Tuesday, August 25, 2009


What's wrong with health insurance?

Many people think of health insurance as though it is similar to insurance on a home, a car, or a business. To achieve a large pool of participants so that an occasional big loss by one requires only a slight increase in the premiums of the others, it is either customary or legally required that everyone who owns and drives a car or who owns a home or business have insurance coverage. That's what insurance is all about: sharing the risk of a disaster.

Health insurance is different. With health insurance, the participant doesn't want an arbitrary cap on the maximum payout. A person doesn't think of his health and life in the same way as he thinks of his house or his car. If the car is totaled, the insurance company will pay the cost of a replacement. The replacement is not a new car; it is another car of the same make and age and condition as the one lost. The same rule applies to a house. In fact, a house is never insured for its full replacement cost; to do so would tempt the owner to destroy his house to collect the insurance if he was having difficulty selling it for the insured value. A participant with health insurance wants the cost of even the most expensive medical procedure paid by the insurance company. If he needs a $500,000 liver transplant he isn't interested in a policy that covers only the first $100,000 of the cost. He wants one that covers the total cost, less a reasonable co-payment.

From the insurer's point of view, the problem with health insurance is that a cap on the maximum pay-out is unacceptable to most subscribers. In self defense, the insurer has to insert the cap in the policy, making sure that it is in the very fine print that the buyer won't notice. It's a way of being able to sell policies with low or competitive premiums and still stay solvent in case a subscriber has a medical problem requiring an astronomical sum of money.

This line of thinking leads me to conclude that the only way to provide real health insurance is for the U.S. government to stand behind the organization that pays the claims. The payer does not have to worry about making a profit each quarter. The payer doesn't have to worry about being wiped out by an extraordinarily large claim. In other words, the solution is a "single-payer" insurance system. To provide the largest pool possible, single-payer covers everyone, including felons in prison and immigrants without papers. Covering the entire population also reduces the likelihood of epidemics of serious diseases, such as smallpox, since everyone will be treated at the first indication of illness.

Since single-payer gets rid of the high overhead costs of private for-profit insurance firms (by getting the firms out of the business altogether), it can and should provide good medical care at a lower cost than our present hodge-podge system of private insurers, self-insurers, and the like. Single-payer by itself will not rein in the escalation or inflation in the cost of health care. That rising cost will have to be covered by changing the way doctors practice medicine. Doctors working on salary at the Mayo Clinic in Minnesota, for example, provide excellent medical care at a cost far less than the same doctors and other providers would charge if they were each operating as a private for-profit busines, with individual malpractice insurance, office staff, and other overhead costs. We need a change from private fee-for-service medicine to cooperative clinical medicine.

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