WHY PRIVATE HEALTH INSURERS CAN’T COVER EVERY AMERICAN EFFICIENTLY
Posted by politicalpartypooper on August 21, 2009
So we have this big discussion about health care right now, and we are trying to figure out how best to do it in this nation. We have talked about a Public option, Co-Ops, and simple insurance reform. The latest Republican statements (you can’t call them proposals, because to date, there have been no Republican Proposals) revolve around the idea of forcing every American to own health insurance.
This post is an effort to explain why it can’t work. Insurance companies already know this stuff, which is why they’ve never pushed for it before, and why, if they were forced to cover every American, premium prices would skyrocket.
First, let’s tackle the idea of what insurance is all about. In its basest element, insurance is legalized gambling. It is the trade of premium dollars for the protection from an event that might or might not occur. It’s about risk, and insurance companies are paid by individuals to take on the risk of certain health related events. The closer that risk comes to a certainty, the higher the premiums for insuring that risk will be.
In a large group (such as your employer’s insurance plan) risks can be spread across a large pool of people. Some of those people will be young and healthy, and the risk associated with them will be almost nothing. Others will be older and sicker, and the risk accompanying them is substantially greater. The idea behind a group is that in pooling young and healthy, old and sick, the cost of insuring against risk can be spread as well. This works out to mini-socialization, whereby the young and healthy will pay more for their coverage than is related to their actual risk, whiles the older and sicker will pay less. The trouble with this system is that due to administration, profit, and miscalculation of risk, large group insurance costs have risen nearly as much as individual policies. Insurance companies are constantly adjusting their actuarial tables (risk assessment /cost to insure risk) to meet their growing interpretation of the actual risk. Year after year, health insurance companies report growing profits, in terms of percentages, not just dollars. But if a group becomes larger and larger, shouldn’t its costs become less and less, because the risk is spread out so much further?
The answer to that question is no. Health insurance, unlike auto insurance or term life insurance, is based on eventuality, not chance. Within any group, the larger it is, and the longer it exists, the more certain it is that benefits for rare health risks will have to be paid. Certainty that benefits for common health risks (Diabetes, High Blood Pressure) will also increase. In fact, for a group as large as the United States, certainty of negative claim experience would increase so high as to make insurance premiums unaffordable for most Americans. That’s because a large portion of uninsured Americans are people that insurers have rejected or driven off with unaffordable premium costs. That portion has health issues; they are sick. Some of them are very sick. They change the risk assessment exponentially. Insurers will tell you this as well. Health insurance would become unaffordable for many more Americans.
What does that mean? It would cause Americans to burn up vast amounts of tax dollars to subsidize the majority of taxpayers. In essence, it would be single-payer paying for administrative costs and profit, plus the margin insurance companies must keep, plus the fact that insurers must assess risk according to profit and add a buffer for error. If any reform bill passes which forces every American to purchase private insurance, it would be the very most expensive, and least efficient or effective way to reform health care in this country. More expensive by at least thirty percent, and that’s just taking into account the administrative differences between a Public option and private insurance. Americans would still be forced to pay extremely high deductibles before receiving any benefit from owning insurance. The costs of premiums plus the costs of deductibles means that many Americans are paying for services they never receive because their premiums are based not on actual events, but on the chance such events will occur. Deductibles are fee-for-service; what you pay for is what you get. Not so with insurance.
That’s why the public option is so important. Single Payer would be the least expensive way to accomplish this, because with Single payer, the government pays a fee for services plus admin costs. They would not pay for risk at all. It is a no-brainer that America is currently paying more for its health care than necessary…way more.
Consider this example. What if roads had to be insured against wear and tear? What if private insurers were allowed a ten percent profit, plus the right to assess risk according to that profit (the same way health insurers do)? Wear and tear on roads is a certainty. The costs of repairing or rebuilding roads can be calculated and managed. What can’t be calculated is the when, where, and how much needs to be built every year. Actuaries can calculate based on past statistics, but in the end, the insurance company is always going to keep a buffer zone, just to be sure.
It is the profit and the buffer zone that would make wear and tear cost far more if roads were required to be insured. No one knows with certainty when these roads will need repair. We do know with certainty that at some point, they all will. Just like humans and their health, at some point, every American is going to require care, and at some point, every type of condition known to man will become a certainty. Insurers assess the risk of that against profit, and add a buffer.
There is no way private insurance can cover every American less expensively and more efficiently than the government can. Americans often boast about how efficient we are with our money in the private sector. Currently, health care in America costs far more than it should. It does so because of insurance companies for one. There are other reasons, of course, but since the Right has chosen to attack the public option, you need to know what’s really behind the costs of insurance, and why we say we are already paying way too much for a failing system. Any attempt to reform the system and force every American to purchase into that same failing system is insanity, and just plain bad Capitalism.