Health Plans: Necessary, Evil or Both? Part 1

Unlike many doctors, I don’t hate health insurance companies. Without the widespread adoption of employer-based health insurance provided by third-party insurers (and assuming no universal government-sponsored health insurance), most American doctors would still be getting paid with chickens and canned goods or patients wouldn’t be able to afford care.

Having said that, health plans can be the source of seemingly unending annoyance with their often infuriating rules, denials and other hassles for physicians and patients alike. Like any business, health plans must take in more money than they pay out, and most of the hassle factors cited by physicians and patients revolve around health plans’ efforts to ensure that they don’t pay out too much.

In my previous blog post, I talked about risk pooling and the common practice of health plans rejecting patients with pre-existing medical conditions. Control of risk is central to a health plan’s ability to survive in the market. The health risk is quite predictable given a large enough pool of patients with a normal health status distribution. A health plan will be able to accurately predict how much money it is going to have to pay out to cover the health needs of the population.

If the pool of patients is large enough, it is a safe bet that it will include enough healthy patients to pay for the usual number of patients with pre-existing health conditions. This is why employees of large companies with employer-sponsored health benefits typically are not rejected for coverage, even if they have pre-existing health problems.

So, when do pre-existing conditions become a problem? We’ll discuss that in my next posting.