The last (and best) word on health care

On the current topic of health insurance, conspicuous in its absence is any discussion of the actuarial numbers.  Seems those in charge just want to get to the end game, with no public discussion on what it will cost.  Not so fast.

Among other things in my checkered past was a short stint as an insurance underwriter.  From that I learned the concept of insurance, at least as far as the insurance industry is concerned, is that insurance is a social mechanism for the transfer of the risk of monetary loss from the individual to a larger group.  The concept is that risk of loss fits a random pattern of probability.  It works very well for things like lightning strikes, hail, wind, etc.  Risk and the premiums charged for insurance vary directly with the probability of loss.  Hurricane insurance premiums are greater for folks living in Pensacola than for those in Minneapolis.  Car insurance premiums for a guy with 3 DWI's and two at-fault accidents are higher than for grandma, who only drives to church on Sunday.  Life insurance premiums for an aging rodeo clown who smokes and has a bottle hidden behind chute #9 are higher than for a young (straight) desk clerk. You get the idea.

Insurance doesn't work when the pool is exposed to catastrophic losses (exclusions for acts of war, earthquakes, etc), or when the pool as a whole is exposed to a high probability of loss.  Assuming a guy with 3 DWI's still has his license to drive, he isn't going to be able to buy insurance from a commercial company.  It will have to be a low limit, state fund that sells him insurance. How about $1,500 a quarter for $10,000 liability only coverage? That is the way it works.

Enter health insurance, where the industry has attempted to do the same thing, except in this case, the risk rules are not supposed to apply.  Insurance companies do deny coverage for pre-existing conditions.  Not to do so would be like asking a property insurance company to sell insurance on a car that's already been wrecked.  The same thing applies for seniors.  It is a fact of life that as one ages, health related issues, and the costs to pay for health care, increase.  As a group, seniors would be considered high risk for claims, so the concept of insurance isn't workable at any reasonable premium.  Because the insurance industry couldn't make it work, the government assumed the risk. To pay for it the government created the pyramid scheme known as Medicare, with a supposed larger pool of workers paying for the health care of our seniors.

My thoughts on this piece were triggered by a recent op-ed in our local paper in which the author set forth his list of "demands".  To address the problems he sees in the health cost dilemma it included a host of things; insisting that insurance companies provide coverage for pre-existing conditions, portability of coverage (meaning you get to keep the policy if you change jobs or lose your job), no limits on coverage, cheap drug benefits, etc.   Of course he wanted it for little to no cost to him. In short, he wanted to be able to transfer liabilities of potentially hundreds of thousands (billions?) of dollars to someone else.  The author didn't say what he would be willing to pay for these benefits, but my guess is probably no more than a few hundred a month.  Is this realistic?  No, but when these same folks are presented with the facts, the general reply is they don't care, they just want it.  But if you put the numbers to it (and I suspect those up to their neck in this have), the per capita cost for all this as an insurance product is unworkable.  If not, it would have already been done.

Once the cost to do this becomes reality, it will not be acceptable to the market.  Private insurance is still risk rated.  Most private health plans are weighted to younger, working force age employees, not seniors.  These pools are exposed to child rearing costs, but once you get past the first few weeks, most children are healthy and health care costs, while frequent, are not large.  In contrast, government pools are intended to assume all risk, so costs will blow through the roof.  Just as the bank bailouts took all the bad credit off the bank's books and put it on the government, this will take all the major health care costs away from those who can't afford it and put it on all of us.

But back to our opiner's list of demands, it's unlikely he sells his product for a huge loss, or if he works for wages, unlikely he works for free, but somehow expects the health care industry to do just that.  Bottom line is they couldn't do it if they wanted to.  In no time at all they would pay out more in claims than they could collect in premiums and the checks would bounce. At least it would if it were being operated on a straight up basis.  Medicare is broke, paying out more than it takes in and that's with all workers paying into a fund to pay for only part of the health care costs of seniors.  But Uncle has had a big credit limit on their charge card, so they have covered it for now.  But throw in everyone, and it is an unworkable system. You often see Medicare being touted as a model government program everyone is happy with. Yes they are because they get a huge amount of something for nothing.  It is unsustainable and if you could get an honest assessment from the Dems, they know this.  The "House Plan" being discussed does roll seniors into the total plan, where it will run head first into reality.  Talk of "Death Panels" is a little over the top and makes for good theatrics in rebuttal, but the fact is if you throw Seniors into a pool, it gets top heavy in a hurry.  Rationing care, or better, having a senior die is a good way of balancing the books.

Make no mistake, this is going to be expensive.  Once the sticker shock sets in, government plans will have to find a way to spread the costs.  Enter MANDATORY participation.  If you object to getting in the pool, they throw you in.  They need you to help spread the costs.  First it will be how much you are going to pay.  Later, they will start telling you how to live to control costs.  And this time they will have to. This is shaping up to be the mother of all pyramids, dwarfing Medicare and Social Security.

So to cut to the chase, we are no longer talking about "health insurance" that is a mechanism to insure against the risk of large medical costs that might wipe a person out with the insurance industry assessing risk.  Instead this will be another system of put and take, with the total risk pool thrown into one large hopper. So the question is, “After throwing everyone into the same pool, what is the cost?”

Lets assume that a unit of standard care (use Medicare as the base line) the industry offers to the general healthy public costs some amount of money.  Say $1 per unit. The industry and government both know what it costs by occupation, by age group, or collectively as a whole.  OK, that is the standard unit.  Now include all the extras, like pre-existing conditions, etc.   Is it now $4 or $5 per unit? So be it.  It is what it is. Are you going to include illegals?  You can say they will have to pay to participate but if you put a low earnings threshold, that is tantamount to free health care for illegals and anyone else.

So be honest about it. Put the numbers out there for all to see and then make the call.

Howard Audsley