Cost-Benefit Analysis and Health Insurance

Posted by PITHOCRATES - August 19th, 2013

Economics 101

We do a Cost-Benefit Analysis before making a Buying Decision

We make decisions everyday comparing costs to benefits.  Any time we go to a store.  Any time we make a buying decision.  We ask ourselves how much are we willing to pay to enjoy the benefit of the thing we’re thinking about buying.

For example, people love boats.  For there is nothing like being on a boat on a beautiful summer’s day.  Especially if you’re a guy.  Because bikini-clad women love sunning themselves on boats.  You could even say that a boat is a magnet for beautiful, bikini-clad women.  But how much are you willing to spend to enjoy that benefit?  Being around beautiful, bikini-clad women?  For owning a boat is very costly.  Especially if you live in a northern clime with a short boating season.

First of all, buying a boat is very costly.  It could determine the size of your house or where you live if you’re making a boat payment.  Then there’s insurance.  Fuel costs.  Transportation costs.  And inconvenience.  Of the time, effort and wear & tear on your vehicle to haul your boat to and from the water.  Or you can spend even more money to dock your boat at a marina.  And dry-store it over the winter.

Young, Healthy People do not buy Health Insurance because it has no Immediate Benefit for the High Cost

It takes a pretty healthy income to enjoy the benefit of boat ownership.  Something business owners can afford.  Because they earn a decent income.  But they earn that income because they put in a lot of hours.  So many that their boat may sit in their yard for most of the summer.  Or in storage.  So while a boat owner continues to pay the costs for the benefits of boat ownership he or she rarely enjoys those benefits.  Especially if they get married.  And the spouse gets seasick.

In an honest cost-benefit analysis few would buy a boat other than a business that needs a boat to do their business.  Like a fishing boat.  Or a harbor tug.  For these people there is a financial benefit that comes from boat ownership.  Income.  Unlike earning enough money to be able to afford a boat these people use their boat to provide an income.  Making the cost-benefit analysis completely different.  Instead of rationalizing the value of having fun they look at the revenue their boat will be able to provide.  And if it’s greater than the costs of owning that boat they will go ahead and buy that boat.

Sometimes we make these decisions based on impulse or desire instead of objective analysis.  Buying a more costly car when a less costly one would do.  But there are times when some go too far in the other direction.  Deciding not to buy something because they can’t see or enjoy the benefit.  Such as car insurance.  Or health insurance.  Things that have no benefit unless something bad happens.  And a lot of those going happily through life see no reason to spend a lot of money for something that brings them nothing good now.

Obamacare and the Individual Mandate make Generational Theft Law

This is why health insurance is so expensive.  Because FDR broke the health care system.  At least, the money-side of it.  When the FDR administration put in wage caps General Motors started offering a health insurance benefit.  This got around FDR’s wage cap and allowed them to offer more to the best workers to get them to come and work at General Motors.  And ever since we looked at health insurance as an employer benefit now instead of another cost in our everyday life.  Like food and housing.

After this our employment decisions changed.  People chose a job not based on what they would enjoy doing in life but by the size of their health care benefit.  The owner-provided health insurance.  At first the sky was the limit.  Because the U.S. automotive industry could charge whatever they wanted for a car.  And the price of cars began to climb to cover those very generous benefit packages.  Undoing what Henry Ford had done.  As the benefits pushed the cost of a car higher and higher it soon was not available to the average working man.  As they could only be afforded by the upper middle class and above.  Until competition entered and provided a lower-cost car that the less wealthy could afford.  As the U.S. automotive industry lost market share their sales declined.  So a smaller revenue had to pay for a growing number of pension and health care expenses of retired GM workers agreed to during the glory years.  Who were living longer into retirement than originally assumed.  And consuming a lot of medical services in those later years.  All paid for by the health insurance companies.  Causing health insurance costs to soar.

Young people are healthy people.  They rarely go to the doctor.  So when it comes to buying very expensive health insurance (to pay for the older generation consuming the bulk of health care services) they choose not to.  Because of an objective cost-benefit analysis.  Young, healthy people, today, are getting little benefit from paying an enormous amount of money for a health insurance policy.  Their parent’s generation (or their grandparent’s) is getting the benefit.  So they make a rational decision and NOT buy health insurance.  Which raises the cost of health insurance for those who do.  For today health insurance is not insurance.  It’s generational theft.  Stealing from the young to pay for the old because of FDR’s decision that made health care an employee benefit.  And an aging population makes it worse.  Enter Obamacare and the individual mandate.  Which made this generational theft law.  Forcing the young to pay for the old against their will.  Leaving little for them on their meager incomes to support or start a family of their own.  Preventing them from buying a new car.  While the thought of owning a boat is now a distant dream.

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