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In a my previous post I said that I came to hate the health insurance industry, yet that it wasn't the fault of bad companies, but of the system itself. I stand by that. While there are certainly some crooked companies, most of them are honest and trying to do the right thing, but are caught in a bad situation.
Usual warning: For the sake of reasonable brevity I must oversimplify and paint with a very broad brush.
Insurance companies don't print money in the basement. That's the gov'ts job. So they have to make enough money to stay in business or everybody gets screwed when the companies goes under. If you will notice, most health insurance is written by Life insurance companies. They issue health insurance with the expectation that the selling agent will follow up and sell a life insurance policy to the policyholder - so the health insurance policy is a kind of lead generator. (Not always) This even hold true for group policies.
Life insurance is easy and highly profitable for the insurance companies, and is usually a good deal (If carefully shopped.) for the policyholder too.
Now the idea of insurance is to financially guard against the UNEXPECTED & expensive, not the routine or cheap. You expect your homeowners insurance to help if a storm takes off your roof, or lighting strikes your house. (Both happened to me in the same storm. Insurance company was great.) But I don't expect the insurance company to pay for having the windows washed, the lawn cut, or for building on an addition. It is my job to take care of the finances for that. Yet we often ask for insurance companies to cover things that are in the category of routine expected expenses. The insurance company then has to charge more if those expected expenses are also going to be covered. Yet, those routine expenses may be critical in health maintaince, and they need to get done or it can be real expensive later. So the model of home insurance to health insurance just doesn't really work. (The analogy is not perfect. Needed small home repairs may get put off too. I need to get under the house and do some leveling before the drywall cracks.)But people will tend to put off routine checkups if they are feeling good, in part because the checkup costs money. Although some companies will pay for an annual physical to encourage people to get one. But to cover for that annual physical for everybody, they have to charge enough to pay for it, plus their overhead. And some policyholders will have things found wrong with them that have to be taken care of, that would not be until later when they weren't covered. It is enough to give an acutarical accountant fits.
Health insurance is far more difficult. It would be easy if the company could take a huge cross section of the general population, for then they would be able to apply morbidity tables - which is what the large employer groups do. Small groups, and individuals tend to self select themselves. That is, people who think (Or know) they have a problem, will buy insurance, while the healthier people will take their chances. To counter this the insurance companies screen people for health problems before issuing a policy. (After all, it would not be fair to prudent policyholders who kept policies in times of good health to allow some one to not contribute to the shared risk, until that someone got ill and then wanted to join. If you are going to use a community shelter to get out of a storm, you should help to build the shelter before the storm.)
This causes the companies to assign rates according to the precieved risk. That means younger people will have lower rates. It has been suggested that there should be one rate for all ages. But unless EVEERYONE was required to be part of the plan, then young people who are usually in fairly good health would opt out of coverage, which would then force up the rates on those covered.
So your rates are going to increase as you get older.
Sooner or later, your policy will enter a death spiral. A policy form covers a pool of insureds. As long as new health people are coming into the pool, everything remains fairly stable. But sooner or later, the policy form will have to be changed for different valid reasons. New policies may have to conform to new law, or competition. So the old policy is no longer issued, and new recruits now go to a different pool. The policy form is not cancelled and people are allowed to renew, but they have to do so at the rates for the average risk of the pool they are in. The closed pool becomes like stagant water. While it was initially healthier that the average of the nation, it soon becomes sicker than the average. Health people leave the poor, while the sick ones, knowing they need insurance stay. Rates on that pool now go up. The less sick ones leave - and so on the cycle goes, until the rates become impossible. (I personally placed my own mother in a medicare supplement plan that at the time was the best value on the market. I paid the premiums for her. The company was, and still is, extremely reputable. Congress made a change to medicare that caused the old policy to be cut off. At first the spiral wasn't steep, but eventually it reached a point where I had to drop it. The premiums had reached a point where it was too expensive to justify the cost of the insurance. BTW, a few years ago, when she had heart surgery, the policy delivered.)
Insurance policies can be sold from company to company. You can get insurance with ABC (excellent company) who then sells a block of business to XYZ (Crap company)and then two months later XYZ goes under and you are left holding the bag. (This happened to a young couple that I had placed with a company. I later discovered that there was one executive in common with both companies. I turned over what I have found to the couple and offered them any help I could if they wanted to go to an attorney.)
The whole problem comes because the compainies are expected to make a profit. They have to bring in enough money to cover costs. And those with less prudence are not being required to contribute against the day when they will need a shelter from a financial storm.
I don't have current stats, but in the days that I owned a small insurance agency, there was a crisis in the health insurance companies. Many of them were losing money, even the best ones. Since nothing has changed in health care or it's delivery, then I doubt that this situation has changed either. Insurance companies would love to have a solution to that problem.
Most of the very large players in health insurance would be glad to get out of the underwriting of the risk. They have excellent experience in claims handling, and the gov't could contract (On a competing bid basis) for the companies to handle the claims processing of a single payer system. The companies would then be able to get rid of the overhead of paying all those agents, and of the things they do to avoid getting taken advantage of by pre-existing conditions and adverse selection. (Adverse selection is the term for a person waiting until they have a problem before buying health insurance.) This would lead to a low risk way for insurance companies to make money and would still be cheaper than a federal bureauracy.
My purpose in this post has been to demonstrate that private insurance can never be a solution, no matter how it is fixed. The free enterprise system works against itself in this case. Private insurance is simply too deeply flawed to be able to ever work, and must be replaced.
As I progress in this series, I will take up other aspects of the health care delivery system. I greatly appreciate the contirbutions of other DUers thoughts to this topic.
NOTE: I am not a socialist, and in most cases I support free enterprise, but this is not one of them.
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