As is often the case on this blog, I enjoy examining the use of language and how people/groups distort it to further a certain agenda. Barack Obama did this tonight (numerous times) in his Congressional Address. There is one specific example I want to focus on though: "no denial of insurance for preexisting conditions".
The President decreed that in his plan no persons suffering from a pre-existing condition (two other words that need to be thoroughly examined) would never be denied coverage. This sounds like a wonderful idea at first glance (I know I thought it did). But it begs the question: why would an individual ever purchase insurance in the first place until they became afflicated with said condition? Of course they have zero incentive to do so. Consequently, insurance companies are going to have to make up for these unintended coerced costs in another way. One method may be to raise premiums. But what if they can't do this either? Well, like with any price control that puts a ceiling on prices (and this is what the pre-existing argument essentially is), you will have market participants drop out and a shortage will occur and this will further the path of a government takeover.
Look at the incentives in another way. What if tomorrow the federal government mandated that car insurance companies could not deny any applicants with car accidents or points on their licenses on their records.
(I don't have any data, on this, but I am fairly sure such applicants generate enormous revenues for car insurance companies. What the companies do though is counter the added risk with increased premiums and deductibles).
What signal would this send consumers? First, it would tell them there is zero chance they could be denied coverage, so they would never purchase the insurance until they were involved in an accident or were assigned points by a court. Secondly, it takes away negotiating power from the companies. If they have to sign such applicants by law, what is to prevent prices from plummeting to artificially low levels (the cost problem)? Finally, such a policy would create a significant moral hazard. If I know that government will force insurance companies to provide me "insurance" at the lowest cost due to the cost problem, or totally subsidize me through taxpayer dollars if I cannot afford said prices, what is to stop me from taking adverse risks while driving?
I digress though. My basic point is if the federal government implements this rule insurance will no longer be insurance. It will be a subsidy. The guise of calling it "insurance" is incredibly dangerous.
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