Let's talk about how health insurance works, because I hear so many people equating the right to life with a 'right' to health insurance. The way these politicians talk, it sounds like the industry's employees were born to serve us, keep us healthy, and make sure we take care of ourselves. Actually, insurance is more like gambling.
Imagine you could add up all the probabilities combined with all the costs of what could happen with your health now and in the future. Then, take that amount and distribute it into a monthly savings program, with an interest rate that will grow your savings until you have a big pool from which to draw if something does happen.
That's what insurance companies do. They estimate the risk and the costs, and then you pay them to keep a pool available in case you need it.
Most people pay into the pool without drawing that much out of it. Some pay for a little while, and then end up needing a lot more. The point of insurance is that the money is available to them before they've been able to save for it. By pooling the risks of millions of people, the insurance companies can offset the big losses with the profit from the rest.
If you opt out of insurance for awhile, like I did, that's your choice. You save the money, but you have to handle the risk of your health on your own. It's like Russian roulette. If you're diagnosed with a chronic condition during that time, the cost associated with that is no longer a risk – it's now certain.
That means, on top of the normal risks associated with being human, you now have a relatively certain, ongoing medical expense.
Let's say that the cost of a particular chronic illness is around $5,000 per year. The average person's probability of contracting that illness is around 25% – give or take a few percentage points, depending on gender, age, etc.
Now pretend there are a million other people with the same odds, and they decide to pool their money to cover that risk. How much would it cost? Well, around 25% of them will become ill, so that's 250,000 people, and the cost per person is $5,000. That comes to $1.25 billion to cover the cost of treating this illness.
No one knows ahead of time who will actually get sick, so everyone pays into the pool according to his risk of becoming ill. Then the pool pays the medical bills for those that do need it.
As with any insurance policy, it won't seem worth it to some people. Maybe I'll think to myself, 25% is a fairly small chance, and I really want to save for a new computer. So I decide not to buy into the pool.
If I'm right, I keep my money. If I'm wrong, I now have $5,000 to pay on my own. Well, why not just have the collective pool pay for it? If half the people made the same decision as I did, then the pool only has $625,000 to pay for the medical claims, just enough to cover 25% of the 500,000 who had the foresight to buy insurance.
It's the same concept for pre-existing conditions. They only matter if you don't buy into the pool – or stop paying for long enough. We can't decide not to pay for the service of insurance and then expect the benefit when that decision turns out to be a bad one. That's like becoming indignant at someone for not washing the car you didn't pay him to wash.
One of Obama's priorities is to eliminate "discrimination based on pre-existing conditions." (By calling it discrimination, the insurance company automatically sounds like the bad guy.)
However, consider what would happen to insurance companies if they could no longer exclude or charge more for insurance on pre-existing conditions. In the prior scenario, half the people chose not to pay. That means, statistically, half of the unlucky few who got sick didn't pay for insurance.
Unfortunately for the insurance companies, there are many politicians out there who can gain political points by convincing people they have a right to this service, and to blame the companies when prices rise to cover the extra expenses.
I think, instead of demonizing the insurance companies for providing us a service, we should decry the politicians for deceiving us.
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Well said! From what I have seen lately, I can only assume peole don't understand how insurance works. It seems they assume insurance is something you have to have/pay for in order for some company to pay your all your medical bills. People assume that these insurance companies make a lot of money by ripping off via high premiums. The simple fact is that these companies do not make much if any money on premiums, they make money off of holding on to as much of the pooled premium money as possible and investing it. As you said insurance is a gamble, but unfortunately because of the government (both state and national) we cannot choose how much we would like to gamble. The government actually mandates that every insurance policy must cover a massive amount of things. For example, in many states every insurance policy must cover AIDS. Now I am an adult male who doesn't engage in any activity in which I would have a remote chance of getting AIDS, yet I am FORCED to puchase coverage for it. What if a healthy young adult doesn't want coverage for the common cold? They just want coverage for catastrophic illnesses? They can't buy it, instead they have to buy a massive umbrella package that costs WAY more.
ReplyDeleteAnd if you don't believe that insurance companies would want to sell such catastrophic policies because they couldn't charge as much, think again. The risk associated with getting a catastrophic illness is FAR less than getting the common cold. It may cost more to treat catastrophic illnesses, but EVERYONE gets the cold.
The other problem isas you said; peole seem to believe there is a right to health care. In fact there is a right to companies and citizens to do as they wish as long as it doesn't infringe upon other people's rights. National health care infringes on my right to my earnings. Mandatory coverage laws infrige upon my right to DECIDE which, if any, insurance policy I want to buy. People need to learn to take responsibility for their choices. If you choose to take on a risk, the weight is soley upon your shoulders. It is WRONG to force other people to pay for your bad decisions. That is called stealing, and I believe there is a Commandment against that.
Sorry for rambling...
Great comment. You pretty much said everything I would have said if the blog wasn't already too long. Thanks! :)
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