Tuesday, September 5, 2017

Private insurance is about making things die

Many people don't realize one of the main social benefits of any private insurance system is to let things die. Insurance is often viewed as primarily about spreading risk, and that is part of it, but pricing risk is often an arguably more important function of insurers.

This is often a good thing. You want an insurance system that effectively kills a project to build houses on a dangerous slope prone to mudslides by refusing to offer insurance or setting premiums way too high. It is good when a company with unsafe equipment/practices is shut down because they can no longer afford liability insurance.

A system that effectively kills dangerous real estate developments or businesses due to pre-existing conditions is good because people can live or work elsewhere. A system that effectively kills people by pricing them out of care because they were born with a genetic disorder is profoundly immoral. People can't choose another body.


Pre-ACA, the health insurance system didn't do a bad job; private health insurance did a very good job at something most people think is deeply unfair.

Once you remove what is normally the main social benefit of private insurance --pricing risk to make things die-- you are left with health insurance companies with only three other functions: spreading risk, negotiating with providers, and customer service. The problem is, the industry is terrible at two of these.

Private health insurance companies openly admit they can't effectively spread risk on their own since some individuals have very high cost health care problems, and these individuals can no longer be priced out. The private health insurance lobby (AHIP) has actively been calling for the government to recreate a government reinsurance program -- government insurance for the insurers that spreads the risk for them.

The private health insurance lobby also admits they are terrible at negotiating with hospital and drug makers. For most procedures, they have negotiated rates much higher than what the government did for Medicare.

We now have a weird health insurance system where the private insurance companies can't do their main job because we consider it immoral, they are asking the government to step in to perform their second most important function for them, and they admit they are really bad at their third most important job.

No comments:

Post a Comment