone who applied. In health insurance parlance that's known as "guaranteed issue." By contrast, Republican presidential candidate John McCain opposes guaranteed issue, which has led to criticism that he doesn't address the problem of the uninsurable. Elizabeth Edwards, a cancer patient and wife of former Democratic presidential candidate John Edwards, has claimed that neither she nor Mr. McCain would be able to buy their own coverage under his plan.

What critics almost never say is that very few people are ever denied coverage - or can be, for that matter. Some 250 million Americans have health insurance, with the vast majority of them getting their coverage either through their employer (about 160 million) or a government program such as Medicare or Medicaid. Under current law, no employer- or government-provided policy can deny coverage because of a medical condition. However, in most states health insurers selling in the "individual" health insurance market, where some 18 million Americans and their dependents currently buy their own policies, can refuse to cover an applicant with a pre-existing condition - just as life insurers can refuse an applicant who's been diagnosed with a terminal disease.

And the reason is simple: If an individual can buy health insurance at any time, many would wait until they need health care to buy coverage. The result would be a very small pool of very sick people - and very high premiums. That's one of the reasons Ms. Clinton wanted to force every one to buy coverage, but that "solution" creates its own problems.

This isn't guesswork. Seven states - New Jersey, New York, Vermont, Massachusetts, Maine, Washington and New Hampshire - tried what Mr. Obama is proposing in the mid-1990s, and every one of them virtually destroyed their individual markets. People can still get coverage in most of them, but they have very few choices and both the healthy and the sick will pay as much as three times what people in other states pay.

The public-policy challenge is to find a way to provide coverage to the uninsurable without destroying the individual health insurance market. The best solution is to let the health insurance market work for the vast majority of Americans and create a safety net for those who can't get coverage. That's what Mr. McCain's "Guaranteed Access Plan" (GAP) tries to do. Details are still being worked out, but it appears to be similar to what's known as a high-risk pool with some new twists, such as allowing the GAP pools to combine with other large pools in the state - e.g., the state employees or teachers - in the hope of getting better economies of scale.

Currently, there are some 34 state-based high-risk pools, nonprofit public-private partnerships that provide health insurance for about 190,000 Americans who have been denied coverage. In most states enrollees pay 150 percent of the standard premium, though some can go up to 200 percent. But since all high-risk pools lose money, health insurers usually pay the difference. Also, Congress has provided some additional funding through the State High Risk Pool Grants program.

Since each state risk pool is different, some work better than others. California, for example, only lets people in the pool for three years. And Florida hasn't funded its pool for years. Critics like to discuss the problems facing some state pools rather than honestly acknowledging that several of them - including Maryland, Wisconsin and Illinois - work very well. They also like to complain about the higher cost, even though some of the pools subsidize lower-income people. Ironically, standard premiums in some of those guaranteed-issue states mentioned above are more expensive, for both the healthy and sick, than the cost of being in some of the high-risk pools.

If we want a market-based health care system, and John McCain apparently does, high-risk pools are the most effective way to address the safety-net problem of the uninsurable. The debate should be over how to make the pools better, because a heavy-handed government-run system is not a good or affordable alternative.

Merrill Matthews is executive director of the Council for Affordable Health Insurance and a resident scholar with the Institute for Policy Innovation.