Lesson 22: Health Insurance
To understand the plagues of our health insurance industry, you must first understand that
insurance companies, like governments, don't pay for anything.  If you don't, then please
read lessons
2, 3 and 9.  Second, you have to remind yourself what insurance is.  To ensure
something is to guarantee that it will happen.  To
insure something is to guarantee that it
won't.  Insurance guarantees that something that
might happen won't be a financial
catastrophe.  Insurance companies do this by  pooling together people's money and people's
risk.  Risk does not occur if something
will happen, only when it might.  If something is not
a risk and not a disaster, then it is not insurable.  Paying for small things that
will happen is
not insurance; it's maintenance.  Your car
will need a tune-up, your house will need small
repairs, and you will eventually need to see a doctor and get your cholesterol checked.  
And you will pay for these things.  The only question is whether you will pay for them
directly or through a middleman; and middlemen don't work for free.  

Over several decades, government has been expanding it's new role as society's great
middle-man.  In the healthcare industry, it has directly inserted itself into the health care of
the elderly (Medicare), the poor (Medicaid), and now children (S-CHIP).  For the rest of us,
it has out-sourced this middle-man role to insurance companies.  In doing so, it has
transformed them into bureaucratic, quasi-governmental agencies.  It has done so in several
ways:
1.  Directly requiring these companies to "pay" for health maintenance items.  These laws
are called health insurance mandates.  They are usually passed by state legislators who
want to grand-stand about the trendiest cause of the week.  Some of the more common
mandates include pap smears, colonoscopies, mammograms, alcohol and drug addiction.  
There are many others, from the very basic: doctor visits, eye exams, maternity stays,
chiropractors, nurse practitioners, contraceptives;
to the absurd: athletic trainers, acupuncture, hair transplants.
These mandates not only catapult the cost of insurance premiums, but also force customers
to buy things they don't need.  Men don't need pap smears.  There is an average of 38
mandates in each state, accounting for an estimated 1/3 of the cost of health insurance.
*
2.  Other state regulations.  Health insurance is the most over-regulated of all insurance
industries.  These companies have to be registered and reviewed by dozens of state
insurance administrators, as well as overlapping federal rules.
3.  Direct federal out-sourcing.  In recent years, the federal government has contracted with
private insurance companies to administer the Medicare program.  This, of course, comes
with even more regulatory strings attached.  
4.  Direct state out-sourcing.  In several states, Blue Cross Blue Shield companies were
given non-profit status, subsidized with state funds, and even given monopoly protections.

There is a movement afoot to eliminate the insurance business from health insurance
companies altogether.  It is the idea of requiring insurance companies to pay for things that
already happened, the so-called pre-existing conditions.  This is a campaign promise of
President Obama.  It obviously defeats the whole purpose of insurance, just as much as
requiring Geico to cover pre-wrecked cars.  If it passes, then whatever is left of these
companies will only function as government bureaucracies.  If you think premiums are high
now, you aint seen nothing yet.

On the other hand, health insurance companies need to cover events completely that occur
during the period of insurance.  Generally, they only cover an event as long as you maintain
insurance.  If your house burns down, your insurance company will cover its obligation
entirely.  But if you get cancer, then you can't work, then you can't pay your premiums,
then the insurance company stops paying your cancer costs.  It is understandable, because
it is easier to hide a pre-existing illness than a pre-burned house.  But it is unacceptable and
will not stand.  There are many kinds of insurance fraud.  The appropriate way to deal with
them is with adequate risk assessment and fraud investigation.
 


*  The Top Ten Myths of American Health Care by Sally C. Pipes