Tuesday, March 02, 2010

In the eyes of the COBRA

Insurance is a scheme for regulating health care. People pay regular premiums into a pool, then receive money for irregular medical expenses.

The assumption behind this scheme is that people will somehow have regular incomes. This assumption is totally whack!

Just as medical expenses vary, incomes vary.

Because insurance is built on false assumptions, really bad things happen to people. The most obvious thing is that people lose their insurance when they lose their job.

In an attempt to overcome the obvious faults of insurance, congress enacted a stop gap measure called COBRA that allows workers to buy their employer's insurance. This stop gap measure has always been problematic as only employees who intended to use the coverage buy it ... making cobra cost as much as the care itself.

From a business perspective, COBRA is one of those absurd creations guaranteed to prolong recessions. So, when a recession hits, COBRA shoots up the premiums businesses have to pay for employees ... making it extremely costly to hire new workers.

COBRA was a bad idea that attempts to cover up an obvious gap in a flawed regulatory regime.

A better approach to health care starts with the understanding that income is not regular. Income is likely to decrease in times of ill health. Hence you want a system where people save in times of plenty and spend in times of need.

In the Medical Savings and Loan people place money into savings accounts when they have a job. When the job goes south ... they have their savings!

There is also a lending component. Repayment of these loans is based on income. A person with outstanding loans would not be expected to pay back the loans during the unemployed period. As repayment is weighted, they are likely to have some savings and will still have limited access to loans to help cover medical expenses during their employment gap.

Healthy workers would have their savings. They would also have access to loans that would be repaid with future income.

Inclusion, insurance is a scheme to regulate medical expenses based on the false assumption that people have continuous employment with regular income. The Medical Savings and Loan is a system to help workers with financial planning tools that will help them match irregular income to irregular medical expense.

A system that is based on human nature is more likely to succeed than one based on false assumptions.

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