The Pre-Existing Problem

Imagine you are a restaurant owner in a small town. Business is good, you have delicious food, and a large menu selection. You built this business up from the ground yourself, and have been largely successful. So successful, that you are looking at opening another restaurant in the next county over. That is a big deal for you, you’ve worked hard to get to this point. You have just selected the area, and you are getting estimates for how much it will cost to open a new restaurant there. You find a deal you like with a construction company you trust, then, before you can break ground, a chain restaurant opens up across the street from your first location.

This restaurant does not have as wide of a menu as you, and the food is not as good. You think the opening is not a big deal, because your food is great, and the people in the town love you and your staff. But then, that restaurant starts giving out free food to people who have a low income. “That’s good,” you think to yourself, “They’re just helping out the community.” So you decide to cut your losses and push back the new location. After all, you are still making a modest amount of money on the original location.

Then, you are blindsided. The government has now decided that you and every other restaurant owner now have to give out free food to people in the lower income bracket. That is horrible news! This is a poor town, that is almost half the population! You manage to stay afloat for awhile, you have to cut down your menu, as you can no longer afford to stock so many different types of food, but you manage. The quality of your food plummets to “Microwaved burrito that has been sitting in the back of the freezer for a year” level. Customers stop coming in, it is nothing personal, but the food just isn’t what it used to be. Eventually, the costs of running the business become too much for you to bear, as you are no longer turning a profit. You are forced to close your doors.

The chain restaurant across the street stays afloat. They didn’t take the time to go to the local farmer’s market every morning and pick out ingredients, they bought all their food frozen, in bulk. They cut their menu selection down even more than it already was. They cut their prices down slightly too, to the point where their profit margin was minimal. They waited until you ran out of business, and then they raised their prices to double what they originally were. After all, they have the corporate money backing them, and they have to pay for the free food somehow.

So now, everyone who is above the lower income brackets is paying double for less quality food. Seems unfair, right? Well, fortunately for you, this story is made up. But it is not without its truths. This is the reality of covering pre-existing conditions and how it affects the insurance market. When insurance companies are forced to cover pre-existing conditions, everyone suffers, including the people with pre-existing conditions. Yes, they are covered, but the quality of their insurance is now minimal, at best. Small insurance companies are forced out of business. Large insurance companies cut their coverage down to the most minimal they can, and raise their prices to the highest they can get away with without losing a large amount of customers. Obviously, as a result of both of these, the consumer suffers. This is a bad deal for everyone.

One major difference between the restaurants and the insurance market, is that in reality, people with pre-existing conditions still have to pay for insurance. They do not get it for free. But when the government forces insurance companies to cover pre-existing conditions, the companies can not raise their prices for people with pre-existing conditions. That is the reason that all prices go up. Just like how the chain restaurant had to pay for the free food somehow, the insurance companies have to pay for the people with pre-existing conditions somehow.