Thursday, March 18, 2010

Two Things Wrong with Health Insurance

1. Most of it is NOT insurance!

Insurance is a concept of voluntary pooling of resources to counteract a potential risk that, statistically, could never affect all of those pooling their resources, but will, statistically, affect a very small percentage of those pooling their resources to a degree that would require the most or all of the resources that have been pooled. Insurance isn't too different than a bet on a race where the loser is awarded the winnings. Just like bets though, it would never be fair to enter the game once you already know the outcome. If that were allowed, those who pooled their resources with the expectation of offsetting their own risk would ALWAYS lose.

Health insurance that pays for pre-existing conditions is NOT insurance. Because employers forcibly set aside part of their employee's compensation as a health care "benefit" and government regulation (COBRA) forces employers to accept known risk with new employees, most health insurance is a coerced sharing system where the healthy are compelled to bear the cost of the unhealthy.

2. If the health insurance business actually provided insurance, the profitability could never get so wildly out of control.

The business of insurance should be a service that is provided to those pooling resources to assess the risk, determine differential cost based on risk, and prevent fraudulent claims on the pooled resources. For this, the administrators of an insurance plan, as a neutral third party that manages the pooled resources, are due a reasonable fee for performing that service, but they are not entitled to keep a share of the pooled resources based on their ability to deny the distribution of those resources.

This may sound anti-capitalist, but it is no different than saying that a bank is NOT entitled to claim, as their own, the money they have on deposit so long as they can keep their customers from coming into the bank to make a withdrawal. There is opportunity for insurance companies to earn what they're paid by providing a legitimate service, just as banks do. That still fits perfectly in a capitalist based economic system.

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