Friday, August 07, 2009

Big Insurers in Health Care

BusinessWeek has an article on the influence that big insurance (and big medicine for that matter) have had in shaping the health care reform package.

This piece of garbage masquerading as health care reform is not about providing better coverage for people. It is all about forcing people into financial programs that really are not in their best interest.

The idea that the people protesting the program are shills of the insurance industry is completely absurd. The people protesting this legislation are protesting a big government program that will increase costs and decrease quality.

Insurance companies will be the primary beneficiary of the increased costs.

Insurance works by calculating the expenses of a defined set of products for a defined group of people. The insurance company adds a generous profit to their calculation and sells the product the product to the market.

When the cost of goods goes up, insurance companies adjust premiums to match the new costs. In this adjustment, they add the same percent profit. A ten percent profit on $100M is $10. If the costs double, the insurance company simply doubles the premium and passes the cost to the customer. Here’s the deal. A 10% premium on $200M is $20M.

The insurance companies want the cost of the products they cover to go up. It increases their profit. The only thing insurance companies want to avoid are things that increase their costs relative to their competitors.

For this reason, insurance companies are routinely in favor of legislation and regulation that create a systemic increase in costs. Increased costs increase their profits.

The long history and corrupt history of government backed health care reform efforts have all had the effect of increasing base costs. Artificial increases in costs result in a very real increase in the profit and political power of the insurance industry.

I've written a number of articles explaining how the new legislation fundamentally changes your current coverage. These articles are about how the legislation affects you. They are not about how the legislation affects the insurance company.

When legislation makes a fundamental change to your coverage, it makes it so your coverage is something fundamentally different.

The effect the legislation will have on big insurance companies is that it will increase the base costs of health care and increase their profits.

Insurance companies rarely campaign against reform because they own the reform.

Small insurance companies that can't afford to pay protection money to the progressive thugs regulating the show will go out of business or merge with big firms. The big insurance companies will make out like bandits.

The bill fundamentally changes the nature of your insurance.

The three things the bill does are: It expands the pool of products covered by insurance, it forces insurance companies to take on people with pre-existing conditions, and it forces people to buy insurance even when the product they are forced to purchase is not in their best interest.

For example, a college student (struggling to pay for textbooks and food) will be forced to buy insurance in which their expected health care costs are only a tenth of the price they pay for the insurance.

I've joined the protestors on this bill with the hope that those protesting the current power grab will wake up and realize that the insurance industry is the problem and the solution is to self-finance care through an HSA or Medical Savings and Loan.

The health care debate shows that depency on insurance companies fool hardy and that the way to protect you and your family is to yank money from the insurance companies and self finance care. Were people to self finance in droves, the cost of care would plummet. The quality would sky rocket and we would achieve the goal of affordable care that we all (except the big insurance companies and political operatives) desire.

1 comment:

Scott Hinrichs said...

Interestingly, a number of insurance companies, as well as early credit unions, began with a bunch of friends, neighbors, or co-workers pooling together. In the case of credit unions, this was to expand availability of credit among sectors that were underserved by the traditional banking system. With insurance, the idea was to diversify risk among people that were already somewhat co-dependent.

Such associations began without a profit motive. The incentive to over consume and take advantage of other participants in the plan was somewhat mitigated by the socially close-knit ties among members of the group.

The less such ties exist, the more faceless the mass of plan contributors becomes, and the less social disincentives for overconsumption exist. When the pool reaches the size that relative anonymity exists, the moral feedback loop is broken that conveys the message that stealing from others is wrong. This allows people that consider themselves morally upstanding to take from others what doesn't belong to them in good conscience.

As economist F.A. Hayek wrote in 1944, "A movement whose main promise is the relief from responsibility cannot but be antimoral in its effect, however lofty the ideals to which it owes its birth."