2012 Oct 1

written by Sherri Joubert

The term Health Insurance is an oxymoron.

Here’s why:

Insurance is a form of risk management.

Risk, in insurance, is the uncertainty or probability that a particular peril (cause) will result in a financial loss.

There are 4 scenarios in risk management:

  • High severity and high frequency
  • High severity and low frequency
  • Low severity and high frequency
  • Low severity and low frequency

Let’s look at these one at a time.

High severity and high frequency

This means whatever happens will be really bad, it happens often or happens to a large area (state or region) all at once, and it’s likely to cost a fortune to fix.

High severity high frequency risks are uninsurable.

By definition, government must step in and take care of such risks, whether they do it alone or in partnership with private insurance companies.

The marketplace is not designed to handle such risks. There’s no profit. Capitalism requires the ability of an entity to make a profit. Without profit, such interests fall under non-profit or public (government) purview.

It’s why areas prone to severe hurricanes, flooding, earthquakes or fires require property owners to carry special government-sponsored insurance for the likely hazard faced, and a very high homeowners insurance deductible, usually a percentage of the cost of a loss instead of a fixed amount.

High severity and low frequency

This means whatever happens will be really bad, it will cost a fortune to fix, but the probability of it happening is very low.

These losses are what insurance is designed for and meant to cover.

Low severity and high frequency

This means whatever happens isn’t bad and won’t cost much to fix, but it happens all the time.

An example is hotel towels are stolen every day. Hotels don’t have towel theft insurance policies, they pay to replace them out of cash for operating expenses.

Low severity and low frequency

This means whatever happens isn’t bad and it seldom happens. These losses are best handled by paying for them yourself out of an emergency fund or credit card.

An example is a $300 car repair bill.

Under which category does health care fall?

The first one, high severity and high frequency. Everyone gets sick or injured, and requires periodic health screenings and preventive care (like vaccinations). By definition, health care is NOT insurable.

Some people only suffer minor illnesses or injuries until they reach age 65 and Medicare. Then when they get really sick they’re covered by a single payer, low cost program designed for their needs.

But if you’re younger than 65, don’t have adequate health insurance, or don’t have any insurance and you get seriously ill, you face catastrophic financial consequences.

When you’re really sick you usually aren’t able to work, and if you have no insurance and not enough money to pay for treatment, you’re likely to lose everything you have or go bankrupt.

If we had a low-cost single-payer health system, we might actually perform health care and prevent people from getting sick, catch serious illnesses in their early stages, or treat injuries when they are the most likely to be treated successfully, and for far less pain and money than if an illness or injury is allowed to become serious.

Not only could we keep people healthier, we could provide everyone with a better quality of life for many more of our advanced years. Increasing the human lifespan might be a result, but the best outcome would be to keep people healthy so they can live happy, productive lives until they die.

Health care, long-term care and some dental care don’t fit the definition or purpose of insurance. That’s why we need to dump the insurance model for health care and switch to a single-payer, government or public health care system.

Medicare for all would be ideal because the infrastructure is already in place. Those no longer working in private health insurance would be needed in the expanded Medicare system.

Providers would no longer have to figure out how to cover those who can’t pay for care and would not face financial loses from anyone being uninsured. Everyone would be covered.

Costs would decrease and stabilize because payment for services would be guaranteed. From many studies, we know that Medicare costs very little for the government to administer.

Reference: Insurance and Employee Benefits by Mandell S. Winter, Jr., 2003, Kaplan Inc., Chapter 1.

Please leave your thoughts in the comments below.

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