Tuesday, September 22, 2009

Pooled Insurance is Fundamentally Flawed

I couldn't get to sleep; So I thought I would rant on my blog.

Pooled health insurance is inherently flawed. Pooled insurance attempts to fund health care by accumulating health care resources in a pool from which people draw care as needed. This system is fundamentally flawed as health is an attribute of the individual. The controlling logic of the pool is based upon the experience of the group.

This system creates an artificial conflict.

The concepts of choice and competition are antithetical to pooled insurance. If individuals are given a choice then they will seek pools whose premiums are lower than their expected expenses (as they seek to game the system). Insurance providers, if given a choice, will choose to reject those individuals whose expected claims experience is greater than their average claims experience.

Choice and competition don’t work with pooled insurance and the needs of the individual and group are fundamentally at odds.

Pooled insurance is fundamentally unfair as those with central knowledge of the pool are able to work the system and gain better care than those on the outside of the pool.

Pooled insurance is inherently flawed as people live dynamic lives that cause them to move in and out of multiple pools throughout their lives.

Sadly, the thinking around the 2009 health care reform effort did not start with a fundamental rethinking of insurance. Instead, the reform effort is set on trying to fix a fundamentally flawed system.

The heart of reform effort is efforts to use the coercive power of government to force behaviors the reforms hope will overcome weaknesses in the pools insurance paradigm. For example, the program forces all individuals to buy insurance and forces insurance companies to accept policy holders that they would not otherwise accept.

Central to the program is the creation of an artificial exchange to aid in these coercive efforts.

Anyone who reads and seriously thinks about HR3200 should see the absurdity the proposal. The bill creates a massively complex bureaucracy to encapsulate, regulate and attempt to control a fundamentally flawed paradigm.

I contend that real reform would start by looking at the nature of health and health care.

Health is an attribute of the individual. The resources for health care should be directly owned by the individual, and we should dump this silly notion of pooled insurance on the dust heap of history.

Employers spend hundreds of thousands of dollars on employer based insurance. When you add the premium and out of pocket expenses of employees, you will find it common to spend $10,000 per employee per year on health care. That is $400,000.00 over a 40 year period.

If we put this money in a structured savings system (such as the Medical Savings and Loan); we would find that the vast majority of Americans would have enough resources for their care with money to spare.

As people spend their money better than a bureaucracy, self-funded care would fix the broken pricing mechanism.

As people like staying healthy, self-funded care would achieve the goal of refocusing health care dollars on wellness from sickness.

If people owned their own health care resources, then all of the problems like pre-existing conditions and portability would vanish and we would simply be left with the question of how to get extra resources to that tiny number of people whose health care experience falls outside the norm.

The problems with health records vanish as well. Pooled insurance makes the pool the de facto owner of health records. People get separated from their records when they change pools.

If the individual owned their health care resources, they would own their health records and the complex problem of creating a national health record database vanishes along with all the problems of portability and pre-existing conditions.

Health care reform should start with thoughts about the nature of health and not about ideas of how to patch a system based on the absurd idea that health is an attribute of a pool of people.

All of the plans coming from Congress are set on using the force of government to overcome fundamental flaws. The result of the effort will be an bureaucratic nightmare that does not acheive its ends because health care funding should be built around health and not political fantasy.

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