Sunday, May 27, 2012

Gah! That's not how INSURANCE works!

Thomas Friedman--whose pieces run the gamut from brilliant to nonsensical--argues that President Obama needs to "seize the high ground," to do a better job of explaining his triumphs to the people:
Barack Obama is a great orator, but he is the worst president I’ve ever seen when it comes to explaining his achievements, putting them in context, connecting with people on a gut level through repetition and thereby defining how the public views an issue.
As an example of such a triumph, Friedman points to Obamacare and takes Republicans to task for calling it socialized medicine. And in that regard, Friedman says two supremely silly things. First:
Think about this: Is there anyone in America today who doesn’t either have a pre-existing medical condition or know someone who does and can’t get health insurance as a result? Yet two years after Obama’s health care bill became law, how many Americans understand that once it is fully implemented no American with a pre-existing condition will ever again be denied coverage?
So, according to Friedman, having the government mandate "coverage" in spite of pre-existing conditions is a Good Thing, something that we should be happy about. And by implication, it's not a "socialized" thing at all. Which brings us to his second silly statement:
Yet Obama — the champion of private insurance for all — has allowed himself to be painted as a health care socialist.
Got that? Obama is "the champion of private insurance for all." But we already know he is no such thing, given that Obamacare is destroying Medicare Advantage programs, the programs that let Medicare subscribers pay an additional premium for additional private coverage. The Administration is attempting to cover this reality up by implementing an $8 billion "test program" to keep Medicare Advantage going until after the upcoming elections. But that's just a temporary thing.

So, let's be clear on this. Obamacare is taking away coverage citizens enjoyed through private carriers. On what planet does this make Obama a champion of private insurance? Friedman's ignorance on this point is astounding. But there's more.

Think again about the idea of no coverage being denied because of pre-existing conditions. It happens now, but not in the way it's being sold, at all. Insurance companies--left to their own devices--would have no problem issuing insurance for pretty much anyone. But the premium--the cost for the coverage--would be higher for people with greater risks, astronomically high for some people. That's how insurance works, how the companies stay in business.

Consider life insurance. Premiums are based on--first and foremost--age. The older one is, the more life insurance costs (because the less time the company will have to get back the monies it will eventually pay out). The fact of the matter is that a life insurance company would be willing to issue coverage to someone on their deathbed, even someone that was already dead, but the premium would be so high--actually more than the benefit--as to make such a policy pointless (well, not for tax reasons, which is why you can't buy a policy on a dead person).

What is going on with healthcare insurance--with regard to pre-existing conditions--is that the premiums insurance companies are allowed to charge are being capped. In other words, the goal is to make the cost of health insurance for people with pre-existing conditions the same as for people without them.

This is akin to mandating that life insurance premiums must be basically the same for everyone, regardless of age (for age is, in fact, a pre-existing condition). Thus, someone about to die from old age (say they are 99) could run out and buy a million dollar policy by making the same $50/month payment as someone who was 30 might be making for the same policy. If this were the law, how long would life insurance companies remain in business? They'd all lose their shirts almost overnight.

They would not--in fact--be providing insurance at all. The premium would be nothing more than a simple fee for a future (fifty years of fifty days) locked-in payout. No risk is being offset by such a program. Zero. Nada. Zilch. Premiums would be based on nothing, they'd just be arbitrary amounts (probably set by the government).

And things in the health insurance market will go the same way: it will cease to be insurance, private or otherwise, if these changes are implemented. Private carriers will slowly die out. Thus, the government will ultimately be the sole "insurer," but there will be no premium, just a fee. And for that fee, everyone will receive the exact same benefits (or lack thereof). Yeah, no socialism there...

Cheers, all.


  1. Well, it is possible to have a system where the basic coverage is similar to what you describe, but people and insurance companies are free to build additional services on top of that (this is how the Israeli system works). Such a system is, obviously, socialized to a degree and is very different from what US has at the moment. It would also have significant dowsides in implemetation across such a large and diverse country as US (unless fees are differentiated by place of residence), but at least in theory it is possible.

  2. Most people do not actually understand on how insurance works, and some think that it is just one way for companies to earn money from clients. Well, that is not the case as several insurance types have actually help / aided many individuals in providing services that other people who do not have insurance can afford to take. That is the role of individuals agents with insurance license - to give the right information to people about insurance at the right way.