Insurance is a preventative measure taken against low probability, high impact risk. It operates on the principle that, while it is impossible to predict the costs of any individual person, it is very much possible for actuaries to predict the costs of a large number of people within a certain segment of the population. That number allows us to calculate everyone’s individual probable risk, and if everyone pays that amount in, the insurance company will have enough money on hand to compensate for everyone’s actual damage.
The premiums people pay on health insurance are equal to the value of the risk being covered, plus what is necessary for administration of the fund. The ramifications of not assessing premiums on the basis of the basis of the cost of the risk determined by actuaries cannot be understated. Insurance companies are only viable because everyone buys his own coverage on the basis of his own risk, and therefore pays a premium commensurate more or less to what he would probably have to pay out of pocket to doctors without the plan. When people pay more or less than the assessed value of their risk, insurance companies collapse, as follows:
When governments mandate that seniors should pay lower premiums than what they cost, insurance companies have to make up the balance by raising premiums on the young and healthy. Seniors sign up for the plan in droves to take advantage. Because they’re paying less than they cost, the company loses money. The young are getting much less than they pay for, and drop the plan. Because they’re paying more than they cost, the company loses money. The insurance company goes broke.
The consequence of this kind of system is that when a health insurance company says someone with a preexisting condition is “uninsurable,” that’s not a euphemism for “we’re greedy capitalists and don’t want to pay.” Someone with a preexisting condition like cancer would have an enormous probable cost, and if they were to be hypothetically covered by insurance, they’d have to pay a premium on the order of hundreds of thousands of dollars annually – the cost that someone with an expensive preexisting condition is likely to pay in a given year. They’re literally uninsurable. Now you can advocate that the state should cover their costs, but you can’t advocate that insurance companies should pay all their bills without charging them premiums equivalent to their cost. That’s not insurance, that’s a social program, and if we’re going to institute such a social program, do it with a social program, don’t hide it in “insurance reform.” It will break the system.
As a side note, this is the sole reason the current proposal for “health care reform” mandates universal-coverage-or-else. It isn’t about making young people be responsible, it’s about preventing young people from dropping a plan that funds its charity through a de facto tax on the young in the form of higher premiums.
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“The premiums people pay on health insurance are equal to the value of the risk being covered, plus what is necessary for administration of the fund.”
This is true for non-profit insurance companies…but what about the for-profits? How do the economics work in that case?
Also, how do the economics work in this case:
Student, just graduated, kicked off parent’s plan
Had cancer while on parent’s plan, currently in remission –uninsurable, woo.
Gets cancer again
Can’t pay for it.
Has cancer-related-medical-emergency, requiring care (legal responsibility since the 80s)
Can’t pay for it.
I think it goes something like:
Medical bankruptcy -> Hospitals soak up the costs -> pass it on to insurers ->We end up paying for them anyway.
See also: illegal immigrants?
Administration of a for-profit fund involves profit.
In the cases of those who can’t pay, “you can advocate that the state should cover their costs, but you can’t advocate that insurance companies should pay all their bills without charging them premiums equivalent to their cost. That’s not insurance, that’s a social program, and if we’re going to institute such a social program, do it with a social program.”
When someone who can’t pay is treated in accordance with the law, medical service providers are the ones to take the financial hit. This raises the cost of healthcare itself (distinct from insurance) and the cost of insurance only rises to meet the cost of care. The system is still stable because people are paying premiums comparable to the cost of paying out of pocket. If, however, hospitals were not taking the hit but insurance companies were, people would bypass insurance companies to get cheaper care direct from the industry that isn’t losing $40 billion annually. And that figure could easily double or triple if people with costly conditions had insurance and used it for more than the emergency care they were restricted to previously.
Tim I agree with you. The long and the short of it is that we don’t have a perfect health care system, but we do have a good one. Better than most other countries in fact. It doesn’t work the way we want it to, but it was never meant to. Don’t fix a good thing, you’ll only break it and wish you hadn’t.
Brian, as far as your scenario goes, this isn’t all that uncommon, and it is very sad. I agree that there should be a way for the student to gain health insurance, and it is very difficult to see. However, if we tried to fix this by making the insurance company pay, it would cause much bigger social and economic problems. I have heard that there are some companies that will allow for circumstances such as this and as long as the now graduated student is proven to be still dependent upon the parents who own the plan some of them will honor the contract with the sick person even though legally they no longer are legally obligated to.
What do you know about the Canada’s health care? It is a social health care system that everyone has to pay for and the only people who are really paying are the doctors, the young, the healthy, and the deathly sick. Everyone else benefits. I have an uncle whose sister was Canadian. She had cancer and was on a waiting list for surgery until it was too late. The hospitals are so crowded and understaffed that they sent her home because they couldn’t give her a bed. They knew she was going to die, but they couldn’t give her any help because it is a first come, first serve basis and they can only help so many at a time. The sad part? Her family could afford to pay and were willing to–they are talking about starting a foundation here in the U.S. where the money will be used to help people who are under insured because they don’t think their money will do anything to help the Canadian health care system. My fear is that mandatory health insurance as well as set fees that the insurance company has to adhere to for certain age groups will cause more deaths simply because the people who don’t need medical help are taking advantage of the health care they can get.