Health Insurance For All? Health Insurance For None!!!

Lately there’s been a big push to provide health insurance to everyone. While this is admirable, and plays really well with the voters, it’s doomed to fail. Here’s why:

Let’s start with the basic concept of insurance. The concept of insurance has been around for a while, but one of the biggest names is Lloyd’s of London. They started by insurance shipments across the ocean. This is how it worked. Sir Bob owns a ship of goods that he wants to ship to the colonies in America. Let’s say that the shipment is worth a total of 500 shillings, and the boat is 1500 shillings (back then they didn’t insure crews). Sir Bob goes up to the gentlemen of Lloyd’s of London and says, “I want to ensure my shipment to the colonies. The shipment is worth 500 shillings, and the boat 1500 shillings.” Lloyd’s of London replies, “Very well, pay us 750 shillings and we will insure your ship and your shipment.” By paying Lloyd’s 750 shillings, Sir Bob is essentially betting that his ship will sink on the way to the colonies. If the ship sinks, Sir Bob gets 2000 shillings. But if the ship arrives safely, he looses 750 shillings to the gents at Lloyd’s of London. So in essence, insurance is gambling.

Let’s add another variable into the mix. Sir Bob’s ship can either take route A or route B to the Americas. Route A is longer, but pretty safe. Route B is shorter, but it goes through pirate (ARRR!!!!!) infested waters. If Sir Bob tells Lloyd’s that his ship is going through Route B, the gents at Lloyd’s will charge Sir Bob 1500 shillings instead of the original 750. Why? Because the fellows at Lloyd’s aren’t stupid and realize that there’s a pretty good chance that Sir Bob’s ship will get raided and scuttled by pirates (ARRR!!!!) if it goes through route B. So they want a higher bet, which is pretty reasonable. They’ll only loose 500 shillings at the higher rate. It’s not their problem that Sir Bob is stupid enough to risk going through pirate (ARRR!!!) infested route B.

Now to health insurance. When you pay your monthly premium to the health insurance company, you’re saying to the insurance company that you will get sick and you will get sick with all the diseases that are covered under the insurance policy (this is what is known as coverage). The insurance company takes up that bet and makes you pay according to your health risk. If Bob is overweight, doesn’t exercise, has a family history of heart disease, and drinks a lot of beer, the insurance company looks at Bob and thinks, “You know what? I think this guy is going to get sick.” So naturally, they’re going to charge Bob a higher rate for the same coverage as Dave, who is the same age, but at a nominal weight, has no family history of heart disease, and maintains a fairly healthy lifestyle. Unfortunately, this means that there are people out there who won’t be able to afford certain coverage, or coverage at all, due to the fact that they’re considered high risk.

The *real* problem, however, is when government comes in and says it wants health insurance for all. Why? Well, let’s go back to the issue of Bob. Bob is clearly high risk, so the insurance group was originally going to charge him $250 a month for basic coverage, instead of $100 that Dave gets. But the government has stepped in and said that they cannot increase the premium for insurance based on risk. So the insurance company decides to raise the cost of basic coverage for everyone to $125. Why, you ask? Well, like Lloyd’s of London, the insurance company isn’t stupid. They know that if they cover Bob, they’re going to have to pay for a lot of medical expenses, i.e. – loose money. They’re a business, so naturally they want to loose as little money as possible (actually they want to make a profit). But they can’t raise Bob’s premium, so they figure they’ll raise EVERYONE’s premium. They’re already making money off of Dave, because he’s rarely gets sick and probably isn’t going to get as sick as Bob (statistically, anyway). So essentially everyone else who gets coverage from this particular insurance company is paying for Bob’s health problems. But what happens if the insurance company has more Bobs than Daves? And what if health care costs start skyrocketing through the roof? Well, obviously the government isn’t going to allow the insurance company to just raise the rates through the roof. So the insurance company is going to go bankrupt because it can’t pay for all the medical costs. Now you’ve gotten into a situation where NO ONE gets health insurance. Congratulations!!!

I’m sorry if I come across cold and condescending, but this is a serious problem with the idea of trying to give health insurance to EVERYONE in America. Universal health care is not much better, but I will get into that another time. In trying to provide health care to everyone, you either A) Provide less health coverage to everyone than before or B) Not provide health coverage at all because the insurance is too expensive or the insurance company went belly-up. There is no perfect system, but the current market-based insurance system rewards people for taking good care of themselves. Isn’t that a good thing?