Mr. Jones, Dr. Duck Will See You Now

Normally, I won't put two blog posts in one day, but the recent airing of our Dear Leader's health care plan on ABC News forced my hand. This hour long special, which lost in the ratings to reruns, talked about Obama's plan to "fix" the health care system in the United States by providing a public option of health insurance to everyone. When someone talks about insurance, the general ignorance of the American public is obvious, and thus provides the small basis of support for our Dear Leader's plan.
I used to be in the same boat as the rest of the population. I knew little about insurance, and how it works. I was educated in receiving my first job out of graduate school, as an insurance agent for a large insurance company. In meeting people on a daily basis, I was exposed to the fact that most people have little idea on what insurance is. There are still many things about it that I am unaware of, but my dual insurance health and life licences provide me with a foundation of knowledge which I tried to impart to my customers, and to you now.
The first question is what is insurance, and why do we need it? At its foundation, insurance is a contract that transfers financial risk from you to another entity, namely the insurance company. This differs from how most people view their insurance, specifically health insurance in this instance. The vast majority of people view insurance as something that pays for things that they cannot pay for themselves. Not to split hairs, but while this seems just another way of saying what I just said. It differs in this way. Most people see their insurance as a type of bank account, in which money comes from, and it most certainly is not.
The reason for insurance expounds on this. We need insurance to "cover" us. Coverage entails those events that instead of baring the financial risks ourselves, another will. Insurance companies will pay the expenses agreed upon by both parties in the event detailed in the contract happens. Without insurance, a person must bare these expenses alone. By definition insurance is not a necessity, but a luxury for those who wish to protect their financial well being from catastrophe. Automobile liability insurance is a good example. When someone is involved in an accident, the insurance company will pay to undo the damages caused, setting the parties at an equal footing as if the accident did not occur. Most people cannot do this themselves, and thus pay for coverage to do this.
With health insurance, part of the problem we are having is that people use this bank account to pay for things that they could easily pay for themselves. Insurance companies operate under what is called the law of large numbers, which details the likelihood that an event will occur and truly how much risk that there is involved with certain events. Covering less likely events such as acts of God and lightning striking a person cost less money, as these things happen with less frequency than regular checkups to the doctor. Insurance companies manage this risk by pricing certain things more, using the free market to reduce the risk pool of their insured. Pre-existing conditions fall under this, as does using your insurance itself. Certain medical conditions make others more likely, and thus the risk of these things happening rises.
What do these things mean about the health insurance debate? Well, our Dear Leader's plan is to provide a bank account without regard to risk of health events occurring. Before talking about the specifics of this, it means that the public option will be a financial failure, since the costs of insuring higher risk will not be considered in providing a benefit. It also means that combined with governmental coercive power, behavior will be modified to lower the risk (and thus the cost) to maintain financial solvency.
A private health insurance company cannot force its insured into certain modes of behavior. Its options are to raise premiums for those who engage in risky behavior, cease accepting the risk that these people add, or to dilute the risk with a insurance pool, otherwise called group insurance. The health insurance provided through employers is an easy to understand form of this dilution. The private insurance company lacks the power to coerce behavior, other than through making the cost of insurance higher. Government insurance on the other hand, can force behavioral changes through its legislative and regulation powers. These actions will be forced at some point when the amount of risk accepted by the government outweighs the revenue brought in to support the venture. This can be done in two major ways. One is denial of service, which is the most common method that we see in government health programs. Long wait times for procedures, and the lack of expensive drugs (see Great Britain's denial of breast cancer medication to those who would die without it) reduce the cost borne by the government. The other method is making illegal behaviors that would drive up the risk, such as smoking, drinking and eating "unhealthy" foods. Such laws are already in place in several places, such as New York's anti-Transfat law. As it could be seen, almost every human activity can have an impact of health, and thus could be subject to health legislation because it effects the risk pool of the government.
But, will everyone have to accept this governmental health care? Yes, eventually. Most people rely on their employers to provide them health insurance, a relic from World War II's wage controls. Most employers will dump their private plans, as they will have to pay for both. They rather have someone worry about it, and thus most people who take employer health care will have no choice. For the rest, the old axiom power corrupts applies here. During the "debate" on ABC News, our Dear Leader stated that the playing field will be level because both private and public health insurances will have to operate under the same laws. That is making a blind assumption that the laws will be or remain fair. Can one say with certainty that a do-gooder that wants to make people healthier or someone who despises private insurance will not gain some control over the laws and regulations that govern insurance and tilt them in favor of public insurance, or pass a law that regulates behavior because having a government nanny will make you live longer?
Almost everything suffers under regimes with public health insurance. Far from being free, public health insurance is often the largest expense of a nation. In fact, the only reason that Western Europe and Canada posses such regimes is because the United States Government subsidizes their government by providing military forces for their defense. This lack of a military budget allows them to even consider public health insurance. The biggest failings of public health insurance are all financial. Doctors and nurses receive less money, hospitals don't keep adequate stocks of supplies (these cost money) and extra services are cut to the bare minimum, since all extra money is spent towards covering the high risk areas of the insurance pool.
Most uneducated people when they see medical professionals think that they could do with less money. The problem with this they are thinking of doctors who have been in the field for a number of years, and not those new doctors who are in greater debt than the majority of the population. The high salaries of medical professions are their rewards for long years of studying and financial difficulty when they start. Lower salaries would mean fewer doctors and those who are would be less competent, as the best and brightest would find other work to improve their lives.
Public health insurance only changes the decider in medical questions, from an insurance professional to a government bureaucrat. This is no fix. But, just how can we create a more fair system? First, people need to understand just what their health insurance is, and what it does. Cheap insurance is obtainable for everyone, and insurance companies will often tailor new products for differing groups of people. Furthermore, an insurance company will provide coverage to almost anyone, assuming that they are willing to pay the premiums for the coverage that is asked for. To make insurance easier on the wallet, one must be willing to assume more of the financial risk themselves. The cheapest insurance programs cover specific events, and are narrowly tailored.
Secondly, read your insurance policy the moment it arrives, and review at least several times a year. I realize that insurance is a snooze subject for most people, but the only time that most people read their policy is after something happens, when it is too late. Insurance contracts are VERY explicit in what type of situations that they will insure against, even if it is hard to understand because it is written in legalese. If you cannot decipher it yourself, call your agent and have him explain it to you. It is his job.
Thirdly, only use your insurance for major issues. In health this doesn't mean doctor checkups or common prescriptions. The risk of you using this things is high, and present a low cost to you. Thus it is expensive for the insurance company to provide protection for these things. Catastrophes like cancer, heart attacks and major illness are rare (in comparison) and are much less expensive when looked at from the law of large numbers. These are the issues that you need financial protection from, and to the insurance company since these events are rare, coverage is less expensive.
Fourthly, look at your need for a group plan, such as one provided by your employer. Group insurance works by leveling risk amongst a group of people. Those with high risk have that risk transferred to another with low risk, and thus it becomes less expensive for those with high risk and more expensive to those with low risk. People with low risk spend more money than they normally would if they went out and purchased a single insurance plan.
Fifthly, realize that the high cost of health insurance has mostly nothing to do with you. Insurance companies also bear the costs of those who do not pay for coverage, when hospitals charge them high rates for services to make up for those who don't pay. Poor uninsured people and illegal immigrants fall mostly into those who raise costs for the rest of us. Emergency health care is guaranteed by law, and those without an ability to pay drain resources from the hospital that must be replaced. This is also compounded by malpractice suits, whose exorbitant costs are included in what the insurance company pays, since they are able to do so.
The fix to this system is not the quackery of public insurance, but to reduce the risk and thus the cost of providing payment for health services. It is a not well known fact that hospitals will often charge far less to those who pay with cash than those who use their insurance. If people would use their coverage for things were this is impossible, and pressure our lawmakers to reduce the administrative costs of health care through tort reform, expenses would reduce across the board without a reduction in service. This would have the effect of reducing costs not just for those with insurance, but for everyone. Fewer people would be without coverage, and those who cannot pay would be less and less of a risk to manage. But I am not going to trust our Dear Leader with a stethoscope and a duck bill mask saying that he can fix our system because he says so.