The Healthplan and “Pre-Existing Conditions”

In the healthcare debate there has been great bi-partisan support for outlawing the “pre-existing conditions” exclusion in health insurance.  

Although the politicians and general public seek its abolition, we question whether this is a good idea.  It is against the concept of private insurance.  We believe that this will increase the cost of  insurance since insurance companies will have to undertake risks that they did not write previously.

The “pre-existing conditions” clause of a typical health insurance plan provides that the insurance company will not pay for medical treatment for a condition that pre-exists the inception of the policy for a period of time.    

A typical “pre-existing conditions” clause works as follows:

  • There is no coverage for medical treatments for a condition which pre-existed the inception of the policy by 1 year or some other period.  It is intended to exclude chronic and long-term conditions.    
  • Medical coverage for that condition will occur only after a waiting period, such as 1 year from the policy’s inception.

The rationale for the clause is that the new insurance company should not be saddled with the cost of a “loss” or “condition” which occurred prior to the inception of its policy.  It is like a homeowner getting fire insurance while his house is burning.  The theory of insurance is that the insurance company should be liable for occurrences (or conditions) which occur within its policy period.  If the insurance industry were to insure such pre-existing and ongoing losses, then its whole set of actuarial projections would require upward revision. 

The concept of covering medical bills  for a known and ongoing condition is contrary to basic insurance principles.  There is no question that there are many horror stories of people who have suffered the consequences of the “pre-existing conditions” clause, however, there is a sound business basis for the exclusion in the context of private insurance.

In essence, if the private insurance industry were forced to insure “pre-existing conditions”, then the costs for this “unfunded mandate” will be passed along to the general public who buy insurance, whether it be individuals or employers or governments.  We foresee further increases in the cost of private health insurance to cover what was previously excluded.  The big question is how much?

Mark E. Seitelman, 12/30/09,


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