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Politicians, some posters on here, bloggers, various talking heads and so on like to argue that what is wrong with health insurance is that it doesn't work like other insurance you buy like car insurance or home owners. For example they talk about how automotive insurance doesn't pay for routine repairs or how home owners doesn't pay for the local handyman. They then use that to argue that health insurance is so expensive because we pay for most of our health care with it rather than just catastrophic care. The president even went so far as to think that health insurance should be as cheap for young people as whole life insurance (http://www.cnbc.com/2017/07/20/trump-thinks-young-people-pay-12-for-health-insurance.html). Evidently he is under the impression that health insurance should work like life insurance.
The problem with those types of arguments is that health insurance will never work like other types of insurance because it is by its very nature different.
For example: I buy a new car. I get liability insurance for it and collision / comprehensive insurance for it. I typically get 300,000 dollars worth of liability coverage for my vehicles. Thus my insurer is on the hook for a maximum of 300,000 dollars in the event I am fully at fault in an accident that injures others and or causes property damage. It it also on the hook for a maximum of the value of my car at the time of the accident. Every year the value of that car decreases, and thus the amount of money the insurer is on the hook for should I total it goes down as well. Chances are I will never make a claim while I own the vehicle as most people don't.
I own a home. My homeowners policy covers the cost to rebuild my home with an existing foundation and the cost of the contents of that home. That is stipulated in the policy. Thus if the cost to rebuild my home with an existing foundation and to replace all of its contents is 325,000 dollars, than that is the maximum my insurer is on the hook for. Chances are I will never make a claim while I own the home as most people don't.
If I buy life insurance, then the insurer is on the hook for the amount of money I pay for in my policy.
So if we made health insurance work like other forms of insurance, there would be a value to your life. The insurer would only pay for any healthcare up to the value of your life, at which point it would determine that you were a "total loss", and thus pay no more towards your care. Moreover, each year past your maximum productivity levels as a human being, the insurer would lower the maximum value of your life, and thus would pay less for your care. For example, a 30 year old would have a far higher life value than a 60 year old, much less an 80 year old. Finally, if you had any type of disability, then you would have a much lower life value, and thus the value of your life would be lower still. Also, the insurer would look at any lack of preventative maintenance you failed to do on your body, and lower your life value to them accordingly. For example, if health insurance worked like other forms of insurance and you needed a knee replacement, the insurer would not pay for it if you were obese as not maintaining a healthy weight would be the probable cause of your needing a knee replacement (kind of like how not keeping limbs trimmed off your house can be a way for an insurer to avoid paying if one of them falls on your house).
So that is how health insurance would work if we made it work like other forms of insurance. So even if you go to catastrophic only plans, which may well make financial sense for some people, particularly young healthy people, health insurance is still going to be very expensive because it doesn't work like any other form of insurance. Catastrophic care is very, very, very expensive, there is no theoretical limit to how expensive it can be, and thus insurers have to always price that risk into the policy. Moreover, unlike automotive or home owners insurance, everyone makes a health insurance claim at some point. Almost everyone will make a catastrophic claim at some point. Usually more than one. It would be like an insurer selling you homeowners and knowing that it will have to pay to rebuild the home at least once in the 30 years you own it, and quite possibly several times.
This is why some of the least expensive policies are the few true HMOs like Kaiser Permanente. The reason is that their members are usually with them for decades, thus it is financially beneficial for that insurer to make sure that their members get plenty of preventative care and screenings as the healthier they can keep them, the cheaper they will be to cover.
At any rate, health insurance is just completely different from any other type of insurance. It is so different, that we probably should just call it a health plan or something other than insurance.
The problem with those types of arguments is that health insurance will never work like other types of insurance because it is by its very nature different.
For example: I buy a new car. I get liability insurance for it and collision / comprehensive insurance for it. I typically get 300,000 dollars worth of liability coverage for my vehicles. Thus my insurer is on the hook for a maximum of 300,000 dollars in the event I am fully at fault in an accident that injures others and or causes property damage. It it also on the hook for a maximum of the value of my car at the time of the accident. Every year the value of that car decreases, and thus the amount of money the insurer is on the hook for should I total it goes down as well. Chances are I will never make a claim while I own the vehicle as most people don't.
I own a home. My homeowners policy covers the cost to rebuild my home with an existing foundation and the cost of the contents of that home. That is stipulated in the policy. Thus if the cost to rebuild my home with an existing foundation and to replace all of its contents is 325,000 dollars, than that is the maximum my insurer is on the hook for. Chances are I will never make a claim while I own the home as most people don't.
If I buy life insurance, then the insurer is on the hook for the amount of money I pay for in my policy.
So if we made health insurance work like other forms of insurance, there would be a value to your life. The insurer would only pay for any healthcare up to the value of your life, at which point it would determine that you were a "total loss", and thus pay no more towards your care. Moreover, each year past your maximum productivity levels as a human being, the insurer would lower the maximum value of your life, and thus would pay less for your care. For example, a 30 year old would have a far higher life value than a 60 year old, much less an 80 year old. Finally, if you had any type of disability, then you would have a much lower life value, and thus the value of your life would be lower still. Also, the insurer would look at any lack of preventative maintenance you failed to do on your body, and lower your life value to them accordingly. For example, if health insurance worked like other forms of insurance and you needed a knee replacement, the insurer would not pay for it if you were obese as not maintaining a healthy weight would be the probable cause of your needing a knee replacement (kind of like how not keeping limbs trimmed off your house can be a way for an insurer to avoid paying if one of them falls on your house).
So that is how health insurance would work if we made it work like other forms of insurance. So even if you go to catastrophic only plans, which may well make financial sense for some people, particularly young healthy people, health insurance is still going to be very expensive because it doesn't work like any other form of insurance. Catastrophic care is very, very, very expensive, there is no theoretical limit to how expensive it can be, and thus insurers have to always price that risk into the policy. Moreover, unlike automotive or home owners insurance, everyone makes a health insurance claim at some point. Almost everyone will make a catastrophic claim at some point. Usually more than one. It would be like an insurer selling you homeowners and knowing that it will have to pay to rebuild the home at least once in the 30 years you own it, and quite possibly several times.
This is why some of the least expensive policies are the few true HMOs like Kaiser Permanente. The reason is that their members are usually with them for decades, thus it is financially beneficial for that insurer to make sure that their members get plenty of preventative care and screenings as the healthier they can keep them, the cheaper they will be to cover.
At any rate, health insurance is just completely different from any other type of insurance. It is so different, that we probably should just call it a health plan or something other than insurance.
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