FUNDAMENTAL TRUTH #21: “The reason why health insurance is so expensive is because it is not insurance.” -Old Pithy

Posted by PITHOCRATES - July 6th, 2010

YOU CAME IN with a grand ‘to lose’ but have been riding a hot streak.  You’re up 5 grand.  And feeling luckier still.  You came in with a grand, you think, so you can just as well leave with a grand.  So you bet 5 grand.  Cause those cards have been so good to you tonight.  And there it is.  Blackjack!  And just as you’re about to shout to the heavens you see the dealer throw an ace on his down card.  The dealer asks, “Insurance?”   

You don’t want to but you just KNOW what’s under that ace.  All of a sudden you’re not so cavalier about losing 5 grand.  Too many friends have told you the same story.  “I was up 5 grand until that last hand.”   You could cry.  You don’t buy insurance.  Only suckers buy insurance.  That’s what you’ve always said.  But when you’ve got 5 grand on the table, the dealer can’t have anything but blackjack.  You know it.  He knows it.  And your wife knows it even though she’s off playing the slots somewhere.  You pull out $2,500 from your ‘do not touch’ money and buy the insurance.  (Let’s end this on a happy note.  The down card was a queen.  You walk away as if that last hand never happened, $5,000 richer.  Less taxes, of course.)

LIFE’S BEEN GOOD.  You’re making good money.  You have a beautiful wife and 3 great kids.  You just sold that small house and moved into that big house you always wanted for the holidays.  Cost a pretty penny.  But you had $75,000 in equity in the old home.  And cashed in a CD to furnish the new one with some nice new toys.  After all, life has been good.

The mortgage stings a little, but not too much.  You’ll get by.  You got all the big things you’ve wanted.  Now you can settle in and live modestly in your new home.  And you bought insurance up the wazoo.  If there is fire, flood, theft or death, no worries.  Well, there’ll be some worry, but you won’t financially ruin your family.  They’ll keep the house.  And there will be college for the kids.  Because you were responsible.  You protected the greatest investment of your life.  Yes, things have been good.  But not good enough to pay for everything twice.

TRADE EXPLODED IN the 17th century as little wooden ships crossed the oceans.  Storms and rough seas, though, toss around little wooden ships.  A lot of them sank.  With their cargoes.  But they didn’t all sink.  So owners insured their ships and cargoes.  For a nominal fee, they protected their investment.  For those that didn’t sink, the insurance wasn’t much of an added expense.  For those that did sink, it paid to replace the lost ship and cargo. 

YOU’VE ALWAYS WANTED to open a restaurant.  And your dream finally came true.  You saved for years.  You scrimped on vacations.  Didn’t by a new car.  Expensive toys.  No.  Your years of denying yourself the little pleasures in life saved up enough money to buy that restaurant.  To put enough money down to borrow to fit out the kitchen and dining area.  To stock your fridge, freezer and pantry.  You maxed out your credit and sunk your life savings into your dream.  And you’re loving it.  But you don’t want to lose it.  So you have all the insurances.  Fire.  Property.  Workers’ comp.  Liability.  So in case of fire, celebrating students (who trash the town after winning the championship), a strained employee back or an E. coli outbreak (because an employee didn’t wash his hands after using the toilet), you’re protected.  Your business may suffer, as they are wont to do after an E. coli outbreak, but the lawsuits won’t leave you destitute.

BEING IN THE NFL is a dream come true to many athletes.  But it can be a brutal occupation.  Compared to other professional sports, it has a short season.  Why?  Attrition.  Concussions, broken bones, torn ligaments and contusions take their toll.  The short season allows a longer healing period.  And time for surgeries.

Players can make obscene amounts of money.  But they can also suffer a career-ending injury in the first year of a multi-year contract. Great playing potential means great earning potential.  If you stay healthy and play.  Of course, if injured, all gone.  Some players insure against a career-ending injury.  Lloyd’s of London will insure an athlete.  For a price.  It ain’t cheap.  But if it keeps you from losing, say, 20 million in earnings, it could turn out to be quite the bargain.  If you’ve got huge potential.

THE MOST PRECIOUS gift we all have is our life.  So we take care of it.  We watch what we eat, don’t drink, don’t smoke, don’t take drugs, don’t speed in our cars or while on our motorcycles, don’t drink and drive, don’t drive around flashing railroad crossing barriers, don’t binge drink, don’t have unprotected sex, don’t play with matches or run with scissors and don’t do that thing where you jump up on a railing with a skateboard and fall, crushing your testicles on the railing and hitting your head on the concrete step.  No, we exercise, go to bed early and eat a lot of bran. 

All right, we probably don’t eat as much bran as we should.  And maybe we do a risky thing or two.  But we understand that those risky things we DO do can cost us.  Could wipe us out financially.  So we buy insurance to protect our life savings in the event of a catastrophic event that could be medically very expensive.

Or do we?

EVERYONE THAT HAS ever bought blackjack insurance didn’t get a winning blackjack hand.  Everyone that has ever bought homeowner’s insurance didn’t get a new home with their policy.  Everyone that has ever bought mariner’s insurance didn’t get a ship and a cargo of goodies with their premium payment.  Everyone that has ever bought business insurance didn’t get a business with their payment.  And an NFL player doesn’t get a dime from Lloyd’s of London until something pretty horrible happens first.  No.  These purchases were ‘just in case’.  Most people will never get anything for their payments (other than peace of mind).  Only those who suffer a loss will.  And those that do will have mitigated their financial losses with the insurance they so wisely purchased.  And they will get on with their lives.

This is insurance.   We use it to protect our wealth.  It takes a lot of time to accrue it.  So when we have it, we tend to protect it.  We do risky things.  And insurance manages that risk.  So we don’t lose everything we have because of a catastrophic event. 

We don’t think like this when it comes to health insurance, though.  We don’t think of health insurance as a way to manage our risk.  We look at it as a free ride.  If we have it, we expect free health care.  We want everything.  But we don’t want to pay for anything.  Free mammograms.  Those blue pills for the old johnson.  Heart valves.  Prenatal care.  Child vaccination.  Etc.

The problem is, these things cost.  A lot.  And if anybody can have them, those who actually pay for insurance have to pay for them.  And they’ll be paying for things they aren’t using.  All those things listed above mean nothing to a young single male.  But he’s helping to pay for that stuff.  Either by his premium contribution.  Or in lost wages.  Because an employer can’t afford such quality health insurance AND high wages.

Health insurance has become nothing more than a wealth transfer.  It’s like a Ponzi scheme.  A large and ‘growing’ group of healthy young people pay into the system and collect few benefits.  The ‘fewer’, older, sicker people pay little into the system but consume the lion’s share of the benefits.  At least in theory.  But like social security, and all Ponzi schemes, the theory doesn’t work in practice.

AMERICA HAS THE best health care in the world.  If you judge by where the affluent go for their health care.  They go to America.  And the best is never cheap.  You get what you pay for.  And if you want the best, expect to pay.  A lot.

All right, we have the best and some of the most expensive health care in the world.  Add to that an aging population.  What do you get?  A shrinking group of people (the young and healthy) paying for a growing group of people (the old and sick).  That means the burden on those paying into the system has to what?  It has to keep getting bigger.

But it can’t.  The young and healthy will just opt out.  Eventually.  When it gets to the point that it’s a car payment or a health insurance payment, what do you think they’ll choose?  Their annual health care expenses for an entire year may not equal one premium payment.  So they’ll say screw that.  And do.  A lot of young do not have health insurance because they choose not.  It’s just too fricking expensive.  And this just shrinks the shrinking group more.  Which increases the amount those with insurance pay.  And so it goes.

AND YOU DON’T fix this problem by nationalizing health care.  That doesn’t address the problem.  You have to tie the cost to the benefit.  People only chose to pay for things they get.  Those receiving the benefit, then, need to pay its cost.  Like we do with every other thing in our lives.  You want a TV you pay for a TV.  You don’t pay for one so your neighbor can have one.  TV prices are very reasonable, too.  They keep coming down.  The quality is fantastic.  And so it would be in health care.

Single payer health care insurance ain’t the answer either.  Because it’s not insurance.  It’s a wealth transfer.  That means it’s political.  It will serve political ends.  Not make good health care.  First of all, they’ll force the young and healthy to pay for insurance under penalty of law.  Or they’ll raise taxes until it hurts.  Then they’ll cut costs.  First by limiting what doctors can earn.  Then they’ll limit the profits the pharmaceuticals can make.  Then the medical device makers will have their turn.  Soon, people won’t want to be doctors any more.  Or make new and life saving drugs.  Or make medical devices.  So when the supply of these things falls, rationing must follow.  And if you really want to cut costs, there’s really only one place to do it.  The really sick and the really old.  These people, after all, consume the lion’s share of health care services. 

We don’t have a health care problem.  People are living longer than ever.  We have a dependency problem.  The current system has made us dependent on others for our health care.  And dependency kills.  It cowers a people.  Takes away their dignity.  Makes them subservient.  People live in fear.  Of what they may lose.  Nationalizing health care will only make us more dependent.  It’s not the answer.  Unless you want to conquer and subjugate a people.  I mean, how many of you have stayed at job you absolutely hated because of the health insurance?  If that ain’t subjugated, I don’t know what is.  As bad as that was, at least you got something for it.  Good health care.  If you think you’re going to get that under a national system, think again.  Or ask those people with a national system that come to this country for better care.

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