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Monday, July 6, 2009

Health "insurance" isn't really insurance. That may sound confusing, so I intend to clarify the subject by comparing it to auto insurance, a rather easy-to-comprehend policy. Generally, insurance protects the covered individual(s) from unexpected costs. This post will focus on that point.

Before I begin, I would like to draw a distinction to limit the number of comments that because auto insurance is mandatory, health insurance should be mandatory, too. This is a flawed argument. Driving is a "privilege," living is a right. A mandate to own auto insurance for everyone who drives is therefore different than a government mandate to own health "insurance" for everyone who lives.

According to Wikipedia, "Insurance, in law and economics, is a form of risk management...defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss [emphasis added]." The third principle of insurance is accidental loss. As such, health insurance started as an early form of disability insurance (or "accident insurance").

If auto insurance was like health "insurance," then your employer would decide from which plans and from which providers you may choose. You would no longer see advertisements on television for such companies as Geico, Progressive, and Nationwide, competing for your business through lower prices and innovations in services provided.

The government would also pass legislation (undoubtedly outside the scope of their federal powers) to mandate auto insurance plans carry certain minimum services, increasing the cost of premiums regardless if the customers want these services or not. Obviously, the government knows what's best for you.

However, we would also expect out auto insurance to cover certain non-accidental (expected) costs. Just as we expect our health "insurance" to subsidize our purchases of birth control pills and prescription allergy medicine, we would expect our auto insurance to help pay for our gasoline and oil changes. Who cares if this increases the cost of your insurance premiums (even if you drive less miles than the average driver and thus would face a disproportionately higher increase), you'll feel better every time you fill your gas tank, right?

This brings us to charging higher premiums for risky behavior. The Kennedy-Dodd health care bill would prohibit charging higher premiums to individuals who smoke, use drugs, and engage in other unhealthy behaviors. If that were the case, auto insurance providers could no longer charge higher premiums to males and young drivers (perhaps a positive development) but also that terrible driver who doesn't take care of his/her car, reguarly receives speeding tickers, and has totaled three cars in as many years (we all know at least one of these drivers). If auto insurance was like the Kennedy-Dodds health care bill, every driver would pay higher auto insurance premiums because of undoubtedly poor drivers.

Posted by Eleutherian

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2 comments

  1. Anonymous Says:
  2. Allow me to continue your gedanken experiment by furthering the comparison: If auto insurance was like health insurance is now...

    -Some individuals whose cars were unreliable in the past, through no fault of their own, would find that they cannot legally drive, or must pay incredible premiums for the same coverage.

    -If someone got into a bad accident, their insurance would delve deep into their maintenance records and deny coverage retroactively as they once had their car fixed for burning oil and didn't mention this to their insurance company.

    Such analogies go on and on their head read as quite infuriating. The issue, which you covered briefly at the beginning of your article, is that health insurance and auto insurance are not the same. You are correct that health insurance is not "insurance" as it is generally defined (at least in application), as such, your analogies are misleading.

     
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