The health care debate is alive and well in congress, as the American people continue to have little say in the matter. However, one element that appears to be a focus of both parties is to push for insurers to cover pre-existing conditions, or to not charge high premiums for these.
I mentioned in a previous post that healthcare is not a right, and that doctors will treat someone regardless of whether or not they have insurance. Just to clarify, I was speaking of emergency life-saving treatments, not routine prevention care. However, I reiterate now that healthcare, or health insurance, is not a right. Further, this debate is not about the right to health care, but the right to CHEAP healthcare, and that is not a right at all.
Health insurance is still insurance, and insurance is a hedge. Let me explain how this works. Sally pays $100 a month in premiums on her insurance. Her work pays $100 for her. She goes to the doctor once a year and pays $50 for the visit as a copay. Her total healthcare cost out of pocket is $1,250.
The insurance company receives $2,400 on Sally. They spend $400 as their portion of her doctor's visit, meaning they make $2,000. However, Sally is not the only customer of the insurance company. Bob, Amy, Derek, and Lindsay also are patients. Together, the insurance company recieves $12,000 from these customers. As mentioned before, they pay $400 for Sally's doctor visit, $600 for a visit and X-ray for Bob, Amy doesn't use any medical services during the year, they pay $1,000 for Derek during his bout with pneumonia, and they pay $6,000 for Lindsay when she breaks her leg. Altogether, the company pays $8,000 in medical claims during the year, leaving a $4,000 profit. The majority of this extra goes towards paying the salaries and operating expenses of the company. (I have heard insurance companies make as little as 2% profit).
Now, the insurance company makes its money by pooling people together. You see that, if Lindsay had been the only customer, they would have lost money. And their margins on Derek would have been much lower. The more people in a pool, the more people the risk is spread across. The insurance company has actuaries that calculate the expected medical costs and risks, and what the company needs to charge based on the risk level of a group.
So let's put a pre-existing condition on the charts. Let's say now that Amy has diabetes. She knows for sure that she will have to attend four doctor's appointments a year, buy $100 worth of medicine a month, and there is a chance she will be hospitalized at least once in the next two years.
The insurance company knows this, too. They know that she will cost them $1,600 in doctor's visits, $1,200 in medicine, and probably $2,000 on average per year in hospital visits. Therefore, they need to charge her premiums of $4,800 - double what she is now paying - just to recover costs, not to mention paying for operating costs and a small profit margin.
For, you see, this is what pre-existing conditions do. They change the insurance contract from a hedge, to a sure thing. Somehow people feel as though the insurance company is obligated to insure them, even though to do so is the worst possible thing that the company could do!
Let's look at Sally again. She doesn't get sick - she just has her doctor's appointment on a yearly basis as a preventative measure. She knows that if she did not have insurance, instead of paying $1,250 for premiums and copay, she could pay $450 in total for the doctor's visit. However, she chooses to keep the insurance because she is afraid of a broken leg or hospital visit that will cost much more than $1,250 - perhaps more than what she could save over the course of years and years without insurance. This is how insurance works in the free market - Sally pays what she pays because the comfort of knowing that she won't go broke in a few years due to medical expenses outweighs the actual cost that she spends on the insurance.
Not so with a pre-existing condition. Both parties know exactly how much this condition is going to cost in the next few years. In fact, the insurance company probably has a better understanding because of their actuaries. No longer is this a free market contract deal - it is one party feeling as though they deserve coverage and another party knowing that it is financial suicide to offer it.
Perhaps one answer to the question would be insurance contracts that cover the person for any NEW conditions but that specifically exclude conditions that the insured already has. Or the company could offer greater pools of people, mixed with both healthy and unhealth, in order to spread the cost.
On the other hand, for Congress to force this issue upon insurance companies would be a sad day for free markets. It would be an act of giving in to people who feel entitled to something. Put another way, Joe and Amy both make the same amount. Joe has no health care costs. Amy has to spend $5,000 in her health care costs. She feels entitled to have that money back because JOE doesn't have to pay it. There is no guarantee that your life will be as easy as any one other person's. Life is not fair.
I write this only to show that some of the ideas thrown around in the healthcare debate are not logical at all. They are based purely on emotion and on pleasing the crowd, with little thought given to what is actually being said. Even I blindly nodded when people mentioned pre-existing conditions, until I actually sat down to think about the math. Is it right that companies that employ thousands of Americans and provide a valuable service to millions others should go out of business while in the very act of providing what can only be described as forced charity on the rest of the country?
There are other ways.
2 comments:
Random thoughts in response... :)
It can be so complicated though - what if you are covered by work, and then your spouse gets cancer. Your spouse gets a great treatment regimen because of your insurance. Your spouse gets better but now it's a preexisting condition. You can never quit your job because no one will cover your spouse. If you quit or lose your job and the cancer comes back, without insurance to go to bat for you, they only are required to do the minimum. If an expensive new drug could save your spouse's life, tough luck.
NPR said that BCBS used to be nonprofit, and everyone paid the same amount. It didn't matter your "preexisting conditions" - if you paid, you were covered.
I agree with all you said, but at the same time it's hard because health care costs have risen so it seems like you can't afford anything on your own. Without insurance, an ER visit in Kansas can be $1000. People like you and I would make the effort to pay, but the same people who believe they should get the cheap health care you talked about just leave unpaid bills. So we get charged even more. And government programs to take care of "basics" mean that people would rather go without insurance and get the extra cash in their paycheck, so it doesn't increase the insurance pool.
Right now, the whole thing is a disaster, and a federal government in debt rushing something is not going to improve our situation!
You know, I had been meaning to continue some posts and tie all this together in a way. What I am writing about here is an economic explanation of health care and health services.
This, of course, does not necessarily exclude charity. Like I said before, most doctors will treat patients regardless of their ability to pay.
Throughout history, people have risen up to provide medical care to those who need it in the form of charity work. There are hundreds of organizations today. Like you said, many health organizations start out as not-for-profit.
As I hope to blog about soon, though, my point is that you cannot mandate people be nice to each other. Socialist and communist governments ultimately fail. So do capitalist governments. We are a fallen people, and so any earthly structure we create will ultimately be corrupted and fail. (However, it seems to me that democracies last a little longer than dictatorships).
For instance, take the employer who chooses to pay his workers a living wage. This is a man who has already made in his mind a commitment to helping people with little regard for personal wealth. Mandate a minimum wage, and most people will choose the greedy way of paying exactly that minimum.
No real reform of anything can happen until peoples' hearts and minds are changed on a subject, otherwise they will always perceive something being taken away from them and given to someone else.
What you say about the complications are true - my own father experiences a similar issue with his adult onset diabetes. I agree that there is a financial difficulty when this happens. However, I am pointing out that for someone to tell a company what types of policies they must issue would be disastrous. It would be as if the government told McDonalds they could continue to sell their Big Mac for $1.50, but if someone wanted one for free or couldn't pay, they had to give it to them anyway. Once again, McDonalds would have to give the food away out of love and compassion for any good to come of it.
Although I do not say it, I believe that health reform can be improved by we the people in the same way we can improve the rest of the world. Through our own compassion we can donate to charitable organizations who provide healthcare to the poor. We can become doctors and nurses and pharmacists.
One final thing that I was reminded about by today's conference - people also need to become better consumers of their own health. We are not doctors and cannot diagnose, but there are all kinds of tools that can help us - from conventional wisdom, to the internet, to phone-a-nurse numbers. We can use these tools to make the decision whether to go to the doctor or not, thus saving the entire system money.
Post a Comment