Discrimination by Insurers Likely Even With Reform, Experts Say

Economic Pressure Could Give Rise to New Biases Against Prior Conditions

Any health-care overhaul that Congress and President Obama enact is likely to have as its centerpiece a fundamental reform: Insurers would not be allowed to reject individuals or charge them higher premiums based on their medical history.

But simply banning medical discrimination would not necessarily remove it from the equation, economists and health-care analysts say.

If insurers are prohibited from openly rejecting people with preexisting conditions, they could try to cherry-pick through more subtle means. For example, offering free health club memberships tends to attract people who can use the equipment, says Paul Precht, director of policy at the Medicare Rights Center.

Being uncooperative on insurance claims can chase away the chronically ill. For people who have few medical bills, it is less of a factor, said Karen Pollitz, research professor at the Georgetown University Health Policy Institute.

And to avoid patients with costly, complicated medical conditions, health plans could include in their networks relatively few doctors who specialize in treating those conditions, said Mark V. Pauly, professor of health-care management at the University of Pennsylvania's Wharton School.

By itself, a ban on discrimination would not eliminate the economic pressure to discriminate.

"It would probably increase the incentive for cherry-picking," Pauly said. "I'm strongly motivated to try to avoid you if I'm not allowed to charge you extra."

Cognizant of the threat, lawmakers are trying to neutralize it. For example, the bill advanced by Senate Finance Committee Chairman Max Baucus (D-Mont.) calls for creation of complex mechanisms to essentially raise or lower compensation to insurers, depending on whether they attract disproportionately sick or healthy populations.

The bill assumes the problem would be greatest during the first few years; after that, part of the machinery to compensate for variations would go away.

A straightforward way to reduce gamesmanship is to standardize benefit packages, Precht wrote in a July report. One issue lawmakers must resolve is how much latitude to leave insurers over what they cover and how.

Unless lawmakers tackle the problem effectively, a reformed health-care system could continue to reward insurers for avoiding rather than treating illness. It also could perpetuate existing economic penalties for health plans that do a better job of covering the sickest patients. They tend to attract costlier members, which can force them to raise premiums, fueling a cycle that can make it harder for the severely ill to get affordable coverage.

"In a competitive market, a good-guy insurer is a patsy," Pollitz said. "The race is to the bottom."