It's Not Insurance!

The “insurance” model is wrong for health care. Insurance is the transfer of risk from the insured to the insurer (Wikipedia).  With health care, the lifetime risk is 100 per cent. That is, it is certain that everyone will, at some time, need health care. Even the healthiest person will need the services of a doctor at some point in his or her life. A risk this high should keep insurance companies out of the business, but they gamble on when people will need services, and make a lot of money there.

Insurance companies exist for the purpose of making profit. Their shareholders demand it. When insurers get involved in health care, they face a dilemma. The insurance model can be summed up in a simple equation :

Profit = earned premium + investment income - incurred loss - underwriting expenses. (Wikipedia)

Earned premiums are the money they collect from people who have insurance. Companies invest those premiums and earn income. From these monies, they must pay employees (underwriting expenses) and disburse payment to providers of health care. These disbursements are the “incurred loss” in the equation.

Insurers can increase profits at every point in the equation, but each increase has its downside. If the insurance company increases premiums, it may lose business. It can make riskier investments, but the potential for increased income is small, and sometimes risky investments lose money. Insurance companies tend to be strongly risk-averse investors. A third place to increase profits is to lower the amount of money paid to insurance company employees. The drawbacks here are obvious.

Last, and certainly the crown jewel of profit-enhancement for health insurers is the item called “incurred loss.” Every time an insurance company denies a claim, every cent collected from the insured, and every cent made on the investment of those premiums is profit: pure, creamy, free money.

Health care insurers have plenty of ways to make this free money. High-deductable insurance only covers medical care after the insured has paid a large sum toward health care. This is the only true health insurance. It is sometimes called catastrophic health insurance. Buyers of these policies pay for their routine care, but have policies that cover the big, scary things, like intensive care unit stays and cancer.

Exclusions for everything from cosmetic surgery to pre-existing conditions are another way to make money. Often the longest part of a health insurance policy is the section on exclusions. Insurers also dictate to providers how much they will pay for various services. Doctors have two choices, accept the insurer’s payment or move to a cash practice. Patients don’t like cash practices, which require them to wrangle with insurers for payment.

These demands on doctors have some truly bizarre results. Getting a wart frozen off at the dermatologist is “surgery.” For people fighting skin cancer, every squirt of liquid nitrogen may cost them as much as a hundred dollars, because insurers pay at a lower rate for surgery, and doctors count and bill each one separately.

Conservatives for Patient Rights believe that the patient is ultimately responsible for his or her health care. The insurance model promises something for nothing. Patients are responsible for their own health and ought to be able to pay for their own health care. No one should be bankrupted by health care costs. No one should have to refuse treatment to prevent bankrupting their family, but both these things happen every day.

The insurance model encourages young, healthy people to remain uninsured until it becomes obvious that they will need health care. Rather than shoulder the burden of paying for the care they will ultimately need, they bet that they will remain healthy. When the unthinkable happens, and these people require care, they either walk away from the bill (transferring the cost to others in the system) or spend months or years paying for it.

Many government entities and companies use something called self-insurance. All participants pay set amounts into a pool of money on a regular basis. . A third-party administrator spells out how the plan works and makes agreements with local providers. The administrator pays the bills according to the plan, and the company reimburses the administrator each month. Once a month, the company cuts a check to the administrator for those benefits. These health plans generally provide good access to care for an affordable price. Because the administrator works for a set fee, there is no motivation to deny claims. People like this kind of coverage. They are essentially paying for their health care in advance. There are no high-risk pools, where people are priced out of the market. There is no motive to deny coverage. People can choose their doctors and deductibles.

Who hates this plan? The insurance companies. They love that rich, creamy, free money.