Another Problem with Employer-Provided Health Insurance

As my wife and I prepare for the birth of our first child, we've become familiar with some of the truly marvelous technology that has emerged over the last few decades.

Among the most astonishing and promising possibilities is the harvesting of blood from the umbilical cord just after the baby is born. The stem cells contained in the cord blood already have the potential to treat or cure a host of diseases, not only for the child, but also for the mother and her close relatives.

The price of collecting the blood typically exceeds $1000 with an annual storage fee of over $100. Considering their potential benefits, investing in preserving these cells strikes me as a heck of a bargain.

Since the potential to save money in the long run is quite substantial, you would expect health insurers to pick up part of the tab.

I was surprised to learn that my wife's employer-based health coverage does not include this, except in the limited circumstances where a potential beneficiary already has an applicable condition.

In other words, unless a close relative is afflicted by something nasty at the time of the infant's birth, the parents get to pick up the full tab or go without. And should the cord blood not be preserved, the insurance company could later be on the hook for a more expensive alternative.

Businesspeople are not stupid (or at least they don't leave money on the table). If health insurance companies actually expected to save money on cord blood therapies, they would doubtless cover and even promote it.

What's going on? Is the potential effectiveness of cord blood exaggerated? No--the current benefits are quite impressive--but that's irrelevant.

Young workers typically change jobs every few years, which means their health insurance coverage changes as well. If the chances of coming down with something (the sum of the probabilities of cord-blood-treatable ailments over the remaining years of coverage) and the resulting savings from cord blood therapies outweights the cost of cord blood collection and storage, insurers will cover it.

That they don't suggests that the benefits do not exceed the costs to the insurance companies over the time horizon they expect their beneficiaries to be with them.

What's to be done? Mandating coverage of this option would solve this problem, but only by increasing costs to other people and introducing other unintended consequences.

Perhaps the emergence of additional treatments would push the insurance cost-benefit estimation over the tipping point, making a policy response irrelevant.

In the final analysis, however, the linkage between employment and health coverage prevents insurance portability, which prevents the insurers' incentives from being aligned with our long-term health status. Equalizing the tax treatment of health care for all purchasers and removing other institutional barriers to a more competitive health insurance marketplace would go a long way towards getting our insurers to worry about preventive measures.

In our current world of distorted incentives, however, my wife's insurance won't cover this potential life-saver. So we will. After all, it's our baby.