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The Problem with Health Insurance

Aug 17, 2007
Medical career workers hear constantly about the poor state of health care coverage in the United States. We hear about health care as a national item, on the agenda at every election. But why is it such an issue?

Insurance is inherently a poor investment, because when you buy an insurance policy, odds are that in the long run you'll pay your insurance company more than they'll pay you. It has to be that way, or else insurers would never be able to stay in their business. Insurers profit from the laws of probability in the same way as casinos. Consider an insurance agent as a bookie who lets you place long-term bets on whether you will come to misfortune.

But that doesn't mean insurance isn't worth having. The casino gambler places bets against the odds, on something that he hopes will happen immediately and not in ten years when he might really need his winnings. The insurance gambler, on the other hand, bets on something he hopes will never happen, so that he'll be able to afford it in case it does. Thus the purpose of insurance is to reduce risk to an acceptable level, just like any security coverage. A corollary is that it's not worth insuring something you can easily afford to pay for by yourself. People who do such things are generally the same kind of people who play lotteries.

Unfortunately, most health insurance policies seem to be designed by devout lottery followers. By involving middlemen in virtually every transaction in the process of getting medical treatment, they increase costs to both the patient and the practitioner. The only winners are the insurance companies, and some say the elected officials whose campaigns they funded.

For purposes of analogy, suppose you own your own home. Further suppose that your house is worth a lot of money, in fact, far more money than you have in your savings account. If the house burns down, you had terrible luck. You'll most likely never be able to buy another one. So Bob the insurance salesman makes you a policy. If you pay him a hundred dollars a month, he'll buy you a new house in the event that yours is destroyed. Maybe you accept the deal, because you'd rather make a poor investment than face the possibility of having to live at that scary motel down the street.

But Bob's out to make money, of course. Catastrophe policies like yours are profitable, but they're not the sort of thing that will enable him to retire to Tucson in ten years and live out his days in the better country clubs. So he also offers you a deluxe complete home coverage package. If you pay him five hundred dollars a month, he will still replace your house if it burns down; and now, for the price of a much higher premium, he'll pay to fix just about anything else that might go wrong with it. Is the roof leaking? Find a roofer approved by Bob's company, file a claim, and Bob will pay the roofer to fix it. You don't have to negotiate the roofer's rate, because Bob takes care of all of that. He might not be getting the best deal for the money, but you already paid him, so what should you care?

Even routine maintenance is covered, so every few years, your house is painted and your gutters cleaned at Bob's expense. No matter what goes wrong, you don't have to worry about such trivialities; you're covered. And Bob is shopping eagerly for a new set of golf clubs. Then Bob starts to raise his rates, and pretty soon you can no longer afford his coverage. You go back to your original disaster insurance. The next time your roof needs fixing, you pick up the telephone book and decide to shop around for yourself.

To continue our example, you soon find that the rates roofers are charging nowadays are astronomical. This is because they've been dealing with insurance companies for so long that the notion of getting paid by a customer instead of an insurer is practically foreign to them. For many years, Bob and his friends have been telling roofers what they can do to fix people's roofs, and how much they get paid for it. The upshot is that roofers don't really have to compete with each other any longer to offer their customers lower prices. In the long run, people lose more than money by purchasing too much insurance; they lose their choices as well.

Most individuals aren't foolish enough to purchase the sort of insurance we just described on their homes. And come to think of it, most people who actually purchase health insurance don't get such a bloated policy either. You can get a deductible of a few thousand dollars. Instead of making insurance claims for something like penicillin or eyeglasses, you could easily write a check for it and be done with the matter.

But many people have wasteful insurance coverage anyhow. It has become standard practice for an employer to add health insurance as a benefit when hiring someone for any job designated as full-time. This is such a given that the employee usually doesn't have any choice in the matter. In most cases, they can't simply request the right to take care of their own medical needs in return for an increase in salary commensurate with their employer's cost for the unwanted insurance. It isn't really the employer's choice either, as long as companies receive tax benefits for funneling their staff into the hands of the health-care system. If the guy with the IRS tells you he'll take less of your money if you do things his way, you'll do it if you want to keep your business afloat.

The overall effect is a vicious cycle in which the overhead and waste of insurance companies increase medical costs to the point where people without conventional jobs can't afford treatment, and are thus forced into entering the system. This means more money for the insurance industry and higher medical costs for people working outside of corporate structures. This makes it ever more difficult for self-employed artists, writers, programmers, farmers, cab drivers, and so on to earn a living on their own. It makes a chilling effect on any kind of independent career such as freelancing, consulting, or small business start-up.

If there were easy solutions to the health care system, we would have found them by now. Other countries provide national health care for their citizens, but all that is is an extra tax placed on the income of it's citizens. It still raises costs of health care coverage in the same way private insurance does, but without the extra drive to make it a profitable business. There are many models of health care providing throughout the world, and our country will have to look at them as time goes by and our citizens become more dependent on it. For now, all the medical career workers can do is continue patching the system as best they can.
About the Author
Freelance writer for over eleven years.

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