Healthcare & Insurance

Pre-existing conditions, routine care, etc.

Every argument I’ve heard in the healthcare “debate” in my lifetime begins with one or more false presuppositions. Nothing approaching authentic progress is plausible, because the framework is overly simplistic, wrong, and not being seriously questioned.

One problem is that we don’t know how to talk about healthcare in this country except in terms of insurance. This is true to such an extent that health care and health insurance are practically synonyms. We don’t readily identify a difference and certainly don’t differentiate in debate.

This is a problem, because during these debates, we don’t often think about what insurance even is, what it means, or how it works. We talk about insurance all the time, but what is it? And what is it good for?

What is insurance?

Insurance is a structure for transferring risk.

It begins with the identification of one or more possible events, which, if they came to pass, would be beyond our ability to easily recover. Then, looking for ways to reduce this risk in a way others can also tolerate.

The general structure of insurance has been in use by societies for at least 4,000 years or so, most likely longer. One such arrangement, recorded in the Code of Hammurabi and practiced by early Babylonian sailing merchants, prescribed that when a merchant took out a loan to fund a shipment, he could pay the lender an additional sum, and in exchange the lender would agree to cancel the loan if the shipment was stolen or lost at sea, thereby insuring the merchant against the risk of extreme weather or pirates or such.

This allowed the merchant to arrange larger shipments even amidst potential unforeseen circumstances, carrying more goods than even the merchant’s total personal wealth, without risking his whole life and livelihood. If a catastrophe occurred at sea, the loan would be canceled and his business could continue. And the rarity of these events across the lender’s many loans and income from insurance premiums meant the lender was able to absorb the loss.

The risk of a rare but possible catastrophe was transferred to another more able to bear it, allowing the merchant to operate efficiently and confidently.

How do we use insurance today?

There are many ways we use insurance today that make a lot of sense.

One example is auto insurance. For any individual, the probability of a vehicle accident on a given day is low. It’s always possible. It can happen at any time. We just don’t know when or even for sure that it will ever happen to a given individual.

But the risk of various harm if an accident occurs can be extremely high.

So we buy insurance. We insure our own liability, in case we harm someone else. And we insure the value of our vehicle, in case we harm or destroy it.

We do this because, for most of us, a vehicle is among the most monetarily valuable things we own. It could be difficult to recover quickly from its loss. And of course for medical and legal reasons as well.

But, again, it follows the basic pattern of the Babylonian merchant—we’re willing to pay someone else to carry the risk of the unknown for us, so that we can go along confidently driving where we need to go, assured that, at least monetarily, we would be able to survive an accident with minimal inconvenience.

How should we use health insurance?

This brings us to the discussion of health care and health insurance.

In the US, we treat health insurance differently from all other insurances. And, again, we don’t know how to talk about healthcare except in the framework dictated by insurance. This freezes the entire discussion.

Before going any further, let me state my presuppositions, for clarity:

  1. Healthcare is not a luxury or a privilege, but a basic human right and a particular responsibility within a society.
  2. Nothing is free. Part of the responsibility of a society is identifying structures so that all members have access to what is due them in justice.
  3. Private insurance may or may not remain a long term component. But I’m not questioning that right now, just considering what are the minimal changes required to stabilize the structure of health insurance in the US.

Catastrophic / emergency care

Insurance for unforeseen, catastrophic, or emergency care can make a lot of sense. It’s an entirely appropriate use of the structure of insurance, and could work well.

Routine / preventive care

Insurance for routine healthcare makes no sense. The structure of insurance is completely incapable of dealing efficiently with well-known, routine expenditures. It’s an abuse of the structure of insurance. It doesn’t work. It leads to a part of where we are now, with little more than an overpriced medical subscription service in which the bulk of value is retained by private insurance companies for the service of being an intermediary, and medical service prices are allowed to inflate without control or anchor to reality.

Insurance is not a rational way to pay for routine healthcare.

There can be discussions about what is a rational way to pay for routine healthcare. And we’ll come back to that briefly. But it’s not insurance.

Pre-existing conditions

Insurance for pre-existing conditions is similarly impossible. It’s an abuse of the concept of insurance. This is not a value judgement about whether those with pre-existing conditions should have access to healthcare regardless of financial situation. As already stated, I take it as a given that they should. This is simply a matter of recognizing what insurance is, what it’s good at doing, what it’s not good at doing, acknowledging its limitations, and trying to identify the best structure with which to provide for everyone who needs care.

You cannot watch a tree fall on your car and then go out and buy comprehensive auto insurance to cover the damage. That’s fraud.

The risk has already been realized—not potential. Not insurable.

Insurance is not a rational way to pay for healthcare for pre-existing conditions, because, as with routine care, it becomes simply a medical subscription service at high cost and low efficiency. And private insurance companies are the worst possible entities to use as intermediaries for a medical subscription service. It’s just not what they’re good at.

Why do we think it rational to funnel profits to private insurance companies to cover known and well-understood medical costs, such as for pre-existing conditions? It’s completely irrational.

What then?

I don’t have any concrete policy answers. But one thing seems clear—payment for both routine care and pre-existing conditions will need to be removed from insurance coverage, if we want to retain the primary model of private insurance-based healthcare coverage, and if we want it to be affordable for the majority of us.

So what of routine and pre-existing medical care?

I think the answers are different.

Routine / preventive care

For routine care, there is no reason to use an intermediary at all. The medical community will need to adjust to be able to provide routine care at costs regular people can afford on a day-to-day basis. Or else routine medicine will need to be rethought entirely.

If it’s truly routine, then it must be generally affordable. This should be obvious. That it has become less than obvious is a major problem.

Pre-existing conditions

Most of us agree that those with pre-existing conditions cannot simply be abandoned in a society. That’s not a question. The question is just, why would anyone think private insurance companies can provide a solution for something that is not insurable? Why are we trying so stubbornly to make that work? And why are we having giant shouting matches over how to make that unfounded and false presupposition a reality?

This was attempted with ACA and mandatory private coverage for pre-existing conditions—effectively mandating private insurance companies to take on what is a social welfare function. And it’s being attempted again in a much more feeble way with AHCA, which proposes high-risk insurance pools and government subsidies to prepay private insurance companies for (much more expensive) coverage for pre-existing conditions. This is similarly dense. Because, again, private insurance companies are simply not well-suited for providing non-insurance services.

This is not a problem private insurance will ever be able to solve. As long as we keep trying this model, it will keep failing.

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