Michigan state legislators are pushing forward on their own proposed reforms for health care in the state. States should be encouraged to initiate their own reform efforts and reject one-size-fits-all federal reforms, but the enthusiasm that Teamster lobbyist William Black expressed in the Lansing State Journal for state Rep. Marc Corriveau’s proposed reforms is misplaced. Mr. Black did a fair job of characterizing these changes. Here’s his bullet points:

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  • Guarantee access by requiring insurers to cover people with pre-existing conditions.
  • Prohibit insurance companies from raising rates on people when they get sick.
  • Require all insurance companies to accept everyone for coverage, regardless of their pre-existing conditions, rather than “cherry-picking” only the healthy to cover.
  • End discrimination against women when determining rates.
  • Expand the MIChild program to help cover every Michigan child.
  • Create a special fund that will rein in health care costs and protect sick Michiganders from predatory insurance companies.

These are all suggestions we hear often — and well-intentioned ones, to be sure. It doesn’t seem fair that those with pre-existing conditions should be denied access to health coverage in the interests of a health insurance company’s bottom line, but this line of thinking ignores the realities of the insurance business.

Insurance works by allowing you to pay ahead of time to hedge against the possibility of some bad event occurring — such as a car accient, illness or fire. Everyone pays into a plan and that covers the costs of these events when they occasionally occur. You may not pay less over the entirety of your coverage than you would without insurance, but you are protected from large costs when a bad event occurs. These costs, even if they are high, are covered by everyone’s low contributions because they are typically unlikely. As an incident becomes more likely, the average cost of insuring you increases — this is why car companies increase insurance rates when you demonstrate a propensity for fender-benders. In this case, it’s obvious that those who are more likely to be in an accident should shoulder the cost of insuring themselves — they shouldn’t be able to spread those costs to everyone.

(It’s worth noting that health insurance companies can’t cancel your coverage or change your rates if you get sick the way auto insurance can, so long as you keep up with paying your premiums, so point two of these reforms is redundant.)

If someone has a pre-exisiting condition, there is a 100 percent liklihood that that condition will occur. In order to cover the costs to this person, the insurance company will either have to charge the sick individual the full cost of their care or spread out that amount to all of its customers, effectively raising all insurance rates and maybe making them too expensive to those who might otherwise insure themselves. This is the reason that those with pre-existing conditions are actually not appropriate candidates for insurance.

Does that mean these individuals can’t be guaranteed access to some sort of coverage for their health care costs? No — but direct subsidies to the patients are a more appropriate program than reforms that will raise insurance rates for everyone — especially if that would leave more Americans without insurance.