Wednesday, June 17, 2009

It's Not Insurance

Insurance is about providing protection against low probability but financially painful events. You buy fire insurance because, even though it is unlikely that your house will burn to the ground, you want to be protected against the very large financial loss that you might incur if it did. Do you buy insurance for painting your house or cutting your grass or paying your electric bill? No. Why? Because those are predictable events. Insurance is not appropriate for predictable events.

Do you have insurance for your grocery bill? Why not? Isn't food a necessity? Food is certainly every bit as important as health care. So why not insure it? What would happen if your employer provided grocery bill insurance, so that whenever you went to the grocery store, you saved your receipts and sent them off to your insurance company for reimbursement. If lots of companies provided grocery bill insurance, what would happen to food prices? What would happen to the behavior of folks whose grocery bills were insured (and reimbursed)? Would they tend to economize at the grocery store, shop around? Why is it less important to shop around for health care?

True health care insurance is dirt cheap and it is unlikely that more than .01 of one percent of all Americans would have any trouble buying it. It costs less than a few beers per month (or a few packs of cigarettes per month). Such insurance has a very high deductible and is only designed to protect against large, unforeseen, health care costs. That's the kind of insurance that should be provided and people should pay for their own routine, predictable health care costs as they pay their own grocery bill. If you wish to provide food stamps for health care, then so be it. But call it what it is...relief...not insurance. If you want to provide health care for those who have "pre-existing" conditions, then do so with some kind of relief program, but don't call it insurance. It is not insurance. It is asking those who don't have pre-conditions to pay for those who do have pre-conditions. If you want to do that, fine. But, it has nothing whatever to do with insurance.

Insuring predictable events, the main characteristics of medicare, the prescription drug bill, and most employer provided "health insurance," is not insurance. It's just a way of someone else paying your health care bills. It means that, since you don't pay, you don't exercise any judgment about costs. That means costs rise without limit. There is simply no reason for health care costs to ever stop rising under this system and they haven't. If you wanted prices to get out of hand, start requiring companies to provide grocery bill insurance and soon food prices would begin to escalate without limit, following the pattern of health care costs.

Eventually, the Obama plan or some alternative will force the government, in the interests of controlling costs, to directly allocate health care. No one will be able to decide for themselves what health care they need. The government will decide. Too bad if you have a health problem that is politically out of favor or if your demographic is out of favor (both of these situations occur in virtually every country in Europe). Instead of the market and the citizen deciding their health care needs, the government decides it. The so-called insurance debate is not a debate about insurance. It is a debate about who decides who gets what health care -- individuals and their families or the government.

If the government wanted to provide true insurance -- so called "catastrophic" insurance, then health care costs could be brought under control, because individuals would pay their predictable expenses, as they should. Those with pre-existing catastrophic situations could be taken care by a government relief program if such situations are deemed to be the responsibility of government. A further step would be to cap punitive damages in medical lawsuits. With that combination, health care could be returned to the private sector where it belongs and Americans could continue to enjoy the best health care available anywhere in the world. But, with these reforms, such care would be much more affordable.

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