The Insurance Thing

When did health insurance equal health care? It seems that the pols, at least on the democratic side of the aisle, interchange health care and health insurance, implying that one cannot get health care if they are not insured. Anyone with half a brain knows that is not the case, but the emergency room as the primary care facility clearly is not the best option for Americans in any scenario.

I guess folks understand the insurance business, but then again maybe not. I am no insurance guru, but I do know that insurance is just that…something that insures me in case of a large unforeseen event. The insurance game is one of pooled risk.

Let’s look at the auto insurance business. I pay my insurance company quarterly around $ 400/month (now that my eldest daughter is driving). Everyone else who is a customer of my insurance company pays an amount based on their coverage needs as well. For the vast majority of auto insurance customers, year after year we lose money on our auto insurance bets. Knock on wood, I have never filed an auto insurance claim, so every year, I have paid into the shared risk pool and every year I have thankfully lost. The only ones who come out ahead are those who have an accident. Hence the “insurance” ensures that those who have an accident do not have to pay catastrophic out of pocket the collision costs, medicals, etc associated with a major wreck.

So why is health insurance perceived to be any differently? Uncle Sam, that’s why. If 10 people pay a thousand dollars a month into health insurance pool, if all of us become sick and need more than $ 120,000 of care the insurance company goes bust. There is no magic in healthcare insurance. There is no money multiplier that creates an infinite sum of funds available for consumers. However, most folks with health insurance are fairly cavalier about spending healthcare dollars as the majority of the funds come from the anonymous third party payer…the insurance company. However, the insurance company and the insurance industry is subject to the same financial and actuarial realities of any risk-based business. If the same 10 people pay a thousand dollars a month for health insurance and only one of us get seriously ill requiring $ 250,000 of medical treatment, then 9 out of 10 of us lost money in the fiscal period, but we were covered just in case by pooling our risk and the insurance company playing to odds that most of us will remain relatively well during the period. So far so good, however, once Uncle Sam sticks his nose into the healthcare business or any business, the efficiencies of markets go away, costs escalate, and we have problems with people being able to afford coverage as costs for care and usage are driven higher by artificial, non-market conditions.

I am a fan of pay as you go for wellness care and insurance for catastrophic or major illness. Just like a high auto insurance deductable, I would be able to reduce the cost of major event health plan by stepping up to the plate for routine care. This would also force me to shop around and look for the best value for my healthcare dollars.

The healthcare “crisis” is really not that hard to solve, as long as people understand the basics of the insurance business and have the incentive to spend their healthcare dollars wisely. There are a lot of difficult problems in this country, healthcare and health insurance really is not one of them, if people would just use their heads….and if uncle Sam would get out of the way.