David Cole | Let’s examine the health-insurance model

Like any organization created by humans, health care in any form can be done well or badly. Some universal systems are done well. Others are done badly.

Our own system supposedly relies upon competition and “free” market” to create qualify health care at low cost. But it does not work. Why? Well, the insurance companies are one huge problem… 

#1 What is the principle idea of insurance? To even out costs by spreading them across as many people as possible. The idea is that the costs for those who need to use the insurance heavily will be soften by being subsidized by those who (by happenstance or by carefulness or by whatever) need to use the insurance little or not at all.

#2 What is the principle of profit? To maximize income by providing a good or service at the highest price/volume possible while reducing expenses (other than your own compensation) to the minimum level that you can.

#3 What is the principle of competition? To weed out inferior product, inferior service and/or excessive pricing by creating room for more attractive offerings.

All very nice in theory, but not always in practice, and with the insurance industry in particular, in today’s world, this model breaks down almost completely.

WRT #1 (The insurance principle): The success of an insurance scheme (“Scheme” in the British sense, i.e. without pejorative connotation) depends upon ignorance of the future on the part of the insurer. When the insurer does not know who will need insurance and who won’t, then he has to charge everyone equally, thereby fulfilling the insurance bargain the best way possible: Everyone pays an equalized amount for a given quality of coverage.

When the insurer can make predictions as to who will need insurance and who won’t, then he can charge more for those who will and less for those who won’t. This, of course, drives away those who will need the insurance, thus defeating the very purpose of insurance.

The problem is, with the sophistication of today’s computer modeling, insurers can make better and better predictions about who will use insurance and who won’t. So insurers can more accurately parse their potential customers into smaller and smaller pools, with those least likely to need insurance being charged the least, and those most likely to need it being charged the most.

Is this “fair”? It succeeds in the marketplace because in today’s blame-the-victim politics, people believe so. But it all winds up subverting the insurance principle: The risk, instead of being spread around equally, winds up being more and more concentrated to the point that the cost of insurance (for those deemed to be insurance needy) begins to approach the cost of calamity. While for those who will not use the insurance, they are paying less, but are still being cheated because they are paying for something they will never use.

There actually is an insurance ad that’s been playing recently that touts that it will customize your insurance to your exact personal needs based on 21 dimensions of information. This is a complete subversion of the insurance bargain!

WRT #2 (The profit principle): The percentage of the public who would use insurance lightly is quite large compared to those who would use it heavily, so that is exactly the portion of the insurable public that insurers would want to attract the most. (This leaves heavy insurance users out in the cold, don’t you think?) The way that an insurer can attract this large pool of customers is to charge them less. The way an insurer can charge them less is to refuse to insure those who might use insurance heavily. The way an insurer can distinguish the two is through computer modeling. The way that an insurer can correct errors in the model is to drop people who have the temerity to actually use their insurance.

In other words, the way to maximize profits in the insurance industry is to work as hard as you can to avoid fulfilling the insurance principle: Insure those who won’t actually use insurance. Refuse those who will actually use insurance.

WRT #3 (Competition): In today’s society, actual competition amongst the big players is subverted into a very sick joke:

Mass advertising is extraordinarily effective at subverting informed choice. It does this via emotional manipulation. It succeeds at making attractive that which should not be and at making unattractive that which is actually better.

Corporate control of mass media is extraordinarily effective at diverting the population’s attention towards the most trivial crap and away from honest information that would actually affect their individual lives.

Mass lobbying is extraordinarily effective at corrupting legislation.

Mass use of capital resources is extraordinarily effective at defeating anything that might threaten a Fortune 500’s hegemony.

In other words, real competition is defeated via an onslaught of corruption that is of almost unfathomable proportions! What is amazing about this is that it is open, it is known, it is tut-tut’d about, but it is also generally accepted! And the laws that have already been bought and paid for have been crafted to keep the fundamental process legal!

It is my conviction that health care insurance should be highly regulated to prohibit the parsing of insurance pools, and it should be forced to be a non-profit business so that the underlying motivation is not the maximization of profits, but the delivery of service.

Is Medicare a “socialist” program? Not really. It is a single-payer system, but it does not own or direct any medical organizations.

Amongst seniors, Medicare funds universal health care. Do you hear a lot of Seniors complaining about it? I don’t.

Yet there still is a role for private insurance to seniors. It is called “supplemental coverage.” So if some “elite” person does not feel that basic Medicare is good enough, he can buy the additional coverage, no problem.

Every time I hear a statistic regarding Medicare’s overhead, the quoted number is around 4 percent (more or less) while the health-insurance industry’s overhead is generally put at around 30 percent! Regardless what the numbers actually are, every premium dollar going towards bloated corporate salaries, going towards glass and steel skyscrapers, going towards advertising, going towards lobbying, going towards whatever, is a dollar not going towards medical care! Tell me, exactly what is the health-insurance industry good for other than slopping the corporate pigs feeding at the money trough?

It seems to me that if basic health insurance were taken away from the insurers and turned over to Medicare, the savings would go a very long way towards reducing costs for both the government and individuals!

But the insurance companies don’t need to shut down. They can come up with supplemental policies so that the “elites” (such as those with jobs) who already have premium coverage can continue to do so.


David Cole resides in Afton.

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