Question

1. Barry met with his company’s benefit manager to sign up for the health insurance provided through his employer. He had worked for the firm for over 2 years, but was one of many who chose not to take the offer to participate in the plan, because he considered his share of the premiums too expensive. In the intervening interview the subject turned to pre-existing conditions. Yes, Barry’s wife was eight months pregnant. Yes, he wanted insurance to cover the expenses of the impending childbirth (expected to cost $10,000). Barry was incredulous when he found out that there was a 90 day waiting period before any preexisting condition could be covered. "Well, something is really wrong with this country if you can’t even buy insurance when you need it."
1. Is Barry justified in his criticism?
2. What is the purpose of insurance? Is Barry looking for insurance in this instance? What is he looking for?
3. Why doesn't insurance cover preexisting conditions?
4. Using the appropriate terminology explain how the ACA deals with the pre-existing conditions? Will it work?

Answer 1

Answer: Please refer to Explanation

Explanation:

1. Barry is not justified in his criticism because a 90 day waiting period is quite standard in the insurance world. It reduces the risk or fraud and ensures that Insurance companies don't go bankrupt from having to pay out to people like him who only seek them when they need expensive medical care.

2. The type of Insurance mentioned above is Health Insurance. This is insurance that is meant to enable you pay for your medical expenses when you have a medical issue such as A Checkup, buying medicine, an operation and the like. Other types of insurance exist as well such as Motor Vehicle Insurance and Life Insurance.

Barry is looking for Health insurance in this instance to be able to cover the upcoming birth of his unborn child with estimated costs of $10,000.

However what he is specifically looking for as inferred by the text is an Insurance scheme with lower premiums and no barrier to entry for people with a pre-existing condition.

3. Insurance does not cover Pre-existing conditions because it could lead to Adverse Selection where the buyer of the Insurance knows more than the Insurance company and attempts to use that information for their own gain. It could bankrupt Insurance companies if people were able to sign up for insurance and begin to be covered on the same day because they would be paying for less than their medical issue is worth. For instance, a man's insurance premium could be $200 and the coverage for an operation he needs is $20,000. Without the pre-existing condition rule, he could get the insurance the day before the operation and in effect only pay $200 for it with the Insurance company having to pay $19,800.

Bearing in mind that Insurance companies are big investors in the Financial market, this could destabilize the financial system.

4. The Affordable Care Act or ObamaCare as it is often called, made it illegal for Insurance Companies to deny a person coverage simply because of a Pre-existing condition. However, the catch is that everyone must have insurance so people HAD to sign up for it in the months after the act. This helped insurance companies as well because it ensured that people signed for in time instead of when those Pre-existing conditions kicked in. It became sort of an inherent waiting period. For instance, if the ACA had been passed when Barry's wife was in her second month, by the third or fourth month Barry would have had to get insurance. By the time he claims from it in 5 months he would have already passed the 3 month waiting period that the insurance company had hit him with in the first place. By mandating everyone to get insurance, there was no need to worry about rejecting Pre-existing conditions or a time period because people would get insurance even without immediately needing it.