As we watch ObamaCare crumble before our eyes, like the cityscape in the movie Inception, I can’t help but wonder how we got into this mess. It is not just that ObamaCare was an awful fix to the problem that preexisted it, but that the solution so thoroughly misunderstood the problem.
You hear terms bandied about like health care and health insurance and the media and ObamaCare supporters use them interchangeably, but they have very different meanings. Health care is what we want from our doctors, health insurance as it is known today is a misnomer.
The Concept of Risk
To talk about insurance you first have to understand risk. What is risk? Risk is something that might happen, not something that has happened and it is usually understood as something bad. Consider you are a general contractor building a house on a schedule and a budget. You are faced with a number of risks. Risks such as the impact of weather on your schedule, and the risk of someone getting hurt on the job.
When faced with risks you can decide to take certain actions. If the likelihood is small, you may just accept the risk and deal with it if it shows up. If the risk is manageable, such as delays due to weather, you may budget some additional money for overtime to get back on schedule if you face a delay or pocket the money or give it back to the owner if it doesn’t. If the risk is large, such as a lawsuit from an injured worker, you can transfer the risk to someone else. The most common way to transfer risk is through insurance. The insurance company bundles many unlikely events together knowing they may have to pay on some of them, but not many. In return they calculate that payout, their overhead and profit, and spread that cost over their many insured, who pay them premiums. As the general contractor, you have a predictable expense in the form of premiums, and the risk is transferred to the insurance company if somebody actually get hurt.
Risk versus Certainty in Health Care
The insurance concept works well where there are rare but expensive events. The concept breaks down completely if you are dealing with certainty.
What is the likelihood that you will contract a disease that will be very expensive to treat versus what is the likelihood you will go to the doctor? The former is a risk, the latter is not. Based on probabilities and costs, an insurance policy can be developed that can protect you from a financial catastrophe if you do contract such a disease and the cost of the premium will be less than the cost of treating the disease. Where you will lose is if you stay healthy. You pay the premium but never need the insurance.
Where the concept falls apart is when dealing with certainty. If you go to your doctor for an annual physical that is a certainty. Whatever the cost of the examination, it will have to be paid. You may believe you have great health “insurance” so you don’t pay for doctor’s visits or you pay a modest co-pay, but what you don’t pay at the doctor’s office you pay with your premiums and you pay a lot.
Let’s say a good physical costs $250 to perform. If you go to the doctor and pay that directly it will cost $250. If, however, if it is “free” through your insurance provider, the insurance company has to shell out the $250. For them to do that takes a lot of paperwork both on their part and the doctor’s office. Add to that the insurance company’s overhead and profit and the cost may rise to $500. Because this is a certainty, everyone has to pay for it, it doesn’t get spread over a wider group of people, so in your premium you pay for it as $500 rather than $250. Even if it is paid by your employer, that is really your compensation, so you are still paying for it.
Consider all the other “free” stuff that is packed into ObamaCare, like birth control pills. You have a widely available product that costs around $10 per month and by pushing it through a third-party payer (i.e., the insurance company) the cost gets driven up to $15. Why is this a good thing? It is not, and it is one of the reasons that health care costs are skyrocketing.
If we focused on true insurance, what we need to protect us from financial catastrophe and get insurance for that, but pay for certainties out of our own pocket it would not only cut out a lot of inflated costs, but it would bring the power of consumer shopping into the mix putting downward pressure on providers. Ask yourself why the cost of Lasik and cosmetic surgery costs have steadily fallen while the quality of customer service has risen and you will find your answer. They are not covered by most insurance plans.
Add tort reform to this, so that doctors are not practicing defensive medicine by ordering every test under the sun “just in case”, and we might really start to bend the cost curve down. But if we believe that replacing the insurance companies with one big government bureaucracy is the answer, enjoy your ObamaCare. You are well on the way to having an all-inclusive health plan. Unfortunately, that has nothing at all with you being able to get good health care. The are not the same. There is a free market solution to the problem. It is not ObamaCare.
That’s my opinion; I’d like to know yours. Please comment below.