More on the Health Insurance Misnomer Topic

Posted on January 2, 2010

It always pleasing to find others who share ones point of view, particularly when its an eminent economist.

I was therefore thrilled to find this healthcare insurance post and this follow up post from L. Randall Wray, that agrees with my prior thesis that healthcare insurance is really a misnomer, and that it is precisely this misnomer that has led to our dysfunctional healthcare system.

Some good quotes (though I highly encourage you to read the entire posts here and here):

“Healthcare is not a service that should be funded by insurance companies. An individual should insure against expensive and undesirable calamities: tornadoes, fires, auto accidents. This means the events need to be reasonably random and relatively rare, with calculable probabilities that do not change much over time.”

Of course, the standards of reasonably random and relatively rare, do not apply to 99% of the services that healthcare insurance supposedly funds.

For example, as Wray explains:

“Another significant health care cost results from provision of what could be seen as public health services—vaccinations, mother and infant care, and so on. And a large part of that has nothing to do with calamity but rather with normal life processes: pregnancy, birth, well child care, school physicals, and certification of death at the other end of life. Treating a pregnancy as an insurable loss seems silly—even if it is unplanned.”

I recently ran into just the problem Wray described, and I found it ludicrous that I had to pay 30% more in premiums per month to insure my wife’s pregnancy. Plus insurance companies won’t cover the pregnancy unless you are under the policy for nearly a year. So now insurance companies are financing what amounts to the most important, vital, and near certain decision of people’s lives? Having Children. As we all know, for mature adults, there is nothing random, calamitous, or rare about having a child. It is the height of absurdity that society allows insurance companies to collect premiums to “protect” against the cost of pregnancy.

Anyway, here are some more great tibits (emphasis mine):

“We currently pay most health care expenses through health insurance. But people need health care services on a routine basis—and not simply for unexpected calamities. We have become so accustomed to health insurance that we cannot understand how absurd it is to finance health care services in this manner. Our automobiles need routine maintenance, including oil changes. Imagine if we expected our auto insurer to cover such expected costs. ”

But health care “reform” proposes to force us to turn over a larger portion of our income to insurance companies—who will then do their best to ensure that any health care services we need will not be covered by the plan we are forced to buy.

The solution, of course, is to downsize insurance and return it to its rightful place, insuring random and rare events. Payment for regular healthcare costs can be met with a much better system, namely a government/non-private entity that prints (yes you read that correctly, prints) money to pay for healthcare. Better to print $5 trillion to keep our nation healthy, so we can all become productive members of society, than to print $5 trillion to bail out a bunch of gamblers on Wall Street that provide no services to society.

As Wray concludes:

“Finally, there may still be a role for private insurers, albeit a substantially downsized one. Private insurance can be reserved for accidents, with individuals grouped according to similar risks: hang-gliders, smokers, and texting drivers can all be sorted into risk classes for insurance purposes. If it is any consolation to the downsized insurers, we also need to downsize the role played by the whole financial sector. Finance won’t like that because it has become accustomed to its outsized role. In recent years it has been taking 40% of corporate profits. It takes most of its share off the top—fees and premiums that it receives before anyone else gets paid. Rather than playing an auxiliary role, helping to ensure that goods and services get produced and distributed to those who need them, Wall Street has come to see its role as primary, with all aspects of our economy run by the Masters of the Universe.”

In conclusion, I repeat my thesis that if we were to shrink the insurance companies, healthcare costs would drop dramatically, and we could afford these costs and would have no need for healthcare “insurance” companies to pay for regular life events and standard care (except for rare events). The reason why healthcare costs have skyrocketed, however, is precisely because healthcare insurance companies are allowed to insure risks that have no business being insured. The expansion of this fraudulent financing causes costs to rise, while enriching the executives of the healthcare insurance companies. Obamacare is a ridiculous reform bill because it greatly increases the premiums sent to private insurers in our healthcare system (in fact they are subsidized by the government, aka taxpayers), which will guarantee that health care costs will increase dramatically, as will the premiums of everyone in society. Truly an absurd notion of reform, and sad commentary on the moral compass of the US.

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