Post-claims underwriting no justification for government health plan

by Brian Schwartz | 1:30 am, October 16, 2009 | Comments Off

If you internet service provider violated the contract you made with them by canceled your policy (say you’re hogging bandwidth) is that a reason for government to create a tax-funded “public internet service provider”?  Of course not.  The ISP in this case has violated its contractual agreement to a customer, and the purpose of government is in this case is to enforce the contract and have the ISP compensate you (the victim of the rights violation) for damages.

Similarly, if an insurance company cancels your policy in violated of contract, which is known as “post-claims underwriting,” (See John Goodman’s post on this and how it differs from rescission) government should step in to enforce contracts.  This is no justification for a public plan.

As Tyler Cowen notes:

Presumably the critics believe that egregious violations of law and contract are occurring.  If that is the case, why not just enforce the law more strongly and raise the penalties — significantly — for unjust treatment of sick individuals?  You can call this market failure, which it is, but it’s also legal and regulatory failure as well.

However, the executive director of CoverColorado (Colorado’s high-risk pool) seems to think so. A recent news (or advocacy jounalism) article in the Denver Post article begins:

Colorado already has a public option in health care — it’s just exclusive to sick people who have been rejected by private insurance companies.

It’s called CoverColorado, and it insures 9,800 people who have to pay about 140 percent of what the average Coloradan pays in health- insurance premiums. It is not too far-fetched, though, that the program could morph into a true public option open to everyone — a competitive choice in the individual health-insurance market.

Making the case that CoverColorado could be available to everyone, Bragg-Gamble says

The only reason CoverColorado cancels someone’s coverage is if they don’t pay,  We don’t drop people because they’ve gotten a new health condition.

Further, as John Goodman notes, since 1997 federal legislation has required direct-purchase policies to be guaranteed renewable.

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