Perhaps Catastrophic Insurance for All
Editor’s note: Perhaps we should consider reform to include a requirement for everyone to have catastrophic insurance. The rest is financed personally, that makes everyone insured. But of course we are trying to push the notion of prevention and wellness (sort of — read the GINA [Genetic Information Non-discrimination Act] regulations now being promulgated by HHS — and you’ll probably think differently). But don’t we already have a catastrophic system in place that pays for the uninsured when they show up at a hospital with a catastrphic and emergency situation? So the following from Greg Scandlen:
|Today, all health insurance is a combination of “insurance” for adverse events and “prepaid health care” for services that are low cost and predictable.
The object of this coverage is to pay for health care services. There is nothing wonderful or magical about having a health insurance policy in itself. The reason to have it is to pay for the services you consume and the bills you incur.
But there are many ways to pay for those services. If I need a service that costs $2,000 I can slap down my insurance card on the counter and the insurance company will pay the bill. But I could also slap down my credit card and my bank will pay the bill.
The only difference is how the insurance company or the bank gets the money to pay the $2,000. In the case of the insurance company, it can pay the $2,000 because I (or my employer) have been giving it $100 a month for the previous 20 months. If the bank pays the bill, I (or my employer) will pay off the debt by sending the bank $100/month for the next 20 months. The only difference is pre-payment versus post-payment.
So the question becomes which is the more efficient way to finance the $2,000? The bank will charge me interest (possibly 8%). But the insurance company also has a charge in the form of a loss ratio (also in the time value of the money it has been holding.) So, how does the insurance company load compare to the interest rate the bank charges? If the loss ratio is 93%, (7% load) it is probably a good deal, but if it is 80% (20% load), it is not such a good deal.
Policy makers operate on the assumption that having insurance (pre-paid health care) is inherently a Good Thing and superior to not having insurance and post-paying for the exact same service. Why? If I can pay for the same services at a lower cost, why is that a bad thing? If the goal is to pay for health care services, we should be interested in finding the most efficient way to get that done. In some cases it may be through insurance coverage, but in other cases it may be through bank financing. Neither is more virtuous than the other.
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