July 3, 2022
  • July 3, 2022

Health insurance: what went wrong? | Opinion

By on January 21, 2022 0

The big lie of the modern American healthcare industry is that what we call health insurance is actually insurance. It’s wrong. Insurance is meant to be a tool for aggregating and dispersing risk. Rather than each assuming a potentially catastrophic financial risk, consumers reach a mutual agreement to pay a fixed price commensurate with their risk, replacing a variable but potentially devastating expense with a fixed, known expense. Insurance companies add value by assessing individual risk and distributing money to those who incur costs.

You may notice that under this definition of insurance, it makes no sense for an insurance company to pay the costs that consumers know they are going to incur. If car insurance were redesigned to look like health insurance, it would also cover gasoline. Everyone who drives a car will have to pay for gas, so at best this system just adds your gas expenses to your insurance bill, which is silly, but also not what would actually happen. Now the insurance company has to hire people to handle gas payments, so you have to pay the insurance company to pay for your gas and pay people to write checks at the gas station.

The next problem is that not everyone uses the same amount of gas, so either the insurance company has to hire more people to track gas usage and change premiums accordingly, or it has to evenly distribute the total gas bill between all customers, regardless of usage. (If it looked like health insurance, it would be the last one, because it wouldn’t be considered fair for people to have to pay more for insurance due to pre-existing circumstances causing them to use more gas. Everyone cannot afford an electric car, or live near work, etc.)

In addition, service stations would no longer be encouraged to lower their prices. The customers who buy the gas don’t pay the bill, so they don’t care that the gas is $10 a gallon. That’s the insurance company’s problem. Similarly, there is no incentive for drivers to drive less or save fuel, because once they have paid their premium, gas is free. Even if there were a deductible, the mismatch between consumers and prices would again become apparent when the deductible was reached.

It should be obvious that this car insurance scheme is not only nonsense, but would also lead to skyrocketing gas prices and potential shortages. If we additionally incorporated other known fixed or small expenses like new headlights, oil changes, and car washes, we would have an exact replica of the current American healthcare system. How did we arrive at this absurd system? It wasn’t through a free market, but rather a series of laws requiring insurers to do things like provide coverage for various expenses and offer consistent rates for people with very known medical conditions. different. Prime examples of these rules are the Affordable Care Act requirements for insurers to “guarantee issue” regardless of health conditions and to always cover “essential health benefits.”

The only way to fix such a system is through drastic free market reforms in health insurance and the health care industry in general. Stronger government “solutions” than those currently in place would only worsen health care price inflation and supply shortages. If insurers were allowed to offer a greater variety of plans based on individual risk, and if individuals covered predictable expenses, we would see increased competition in health care, leading to lower costs. Whether this could really solve the shortages would depend on the further removal of the absurd licensing laws perpetuated by the American Medical Association, but I digress. Still, the only way to fix America’s health care system is a free and open market where insurance companies, doctors, and hospitals compete to provide the best care at the most affordable prices.

The opinions expressed are those of the author and do not necessarily reflect those of The Torch.