August 25th, 2009
Health insurance is an oxymoron
This has less to do with the current health reform debate than the nature of insurance. Yet it is the heart of that debate.
It’s a basic misunderstanding of what insurance is, and the plain fact that “health insurance” just isn’t. Insurance.
The best way to approach the subject is by looking at it as an insurance broker would, in layers.
There are three layers in what you call “health insurance.”
- Certainty
- Likelihood
- Remote chance
Insurance brokers are bookies, not bankers. They deal with chance. They don’t deal with certainty.
Insurance brokers place bets on risks, as they have for hundreds of years. They bet that your car will crash, that your factory will blow up, that you will die next year. They compute the odds from actuarial tables, and the price you pay is based on actual risk plus a profit.
This price can vary. If the bookie can make money on your bet while they’re holding it, these investment gains put downward pressure on prices. If the bookie has been losing big on their bets lately, this loss history can put upward pressure on prices.
Basic health care does not match this bookie model. Everyone needs regular preventive care. We know wellness cuts risks. A doctor on top of your first 10 pounds of weight gain may prevent the next 50, and at a modest cost. They may also prevent the heart attack, stroke or diabetes resulting from those 50 pounds.
The second layer is a likely cost. There is a good chance you’ll get the flu this year, that you will need new glasses, that you will get a cavity in a tooth, or have some other minor episode in your family requiring immediate attention. It’s not certain, but it’s highly likely, and the cost of this care can vary enormously.
The third layer is where most insurers make their money. Heart attack, cancer, anything you might see on House, injuries from a car crash or getting shot in your front yard. These are risks and costs that can be calculated, over hundreds of millions of people, with some degree of accuracy.
What insurers now sell as “catastrophic coverage” is real insurance. It matches the bookie model.
It kicks in after big expenses have been incurred. Commercial brokers layer and price many layers of such coverage routinely. A typical commercial policy might have one carrier on the first $10 million, another on the next $90 million, and yet another for the overage and excess — anything above $100 million.
Most bookies would love to be bankers, and big casinos or bookmaking operators deliver regular results that get their stocks listed on exchanges. But Stephen Wynn is not a banker. We should not confuse him with one.
When we have health “insurance” covering care you are certain to need that is precisely what we’re doing. When you expect “insurance” to cover basic costs, or fore-go care because they’re not covered by your policy, you’re acting on a false premise and engaging in a false economy.
Multiply this mistake by about 300 million and you have the heart of what we call the health care crisis. Bookies are pretending to be bankers, people are avoiding regular care because bookies won’t cover sure things, and we all pay the price when the certain costs of good health aren’t paid.
An honest health care debate would take insurers entirely out of the business of certainty and find another means by which to pay those costs. We don’t all “need health insurance.” We all “need health care,” preventive care now and emergency care when necessary.
Those who argue, here or elsewhere, that the market can handle this by itself are creating the same false economy as a middle-aged man avoiding a colonoscopy because enemas are embarrassing.
The market can’t handle the certain costs of poor people, and people cannot be allowed to opt-out of basic care because it raises risks on everyone else.
The question is not who to tax, or whether to tax. The question is how to tax — publicly, privately through forced savings, or as we do it now, through bookies?
Dana Blankenhorn has been a business journalist since 1978, and has covered technology since 1982. He launched the Interactive Age Daily, the first daily coverage of the Internet to launch with a magazine, in September 1994. See his full profile and disclosure of his industry affiliations.
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| 08/25/09
