When insurance is no longer insurance
What is insurance? Why does it exist?
No one thinks their house is going to burn down, but nearly everyone would be in dire straits if this happened to them. What if you’re one of the unlucky ones? What do you do to protect yourself against this occurring?
In comes insurance
Insurance companies formed to pool risk, protecting people in case of unforeseen disasters. They know that most houses won’t catch on fire, but at some point, a small percentage will. Therefore, to ensure peace of mind, a homeowner can pay a small monthly premium. The insurance company (we’ll call it Gecko) then combines all those small premiums to pay the few unlucky families who suffered a catastrophe.
What happens when you buy insurance?
When you purchase fire insurance, Gecko is making a bet; they are betting that your house won’t burn down. After all, this is why the company exists. There’s profit to be made in pooling risk because it’s a service people want. However, if Gecko made bets they thought they were going to lose, their business would be a losing proposition. They’d be hemorrhaging money and wouldn’t be in business much longer.
“Hello Gecko, this is Bad Luck Bill, my house burned down, so I’d like to buy fire insurance”
Bad Luck Bill’s burned-down house has a pre-existing condition - it's in ashes. Gecko can’t make bets they know they are going to lose, so they can’t cover pre-existing conditions.
People buy fire insurance because it’s a small price to pay for huge peace of mind. However, if Gecko allowed pre-existing conditions, Gecko’s operating costs would be many magnitudes greater. The price of the fire insurance would have to be increased significantly to account for the much larger expenses.
Can you imagine how expensive fire insurance would be if Gecko were forced to allow people to buy insurance after their house already burned down? The price would be absurd. Furthermore, why would anyone pay for fire insurance their entire life if they can just buy it after disaster strikes? No one would buy fire insurance until their house had already burned down. The industry would cease to exist.
Once you allow people with pre-existing conditions to purchase your insurance, you’re no longer in the business of insurance.
You can’t get fire insurance after your house burns down, you can’t buy car insurance after you total your car, and you can’t buy health insurance after you’re diagnosed with cancer.
If you have a pre-existing condition, you’re uninsurable. I know that this sounds harsh, but this is a matter of fact based on the definition of insurance. A company who is insuring pre-existing conditions, isn’t actually insuring them, because that company is no longer in the business of insurance.
If you’re “insuring” pre-existing conditions, you are not an insurance company. You are a middleman whose job now involves payment forwarding.
Insurance was meant for unforeseen disasters, not known costs.
You buy fire insurance in case of catastrophe, you purchase car insurance in case you total your car, and you’re supposed to buy health insurance in case of the unlikely event you need a major surgery or get very sick. These are all cases that you don’t foresee happening, at least not anytime soon, but there’s still a small chance that they will. If you’re one of the unlucky ones who totals their car tomorrow, it would put significant financial stress on you if you didn’t have insurance. You’re insuring yourself in the event of misfortune.
Imagine how expensive car insurance would be if it covered oil changes, tire replacements, tire rotations, windshield wiper replacements, windshield wiper fluid, car washes, and any other routine expenses.
To make matters worse, people would drive with less care because “insurance will cover it.” People would get the most expensive car wash because “insurance will cover it.” Most expensive wiper blades, no problem. “Insurance will cover it.” No need to shop around for the best price because “insurance will cover it.”
Car service providers would have no reason to provide good prices because consumers would no longer care about cost. Car insurance prices would skyrocket.
When insurance covers a long list of known expenses, it is no longer insurance. In this example, the car insurance company is no more than a middleman whose job is to forward your now-sky-high “premium” to various service providers.
Does this sound familiar?
Today, what many of us think of as “health insurance” is not actually insurance. Today’s “health insurance” providers are no more than payment forwarders. They take your sky-high premiums and forward them to various service providers.
At least in the US, many peoples’ “health insurance” cover routine, known expenses. The idea of shopping around for the best price is unheard of because “insurance will cover it.” In fact, in my experience, if you try to shop around, doctors and pharmacies often won’t even tell you the price of their services/products.
Healthcare providers have very little incentive to provide you with a great product at a reasonable price because their customers aren’t shopping around looking for better alternatives.
As you can see, the current system is broken. If health insurance were to return to what health insurance is supposed to be, I’m confident it would be a small fraction of its current cost. Healthcare providers would compete for your business and their costs would be transparent. As time passed, with many doctors and hospitals trying to get your business, prices would be driven down, the level of service improved, and speed of innovation increased.
Great job explaining how Obamacare is a f-ing joke. Just yesterday my wife and I got our new insurance rates and it went up $75 a month while deductibles went up significantly. Crappy insurance for a very high price, thanks Obama. And while we are at it, during Obama's 8 years in office the Republicans voted something like 8 times to totally repeal Obamacare. Now that the Republicans have control of the house and Senate that arent doing a damn thing to fix it. This just shows that we need term limits and these professional politicians need to go.
Maybe we don't need them at all.
Scary times we live in. National army and a couple other things we should have, other than that all powers should go to the states. I think that dumb old constitution has something in it about states and powers but it's old and outdated, modern interpretation needed.
Monopolies are always bad, and always promote abuse. If you recognize that government monopolization of relatively trivial things is bad, how can you then say we need government to monopolize the most important things? That doesn't make any sense when you really think about it. And a national military is all that is needed to create excuses for every other tyranny.
Goverment is hopelessly inefficient, so it should only do the really important things...
Agreed! Premiums have gone through the roof in NC. Don't know how the hell you fix it though....given it's impossible to get something that actually makes sense passed. By the time a bill passes, both parties have turned it into something crazy.
I think the government getting the hell out of insurance would be a good start. When I was a kid we didn't have insurance but going to the doctor if dentist was no big deal because the prices were reasonable. Now that everyone had insurance doctors charge a shit ton more, have staff that only deal with insurance and costs just keep going up. The insurance company isn't going to lose money so they pass those cost on to us. I don't have plumber insurance, riding lawn mower insurance, (name 1,000) other things. Maybe we need some old fashioned doctors that just accept cash only, less headaches for them, less staff and hopefully reasonable prices for us. I think this got my blood pressure up, insurance just pisses me off - home owners, mortgage, wind, car, travel trailer, medical, dental, prescription, vision. Add the shit ton of taxes on top of that and I would probably be better off sitting at the house and going on wellfare, need to run the numbers!
Great clarification on what insurance really is. What we seem to be moving to is managed health and not insurance. I just don't understand why people want politicians managing their health. I suppose managing your own health is too risky and uncomfortable. Not sure how putting politicians in charge makes anyone comfortable.
When people get government managed health the politicians in government will definitely manage them good and hard - I took liberties with H.L. Mencken's quote "Democracy is the theory that the common people know what they want, and deserve to get it good and hard." Read more at: https://www.brainyquote.com/quotes/quotes/h/hlmencke163179.html.
One example of government managed health care is the recent decision by the UK Supreme Court preventing parents under that government from taking their infant to the US for emergency experimental procedures. They asked for government managed care, so parents must yield to the state. Is this an example of a "death panel"? Sorry, couldn't resist the sensationalism. :-) See http://www.cnn.com/2017/06/27/health/charlie-gard-european-court-ruling-bn/index.html.
Thanks for the thought provocation.
Exactly. Insurance covers risk, not certainty. The way Health insurance is mandated to cover regular physicals, vaccinations, etc. would be like if your car insurance had to cover detailing and oil changes.
Years ago, you could shop around. I did it with my third pregnancy which was the first I was uninsured for. As an example of how my incentives changed, while the first two I simply went for every test ordered, on the third, I turned down Triple-Screen testing, reasoning that I wouldn't abort a baby shown to have some anomaly, and anything that the doctors could actually mitigate or correct (like spina bifida) would show on a standard ultrasound in time to address it. I also turned down the 5 hour glucose since I'd had no sugar issues in either previous pregnancy. Even though I was high risk, having developed pre-eclampsia during both previous pregnancies, and even though I had to have a C-Section, my third pregnancy came in at under $12,000 (yes, that's twelve-thousand) for the cash price discounted for paying by month 7. That's including hospital, all doctors including anesthesiologist, all of the testing and ultrasounds leading up to it, and infant care. This was 7 years after my first pregnancy was billed to the insurance company at $39,000.
Recently though, I've tried to shop around and you're right, you no longer can. All of the doctors are part of "health care systems" and here in PA there's only one insurer and in my county only one level of insurance I can buy. To insure me, hubby, and three kids is $1200 per month, and they cover almost nothing except standard visits until I meet my $6500 per person deductible.
When I had to have 'lady surgery' and I went in for my initial consultation with the OBGYN, the insurance company refused to pay. I called and said, "My policy says women's health care is covered 100%." They asked, "Well was this your only visit this year?" I said, "Yes, but why does that matter? It says women's health is covered and he definitely looked at my vagina so I think it counts as women's health!"
This kind of crap happened with almost every charge. Finally I let the insurance go, because I was paying an arm and a leg for almost no coverage and adding a stressful chore to my life.
Wow, thanks for taking the time to leave such a great lengthy response. This is about the best personal insight I could've asked for.
$1200 per month and $6500 per person deductible! That's crazy expensive! That means you have a $32,500 deductible each year in addition to premiums of 1,200 per month or $14,400 per year. You'd have to pay $46,900 out of pocket each year before they'd cover a dime of your expenses.
You should check out https://libertyhealthshare.org/. It's what I use for my health coverage.
For your family of 5, if you're between the ages 30-65, you'd pay $449 per month with a yearly deductible of $1,500. With that, you'd get 100% of your family's medical expenses covered, up to $1,000,000 per incident. It's not an insurance company, so be sure to familiarize yourself with it before signing up.
Thanks for the tip! I will check them out 😊
This is exactly why Health Insurance in the US is vastly different than say the UK among other countries.
My knowledge is lacking regarding the state of health insurance in other parts of the world. Are you in the UK?
Great read bro as always. Keep it up.
Thanks for reading!
On point here. Excellent presentation and write up.
I posted a condensed version similar to what you said here on my FB a couple weeks ago. Although it just related to government mandated birth control and pre-existing conditions regarding insurance.
Leftist bern-bots lost their freaking minds.
Of course there were no arguments. Just projection, red herrings and ad-hom attacks.
I appreciate the compliment. I don't think there is much of an argument to what I said in this post, but if someone has a legitimate argument, I'd be happy to engage.
If you want, feel free to post this on Facebook as well.
"Once you allow people with pre-existing conditions to purchase your insurance, you’re no longer in the business of insurance."
You really couldn't put it any clearer than this. It's amazing today that this actually has to be explained to people who appear capable of clothing and feeding themselves, isn't it?
People seem to want to repeat the buzzwords they hear on the news and social media rather than think things through. It's really not that complicated when it's laid out in a format like this.
That makes so much sense! Thank you for the info...
Thanks for reading. I'm happy to hear that it was easy to understand.
The US spends the highest on health care in the world yet is ranked about 37 in the world for the quality of the care provided. A sad state of affairs.
It would be nice if we can have crypto insurance.... followed and upvoted
Thanks for the support!
I'd particularly like to buy it AFTER it crashes! =)