“Free Market” sterilization - shocking, but that is what United Healthcare’s (NYSE:UNH) subsidiary Golden Rule told a 39-year-old women in perfect health. The New York Times “After Caesareans, Some See Higher Insurance Cost” reports that private health insurers either do not issue medically underwritten policies or charge substantially higher premiums to women who have undergone Caesarean deliveries. Given that most individual policies are medically underwritten and 31.1% of deliveries are Caesarean, a large percentage of women of childbearing age are not eligible for health insurance.
The excuse is that it is statistically more likely that a second Caesarean will follow the first, costing an average of $2700 more than vaginal birth. In some states, Golden Rule will treat a Caesarean as a pre-existing condition, and exclude it for three years. Where it cannot be excluded or the exclusion period allowed is shorter, Golden Rule dictates sterilization or no insurance. Where are the pro-lifers when you really need them?
Taking a step back, we are beginning to see how far medical underwriting has gone. Healthy people are no longer guaranteed access to insurance.In addition, health insurance companies can take control of your body. As more people leave the shelter of employer provided insurance, the public will be awakened to the realities of medical underwriting. The noose is getting tighter every day.
Tight medical underwriting has not been all benefit to the insurers. In "United Healthcare: Beyond the Numbers," I wrote that United’s risk based business is shrinking.
With so much talk lately about the public or societal role of Fannie Mae (FNM) and Freddie Mac (FRE) in solving the mortgage crisis, I think we must ask if private health insurers have a role beyond generating profits. New York State had no trouble assigning a public policy role to monoline insurers.
Fannie and Freddie’s regulator has a great deal of latitude over surplus capital requirements and Congress can change the companies “social responsibilities” at will. The companies need to do well (in addition to campaign contributions) to survive.
Why do the health insurers see no need for social responsibility? After all, they cannot export their service to other countries. They depend on the government (Medicare and Medicaid) for a great deal of their revenues and profits, the same way as Fannie and Freddie depend on the implicit guarantee for cheap funding.
The answer is two-fold:
- First, the GSE’s are regulated at the federal level and the health insurers are regulated state by state. The large private insurers can play one state against another, thus setting rates extraordinarily high in guaranteed issue states to dissuade other states from converting.
- Second, there is a difference between being regulated by judgment versus being regulated by rules. It is far easier to avoid social responsibility when insurers just have to follow the rules.
While private insurers want the freedom to reject applicants for any reason, they don’t want the government or nonprofits to offer a backstop for their rejects. Insurers claim that the government and nonprofits would have an unfair advantage by not having to pay taxes. I say that private insurers are obligated to offer policies to all applicants explicably because the U.S. is the only country in the developed world, which does not offer a government alternative. In contractual terms the government is offering a consideration to the private health insurers, so private health insurers must offer a consideration to the public. Otherwise, the current system will not survive.
Disclosure: The author is long FNM and FRE.