Insurance and Reality

Health care is too important to be left entirely to the private sector.

   The underlying concept of insurance is that sharing the risk spreads the cost. Therefore, the more people in the sharing pool means lower cost for each member in the pool. When a loss does occur, everyone helps to cover the cost.
   The idea began long ago, when businesses ran the risk of losing their investment if a ship was lost at sea. By getting together and contributing to a central fund, shippers could ensure that if something did happen to a cargo, they would be reimbursed from the fund. It was worth shelling out a little money to cover the risk of a total loss.
   Meanwhile, the guys who held the funds could invest in other projects, hoping they could make a profit even as they hoped there would be no losses from maritime disasters.
   Eventually, the concept spread to land-based property in the form of fire and theft insurance, then to life insurance. The hope remained that nothing would happen too soon, while the clients had the assurance that if something did happen, they would collect a larger sum to cover the loss.
   These days, the big discussion is about health insurance, and whether a government-sponsored plan should be made available so that everyone would be covered in case of illness.
   One problem, of course, is that companies in the private sector want to avoid risk as they collect the premiums from clients. That's why sick people could not get health insurance; the risk of having to pay out was too high, so companies refused to issue policies to those in greatest need.
   Similarly, young and healthy people did not bother with health insurance, reasoning that they were not sick, so why spend the money? And those who did buy policies often did not put in claims, because the company would then  raise their rates. As the TV commercial puts it, Why buy insurance if you have to pay more when you use it?
   In short, high risk people are denied coverage and low risk people don't bother. At the same time, the larger the pool of contributors, the lower the overall risk to them and to the company.
   
   Now comes the idea of nationwide health insurance coverage for everyone. In principle, when everyone joins the risk pool and contributes to a central fund, the lower the individual cost as well as the risk of high payout from the central fund.
   But who runs the central fund? Should it be government, or should all the private companies be encouraged or required to participate, on the condition that all citizens also be required to participate?
   As it happens, insurance companies in America are regulated largely by individual states, and when payouts in one state erode a company's profits, that company stops doing business in that state, leaving residents either without insurance or forced to pay even higher rates to remaining companies.
   It's conceivable, then, that some regions of the country would end up with no insurance companies at all, leaving residents holding the bag for the full cost of medical care.
   This is where a national government can step in and help to provide health coverage for all, by requiring everyone to have a policy. In other nations, tax money plays a major role in universal coverage. In the United States, however, private industry wants to continue its profit-making role, so there is a combination of factors in play. Those who already have health insurance are not affected by a mandate to buy a policy, since they already have one. And for those who do not, there is a government subsidy to help pay the premium.
   Ideally, this will expand the pool of contributors to the entire population and thus spread the risk, enabling the companies to maintain their profit levels because they have more customers.

   Now comes the kicker. It seems that more policy holders means more claims. And because there are more claims, the insurance companies insist they are entitled to higher rates. But this ignores the fact that more money is coming in from more policy holders, which should balance out.
   Nevertheless, here comes a report that despite more customers and a government subsidy to help those in need, health insurance rates are expected to rise by 25 percent in the coming year.

   Go figure.