Pretend you’re an insurance agent. Someone comes to you and wants to buy fire insurance for their home. Upon questioning, you realize that their home is actually on fire as you speak. Do you sell that individual fire insurance at any price? Of course not. He has a pre-existing condition, and there is no rate you could set that could possibly be profitable to your company, unless that rate was more than what it would cost to repair the home. And, in that case, it was be cheaper for your customer to repair his home himself than to ask you to do it for him. You don’t sell insurance against things that have already happened.
But what if the government comes along, as it did in Washington state in 1993, and says that your insurance company must provide health insurance to everyone who applies for it even if they have diabetes or cancer or Lou Gehrig’s disease? Won’t that just put your company out of business? The answer is that, yes, it will put your company out of business unless you refuse to sell any more health insurance policies in that state. And that’s what happened in Washington state, where by 1999 it was no longer possible to buy an individual policy. Was the Washington state legislature really that stupid and short-sighted? Well, not exactly.
The original plan was to have an individual mandate, just like the one in the president’s Affordable Care Act. But when the Republicans took control of the state legislature after the 1994 elections, they got rid of the mandate without getting rid of the provision that the insurance companies must accept all applicants. Why did spiking the mandate wind up destroying the individual market for insurance in the whole state? Because the mandate assured that the insurance companies would have hundreds of thousands of new healthy customers who would cost so little to insure that it would make it possible to cover cancer and diabetes patients and still be profitable. In fact, this is the only way anyone has been able to come with that we can cover everyone with private insurance without bankrupting the insurance industry or having everyone pay impossibly high rates.
Speculation is running high that the Supreme Court of the United States (SCOTUS) will soon strike down the individual mandate in the president’s Affordable Care Act.
