Tuesday, January 17, 2012

Shifting Left

The debt crisis is a the result of multiple causes. What has happened is a general leftward shift in our financing.

Things that our parents would only buy with cash on hand, we now buy on debt. The things our parents used to save for, we now fund with insurance. Even worse, Americans in our progressive age feel a great sense of entitlement and demand that a great many services be handed to them by the community.

The way out of the debt crisis is to create a mechanism to shift things back to the right.

The goal of the Medical Savings and Loan is to reverse-engineer an insurance pool with a minimal amount of disruption.

The biggest challenge is that a large number of people are now dependent on insurance.

I almost used the phrase "heavily invested in insurance." But insurance is not an investment. You may be paying an insurance premium of $18,000 a year, but none of that money is going to build equity. Insurance is all pay-go.

A person in his sixties may have paid a half million dollars in insurance premiums. That money is all gone. Bye, Bye. Your insurance agent has a fancy car, and you now have dependency.

A dramatic shift from insurance back to savings is problematic because the people who've developed a dependency on insurance will get scrunched by the process.

We, as a society, do not like to see people getting schrunched.

The Medical Savings and Loan addresses this problem by looking at each person individually. Remember, the mantra of the program is "those who can self fund their care should self fund their care. Those who can't need assistance."

The MS&L uses a system of savings and loans to help those people who can self-fund their care do so, and a system of grants for those who cannot.

So, if you look at a person in his sixties, you will find that the person has relatively low income and relatively high medical expenses. A guy who makes $50k a year and is 4 years from retirement has only $200,000 to work with. A person near retirement does not have time to pay back any loans. So, a company switching from insurance to the Medical Savings and Loan, they would have to pay for this guy's medical expenses with grants.

The Medical Savings and Loan is all data driven. The program compiles, on a person by person basis, all of the information on income and expected health expenses. In the first years of the program, the company would have to top load the grant portion of the program.

As people build up savings, the amount of money needed for the grant program would decrease.

IMHO, insurance is a poisoned product. When I worked in insurance, I found that the system promised care that they never delivered. It is likely that many of the people who paid into insurance all their lives will get less health care by switching back to self funded care.

This is a fault of insurance, not the fault of the Medical Savings and Loan.

An alcoholic gets the shakes when he tries to sober up. The fact that sobriety hurts is not the result of sobriety being bad. Sobriety hurts because the drinking was bad.

The Medical Savings and Loan is a mathematical model for transitioning from group funded to individually funded care. It is worth examination. The program, as designed, can help reduce the adverse affects of switching from a debtor society back to a saving society.


Craig Casey said...

Good article, but disagree with 1 minor point, u said "Your insurance agent has a fancy car, and you now have dependency." the avg insurance agent USED TO Make according to the state of california just over $40,000 per year, IF they are even still in the health insurance business. Not fancy new car type income.

And those numbers held when the economy is good. Now? easily $25k, 30k?

y-intercept said...

You are correct to call me out on that gafaw. I really need a person to edit what I write.

I singled out the agent for being the salesperson. There are moguls inside the firms that make out like bandits, while agents work their fingers to the bone trying to help customers.

BTW: The MS&L actually has an extremely positive role for agents and claims adjusters. The program turns them into health care advocates.