| Lesson 22: Health Insurance |
To understand the plagues of our health insurance industry, you must first understand that insurance
companies, like governments, don't pay for anything. If you don't, then please read lessons 2, 3 and 9.
Second, you have to remind yourself what insurance is. To ensure something is to guarantee that it will
happen. To insure something is to guarantee that it won't. Insurance guarantees that something that might
happen won't be a financial catastrophe. Insurance companies do this by pooling together people's money
and people's risk. Risk does not occur if something will happen, only when it might. If something is not a risk
and not a disaster, then it is not insurable. Paying for small things that will happen is not insurance; it's
maintenance. Your car will need a tune-up, your house will need small repairs, and you will eventually need
to see a doctor and get your cholesterol checked. And you will pay for these things. The only question is
whether you will pay for them directly or through a middleman; and middlemen don't work for free.
Over several decades, government has been expanding it's new role as society's great middle-man. In the
healthcare industry, it has directly inserted itself into the health care of the elderly (Medicare), the poor
(Medicaid), and now children (S-CHIP). For the rest of us, it has out-sourced this middle-man role to
insurance companies. In doing so, it has transformed them into bureaucratic, quasi-governmental agencies. It
has done so in several ways:
1. Directly requiring these companies to "pay" for health maintenance items. These laws are called health
insurance mandates. They are usually passed by state legislators who want to grand-stand about the trendiest
cause of the week. Some of the more common mandates include pap smears, colonoscopies, mammograms,
alcohol and drug addiction. There are many others, from the very basic: doctor visits, eye exams, maternity
stays, chiropractors, nurse practitioners, contraceptives;
to the absurd: athletic trainers, acupuncture, hair transplants.
These mandates not only catapult the cost of insurance premiums, but also force customers to buy things they
don't need. Men don't need pap smears. There is an average of 38 mandates in each state, accounting for an
estimated 1/3 of the cost of health insurance. *
2. Other state regulations. Health insurance is the most over-regulated of all insurance industries. These
companies have to be registered and reviewed by dozens of state insurance administrators, as well as
overlapping federal rules.
3. Direct federal out-sourcing. In recent years, the federal government has contracted with private insurance
companies to administer the Medicare program. This, of course, comes with even more regulatory strings
attached.
4. Direct state out-sourcing. In several states, Blue Cross Blue Shield companies were given non-profit status,
subsidized with state funds, and even given monopoly protections.
There is a movement afoot to eliminate the insurance business from health insurance companies altogether.
It is the idea of requiring insurance companies to pay for things that already happened, the so-called
pre-existing conditions. This is a campaign promise of President Obama. It obviously defeats the whole
purpose of insurance, just as much as requiring Geico to cover pre-wrecked cars. If it passes, then whatever is
left of these companies will only function as government bureaucracies. If you think premiums are high now,
you aint seen nothing yet.
On the other hand, health insurance companies need to cover events completely that occur during the period
of insurance. Generally, they only cover an event as long as you maintain insurance. If your house burns
down, your insurance company will cover its obligation entirely. But if you get cancer, then you can't work,
then you can't pay your premiums, then the insurance company stops paying your cancer costs. It is
understandable, because it is easier to hide a pre-existing illness than a pre-burned house. But it is
unacceptable and will not stand. There are many kinds of insurance fraud. The appropriate way to deal with
them is with adequate risk assessment and fraud investigation.
* The Top Ten Myths of American Health Care by Sally C. Pipes
companies, like governments, don't pay for anything. If you don't, then please read lessons 2, 3 and 9.
Second, you have to remind yourself what insurance is. To ensure something is to guarantee that it will
happen. To insure something is to guarantee that it won't. Insurance guarantees that something that might
happen won't be a financial catastrophe. Insurance companies do this by pooling together people's money
and people's risk. Risk does not occur if something will happen, only when it might. If something is not a risk
and not a disaster, then it is not insurable. Paying for small things that will happen is not insurance; it's
maintenance. Your car will need a tune-up, your house will need small repairs, and you will eventually need
to see a doctor and get your cholesterol checked. And you will pay for these things. The only question is
whether you will pay for them directly or through a middleman; and middlemen don't work for free.
Over several decades, government has been expanding it's new role as society's great middle-man. In the
healthcare industry, it has directly inserted itself into the health care of the elderly (Medicare), the poor
(Medicaid), and now children (S-CHIP). For the rest of us, it has out-sourced this middle-man role to
insurance companies. In doing so, it has transformed them into bureaucratic, quasi-governmental agencies. It
has done so in several ways:
1. Directly requiring these companies to "pay" for health maintenance items. These laws are called health
insurance mandates. They are usually passed by state legislators who want to grand-stand about the trendiest
cause of the week. Some of the more common mandates include pap smears, colonoscopies, mammograms,
alcohol and drug addiction. There are many others, from the very basic: doctor visits, eye exams, maternity
stays, chiropractors, nurse practitioners, contraceptives;
to the absurd: athletic trainers, acupuncture, hair transplants.
These mandates not only catapult the cost of insurance premiums, but also force customers to buy things they
don't need. Men don't need pap smears. There is an average of 38 mandates in each state, accounting for an
estimated 1/3 of the cost of health insurance. *
2. Other state regulations. Health insurance is the most over-regulated of all insurance industries. These
companies have to be registered and reviewed by dozens of state insurance administrators, as well as
overlapping federal rules.
3. Direct federal out-sourcing. In recent years, the federal government has contracted with private insurance
companies to administer the Medicare program. This, of course, comes with even more regulatory strings
attached.
4. Direct state out-sourcing. In several states, Blue Cross Blue Shield companies were given non-profit status,
subsidized with state funds, and even given monopoly protections.
There is a movement afoot to eliminate the insurance business from health insurance companies altogether.
It is the idea of requiring insurance companies to pay for things that already happened, the so-called
pre-existing conditions. This is a campaign promise of President Obama. It obviously defeats the whole
purpose of insurance, just as much as requiring Geico to cover pre-wrecked cars. If it passes, then whatever is
left of these companies will only function as government bureaucracies. If you think premiums are high now,
you aint seen nothing yet.
On the other hand, health insurance companies need to cover events completely that occur during the period
of insurance. Generally, they only cover an event as long as you maintain insurance. If your house burns
down, your insurance company will cover its obligation entirely. But if you get cancer, then you can't work,
then you can't pay your premiums, then the insurance company stops paying your cancer costs. It is
understandable, because it is easier to hide a pre-existing illness than a pre-burned house. But it is
unacceptable and will not stand. There are many kinds of insurance fraud. The appropriate way to deal with
them is with adequate risk assessment and fraud investigation.
* The Top Ten Myths of American Health Care by Sally C. Pipes