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Health Insurance- Background and Thoughts

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It Does A Body Good!

 

Since the whole contraception thing has been in the news so much of late, and I think that this is generally a misunderstood subject, I wanted to throw some things out.  No real conclusion or anything, but à la RedStaterNYC, just some facts, background, and opinions.  This will be a bit long and technical, my apologies, but it needs to be understood, so please bear with me.

Risk is, according to my dictionary, “the chance of injury, damage, or loss.”  We face all sorts of risks every day.  I’m getting ready to go throw a big ol’ brisket in the smoker.  There’s a risk that my hands will slip, and I’ll dump that beautiful piece of cow on the ground.  That would be a loss.  There’s a risk that a tornado will rip the roof off my house this spring.  That would also be a loss.  Thankfully, the Good Lord grants us a surplus in life, so that we may absorb our losses and move on.  If I drop that piece of meat, I can replace it for several dollars.  But if the roof blows off, I’m looking at second job territory.  That would be a life-changing event.  How can I protect myself?

Insurance is, by definition, risk-pooling.  There’s a chance that my neighbor’s roof will blow off this spring.  I can go talk to my neighbor, and make an agreement with him that we will split the costs of any tornado damage 50-50 with each other.  I have then halved my damages, but doubled my risk.  Spread out over enough people and enough time, this becomes quite manageable, but now we need someone to oversee the whole thing, hence the need for insurance companies.  Note that the insurance company doesn’t actually pay for the damages out of its own money; it pays the damages out of our insurance premiums.  And yes, they are entitled to make a reasonable profit for handling it all for us.  But I don’t want to purchase “beef insurance,” as the loss of even a very nice steak would be easy enough for me to absorb, and as often as I cook I even out my own odds.  Insurance functions to convert risk management problems into cash flow simplicity, even though the total costs are higher, because now you have the actual loss amount plus the overhead.  I now know exactly how much tornado damage costs me- $667 per year.  State Farm says so.  Now I can budget for it.

Health insurance operates on the exact same principles.  It’s not there to buy me vitamins, it’s there in case I keel over from a heart attack.

Believe it or not, people used to pay for their own health care.  The doctor would even come to your house, and send you a bill for his services!  Back then, folks had the option to purchase their own health insurance- or not.  During WWII, FDR instituted a wage freeze.  This had the predictable result of creating a labor shortage, because people couldn’t move up, but attrition still took place, especially with the war going on.  But benefits were not covered under this freeze.

To attract the people they needed, employers began offering health insurance, among other things.  Did it take the place of raises?  Uh-huh.  Did it drive up the costs for employers?  Yep.  Did it come with conditions and restrictions?  Gee, go figure.  If I’m suddenly sending 400 people to “our doctor,” I’m going to ask him if he won’t give me a discount- a “group rate,” if you will.  “Your doctor” charges more?  Tough noogies.

These benefits worked to attract the people that employers needed.  Anyone who didn’t offer them was at a huge disadvantage, so it became a widespread practice.  This is the reason that- what, 85%? of people still get their health coverage through their employer.

That was the beginning of price-fixing in the health care world.  If all of a sudden everybody wants, say, a 10% discount off the “door rate?”  Easy.  Go up 10% on the door rate, then give ‘em 10% off.  Anyone who doesn’t go up suddenly gets a huge influx of patients, but finds themselves going from making a decent living to struggling.  Medicare operates in a similar fashion, but with a much larger discount- I don’t want to go off on a tangent, but suffice it to say that Medicare rules have a huge impact on skewing the “market rates.”

Price fixing leads to one of two things- shortages or price increases.  In the case of health care, it led mostly to price increases.  This prompted the “gee-whiz rocket science” idea of the HMO- Health Maintenance Organization.  In this case, the “Organization,” i.e. the company, supposedly pays for you to remain well instead of paying for it when you become ill.  Heart problems?  Here’s a pill.  A lifetime supply is cheaper than a heart attack, but if you do have one, you’re still covered.  These plans really took off during the ‘70’s and ‘80’s.

One major difference- with insurance, you’re covered against risk. With an HMO, you’re covered for going to the doctor.  Now that going to the doctor costs you nothing, it distorts the supply and demand curve.  With responsible people it doesn’t matter much, but with irresponsible people who have no idea of the costs, not so much.  There starts to be a problem with over-utilization, hence the “co-pay.”  There had to be a nominal cost, just enough to make you think twice about going to the emergency room to get antibiotics for a chest cold.

Most of us don’t even have health insurance any more.  We think we do, we call it that, but we have HMO’s.  Your homeowner’s insurance doesn’t have a co-pay, it has a deductible.  Same with your auto policy.  The deductible is there to keep you from turning in every darned little expense to the insurance.  If you have a co-pay, you have an HMO, not insurance.

Speaking of comparisons to auto insurance- a lot of libtards like to use that when talking about the requirement to carry health coverage, but it’s different.  My state, like most (if not all), requires me to have liability coverage on my car.  If I bang my jalopy into yours, guess what my insurance gives me toward fixing my damage?  None!  Nada, zilch.  My insurance pays to fix your car, which I have caused damage to.  I have presented myself in public, in a situation in which it is possible for me to cause you a substantial loss, so it is reasonable to require me to present a bond of financial responsibility for any losses I cause.  Health insurance is completely different, as it covers my risk of loss to myself.  I have choices to avoid paying auto insurance.  I can ride my bike or take public transit, or walk, or stay home.

Let me throw out another comparison to auto insurance.  I can, for an additional premium, elect to add collision coverage to my policy.  This covers any damage I do to my own car.  But it does not cover oil changes and tire wear.  That’s called maintenance.  I could go buy maintenance and repair coverage, but again- insurance doesn’t actually pay for anything, it pretty much just holds my money until I need it, and charges a fee to do it.  I need an oil change every 5k, and new tires every 30k or so.  I know this, it’s a given.  That’s not a risk.

The government has intervened in health care before.  From FDR’s wage freeze which led to employer coverage, to states requiring that no hospital can turn patients away for lack of insurance or ability to pay.  To me, one of the most egregious interferences is the state insurance requirements.  San Fran Nan (Pelosi) likes to invoke the Interstate Commerce Clause (Art. I, Sec. 8, Clause 3) when claiming the power to require everyone to purchase coverage.  The Interstate Commerce Clause grants Congress the exclusive power to regulate commerce among the States.  This was needed to keep the states from imposing their own barriers to trade, so Kentucky couldn’t impose a tariff on wheat from Maryland.  Or so Georgia couldn’t levy taxes against machinery made in Connecticut.  Or whatever.  So why is it legal for NC to pass a law that I can’t purchase health insurance from Kansas?  That is an honest-to-God barrier to interstate commerce, and drives prices up!  49 competitors *poof* gone!  As the commercial used to say- sorry, Arizona!

Now, the libtards are declaring that contraception is a “condition” that women have a “right” to have covered.  They make the comparison that Viagra is covered.  Well, I’m not Catholic, but I am Christian, and I think I know where the Catholics are coming from.  In Genesis 1:28, God gives us the first of His laws- to “be fruitful and multiply.”  By the way, pregnancy and prenatal care are covered under insurance and HMOs.  And it’s not like Catholic employers’ insurance denies you contraception, it’s just that they don’t pay for it.  In fact, many policies would not pay for contraception prior to the mandate.

Let’s not forget the flip side of things, too.  Womernly care and babies cost a lot.  Who’s to say that contraception won’t be required?  Hey, the more we push health care into the public arena and deny people’s individual beliefs and preferences…  That’s probably far-fetched, but I don’t want to give that kind of power to anyone.

We’re in this situation with health care because of a long string of events.  Government mandates, anticompetitive behavior, the loss of cost-benefit connection, …  Free markets always find the optimal allocation of resources, but health care has become anything but a free market!

I’m sorry to make this so long, I’m trying to keep it from getting out of hand.  I hope it helps you come to your own conclusions.  For anyone who wants to read more, I’d recommend this:

http://www.coyoteblog.com/coyote_blog/category/health-care

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11 Comments

  1. misterbill

    Inagada

    Nicely done.

    Sad part, talk to the average dude on the street and they don’t seem to know the differences. They actually believe that the insurance companies print their own money when they file false claims.

    I lived in a liberal state for many years and actually heard people say–“Well the insurance companies have deep pockets.” If you tried to explain how WE pay for it–it was like talking to a blank wall.

    I am on Medicare. I have what the industry calls secondary. There are many differences in secondary insurances. I prefer to think of mine as bankruptcy insurance- that is- I have a high out of pocket expense, but when I reach it, my secondary cover 100% of what Medicare does not. That will cover my assets, (pun intended). I have never collected on it, but I sleep better because of it. I have covered part of my risk.

    Anything free will be abused. Anyone who is alive should know that . The proof has existed to show that, for years.

    • Inagada Davida

      Thanks, misterbill. If it helps one person understand, it’s worth it.

      You reminded me, talking about the high deductible, but this shows the folly of a one-size-fits-most employee plan too: I know a guy who had coverage through his job, they went up on the employee contribution to I think 40% or so. He dropped that coverage in favor of getting his own high-deductible plan. With a wife and one kid, he says he saved about $2,000 last year- even though he was now paying 100% instead of 40%!

      Of course, he can’t ask for the employer’s savings by way of a raise, because if they gave him a raise he could turn right around and go back on the company plan, but then they couldn’t cut his pay back.

  2. Fluke’s testimony was a load of fictional hooey.

  3. Excellent piece. Here’s an article that shows just how ridiculous and disingenuous the libturds’ argument for free contraception is:

    http://clicks.aweber.com/y/ct/?l=IT1VF&m=3VCuWA5F2BTM1Od&b=SQnj2rzkeTmGdaOQhSLKgQ

    God, liberals are stupid!

  4. Swamp Music

    Ahhh… ‘Nurse Goodbody.’ 🙂

  5. Appreciate the background work and nice job explaining syndicated risk

  6. You’re so close with HMOs. The HMO Act of 1973 required employers with 25 or more employees to offer federally certified HMO options. I submit that this is where the federal government got it’s claws into the medical industry. You could track the skyrocketing healthcare costs back to December 29, 1973.

    • Hippie Ripper

      @ BukC,
      You are probably spot-on about it begining in the 70s…and as far as that goes, I’d speculate that a LOT of our current “dependecies” were born in that era (and LBJ?).
      The real problem today is that well over half our population has no earlier memory. They grew up w/ it and see all of it as a ‘normal’ part of society; in other words, it’s the status quo now…

      HR

  7. Hippie Ripper

    Inagada,
    One of the best explanations I’ve ever read on health insurance (and insurance in general)…Very nice, and No it was not too technical !
    This needs to go viral…

    H.Ripper
    “Get a haircut….Hippie!”

  8. Inagada Davida

    Thanks Waspish and HR!

    BukC, that Act was a big change, you’re right. The HMO Act was a direct government interference in health care. FDR’s wage freeze, only 30 years prior, was not a direct interference but an unintended consequence. Either one makes the HC markets less free.

    Hmmm, 1943 -> 1973 -> 2003? Did the Clintools break the timeline?

  9. Nice article. Not sure what the best answer is any more. Health care is way to high. I get $1,100 per month now on Social Security before medicare kicked in insurance wanted over $700 per month for my wife and I. We pay rent of $600 then of course their are all the other expense like eating, electric, and on and on. Yes I had a 401k but when I lost my job I used it to make my house payment. In the end the bank ended up getting $100 for my house at auction. If they had worked with me till I got my social Security or a job I could have maybe worked something better out than $100. All the people I talk to from other countries always tell me they would not trade their health care for are’s. Even my doctor was wanting Universal Health Care.The last twenty years of working coverage went down and the price kept going up.

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