Evil Insurance Companies

The other day a friend of mine posted this story on facebook.

I find the way that some proponents of the health care bill use insurance companies as a straw man to be a bit interesting.

For example, in the article that I linked to earlier, a young man got sick, eventually used up his 2 million dollar cap and was denied future coverage, then died. An unfortunate story for sure, but my question is not regarding the tragedy his situation, but the way it and stories like it are used as an argument for the health care reform bill. In this case, it wasn't the insurance companies fault that the young man died, it was nobody's fault. The family had coverage up to 2 million dollars, but use up all that funding before treatment was successful. Getting angry at the insurance company for stopping payments once you've maxed your benefit is akin to being angry at the life insurance company because it only paid out the $100,000 your spouse signed up for even though you still have bills. It just isn't valid. Unfortunate, but invalid.

Insurance companies in general should not be demonized for what they do. If anything they should be applauded. For example, my family of four has high deductible health insurance that costs us around $500 / month. My employer pays the first $190, so I pay just over $300 / month. In a worst case scenario, my family would be obligated to pay the first $5,000 and then 20% of all remaining bills each year until we have paid $11,000 each year until our lifetime cap of $5,000,000 was reached. In a hypothetical situation where somebody contracted an illness that gave us bills totaling $50,000 / year (not that far-fetched), we would pay around $4,000 in premiums and another $11,000 in bills each year in exchange for $39,000 / year of payments by the insurance company. I don't think I'll even make $50,000 this year, so the possibility of finding that much money laying around each year is slim.

Insurance companies provide a means for people to pay for emergency expenses that they otherwise couldn't afford. It's a transfer of risk. Without an insurance company, many of us would be unable to afford some of the treatments /medications that we need. However, in order for a premium to be established, a maximum payout needs to be established as well. The higher the maximum payout, the higher the premium. An unlimited payout (as the reform bill requires) would require much higher premiums. We can't have our cake and eat it, too.

Other stories that attack insurance companies talk about individuals who are already sick and can't get affordable coverage. It is an unfortunate truth that if you are already sick, then nobody will insure you at the same rate as a healthy guy. The Oracle of Omaha once said that he would insure anybody no matter the risk so long as they were willing to pay a high enough premium. As I said earlier, insurance is a transferral of risk. If the risk is more definite (you're already sick), then you'll end up paying more. The point of insuring oneself is to purchase it before you need it.

The fact of the matter is that the insurance companies are being used as a straw man to get people emotional over the "crisis" at hand. If proponents of the legislation can get enough people angry at insurance companies with their pathos-based rhetoric, then they might get enough people stirred up to do something. Many pathos-based arguments require an antagonist. If we remember, it wasn't insurance companies who were the bad guy first. It was the evil doctors who would cut off your leg or take your tonsils out because it paid better. But since that line didn't poll too well, it's the insurance companies that are out to get you now. Pathos works well over the short term, but not as well over the long term. That may be why we see President Obama running around right now trying to drum up support for legislation that has already passed. He got people riled up enough about it feel justified about the bill's passage, but finds his support waning.

By defending the insurance companies in general, I am in no way defending all of their practices. Though I believe that as a whole the health insurance industry should be applauded, there are some practices that occur that disturb me. Ask any capitalist and they'll tell you that some regulation is necessary. That said, here are some things that I believe need to be addressed with insurance companies. Dropping people as soon as they get sick is one aspect that must be addressed. Another would be hiking rates as soon as a person gets sick. At the minimum, an insurance company should keep your rate as it is until the your term is up (usually annually).

That said, here are some things I would propose if I were to sponsor a health care reform bill (yes I know some are already suggested):

Allow insurance companies to offer their services across state lines:

One of the ways to reduce cost would be to allow more competitors in a single marketplace. Simply letting the free market do what it does best would help to reduce cost.

Increase tax credits for medical expenses:

Allowing individuals to reclaim a larger portion of their medical expenses in the form of tax credits would reduce the felt cost.

Increase the maximum contribution limit for HSA accounts and broaden their approved uses:

HSA accounts are tax deductible savings accounts that accompany a high deductible insurance program. It's not the account as much as the high deductible plan that it accompanies that is a great solution; however, increasing the maximum annual contribution limit would make them more desirable. The current health care reform restricts the use of the account. Restricting their use is only a gimmick to limit tax deductions.

Educate about prepay options:

Too few are aware of the options that are available to them through prepaid medical expenses and high deductible health insurance plans. Prepaying for anticipated medical expenses can save consumers quite a bit of money.

Educate about HDHPs:

High deductible health insurance plans enable consumers to obtain health insurance at a lower premium. This is done by requiring the consumer to pay for more of his initial medical expenses out of pocket. This simple plan can help to reduce the direct cost of health care

to the consumer

by dissuading consumers from going to the doctor for every little case of the sniffles. Directly paying for more medical expenses also helps the cost of care self-reduce because consumers who pay for more upfront will shop clinics and hospitals until they find one that charges less. (Capitalism at work)

TORT reform:

The amount of preventative medicine that a doctor performs because he is either afraid of a lawsuit or his liability insurance requires it has a wearing cost on health care. I'm not a fan of caps on payouts for lawsuits (how can you put a dollar figure on pain and suffering). But I am a fan of loser pays. Just knowing you'll pay the legal bills for yourself and the guy you're suing if your lawsuit doesn't stick will reduce the number of frivolous suits.

Expand who qualifies for group plans:

Allow families, churches, and other organizations to form organizations that can apply for group coverage just like a business can. That way losing your job doesn't mean losing your health insurance.

State safety nets:

States should also be encouraged to research and experiment with "safety nets" for those who are high-risk / un-insurable. If a few states each experiment with different methods, perhaps we can find some workable solutions without too much negative impact to the nation as a whole from the experiments that didn't work as well.

Many things, in addition to what I mentioned above, are low(er) cost ideas that can be implemented to reduce the cost of health care. As smart as I think I am, I'm sure that the ideas on my list are not solely my invention. I'm also certain that the proponents of the health care bill know that the options I mentioned above would help reduce the cost of health care. So why aren't they enacting them?

I can only think of one reason. The designers of the health care bill don't want to make health care more affordable. At least, that's not their first priority. They want to be in charge of health care. The current bill is quite simply a tool to drive insurance companies out of business and will act as a funnel to government run health care. A bill that does nothing to actually reduce the cost of health care while requiring an insurance company to insure the un-insurable, insure everybody to an infinite sum, and pay for care without obligation from the consumer while providing "oversight" of premium increases says wrecking ball to me.