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Insurance – The Big Lie

Written by | October 24th, 2008

You read the title correctly. Insurance is probably the biggest lie perpetuated on the public since the flat-earth crowd. Consider in the US, where the masses have been using and abusing insurance for more than a hundred years. On its face insurance looks like and sounds like a perfect solution. The cost of health care for example, is very high. One would argue that by having health insurance, you reduce your expenses, particularly in a catestrophic event, and thus reduce your overall exposure to financial risk in the process. It seems so good, how on earth could it be bad? Well, consider that insurance companies are not independently wealthy, their wealth comes from the premiums paid to them by subscribers …  like you and I, and our respective employers if we are so lucky as to have them subsidize our premiums.

 
Insurance companies are in business to make money, and as such, the premiums that must be collected from the subscribers must always be higher than the monies paid to health care providers for your care, regardless of whether it is for a $40 prescription or a $150,000 heart transplant, plus associated future medical care. It isn’t difficult to imagine then, that given the cost of health care, we just can’t afford it.

 
So, what is the answer? Well, I didn’t say I had the answer, I only said that insurance as we know it is a big lie … if the associated health care costs are not affordable, then the insurance to cover that health care, by the sheer nature of the beast, cannot be affordable either. The prospect, while pretty on the face, is unsustainable. In 2007, the average cost spent per person in the US for health care was $7600. Therefore, to make things equitable for every man, woman and child to receive benefits, (i.e. be able to go to the doctor for whatever ailment they had), a family of 4 would have had to contribute $30,400 to the insurance pool in 2007. Since it is obvious that most people can ill afford to pay the premiums under these circumstances, it stands to reason that the health insurance companies’ betting that you will not need health care is a winning one. The question then is, if the insurance companies don’t think you will need health care, or at least they don’t think the masses will need it, why have we, as a society put so much emphasis on the dire need of health care? The answer once again is with the insurance companies. The top 25 insurance companies in the US spend $1.5 billion annually telling people how much they need their product. So their job is to convice you that you NEED their product, while betting that you don’t.

 
I don’t have health insurance. It is a calculated risk I take. If the insurance company believes I don’t need their product, then why should I believe them when they tell me I do? It doesn’t mean that I forego health care … far from it. Consider that my total health care premium for 2007 would have been $15,200.00 just for me, not including my family, based on a group rate from my employer. On average that is $1267 per month for health care. I would find it very difficult to expend that amount of money monthly on my health care alone. In fact, if I went to see the doctor weekly, I would spend on average $260 per month without health insurance. Most people visit the doctor much less than that, in fact, I have been to the doctor exactly 3 times in the last 2 years. Once for a full physical, required by an organization I was working with, once for a blood test, and once for the results of those tests. I could not begin to tell you how upset I would be had I spent $30,400.00 to an insurance company to provide $295 in services. If you think health care is expensive, try looking at the true cost of your insurance. I did, and I said “No thanks”. I’ll pay for my health care costs as I incur them, and I will keep the remaining $30,000 in a savings account in case I need catestrophic care.

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7 thoughts on “Insurance – The Big Lie

  1. markross

    Hi KEB,

    You make a very valid point, however, I see health care, unlike other insurances, as a true need.

    God forbid, but what if someone in your family did get seriously ill? That $30,000 that you used as an example could be wiped out with a one week stay in the hospital.

    I could actually make that same case, even more so, for car insurance rather then medical insurance.

    For example, unfortunately, I can confidently say that I have likely used more in medical care then the premiums that I have paid. Well, let's say that I have gotten my money's worth, sadly.

    I have been getting allergy shots for 16 months; one vial of that serum lasts about 3 months, at the costs of $900 per vial. My insurance premium was $35, every two weeks; that comes to $840 per year.

    So, I would not want to pay out of pocket.

    On the flip side, I have never had one car accident.

    However, car insurance, unlike medical insurance is mandated.

    I can actually see a day when our government tries to mandate heath insurance.

    Going back to your point, when in a group plan, the premiums are likely based on the number of members and some other variables. Also, in a group plan, you are not denied health care from your employer. So, for someone with pre-existing conditions, that is likely their best path, at least for now.

    Personally, I would like to see health care go to the private sector, and like car insurance, you are generally not denied but your premiums are based on past history. Also, another method that would be nice, and I think that you will agree, is an ala carte system. That may even be the bigger issue here.

    Consider this, I have never had a child, nor am I married, still I pay the same premium as a person who has had a child, and there are cases to where they are paying for care that I have used and they haven't. Perhaps a private sector, ala carte system would be much better.

    I actually like these Health Savings Accounts; if you can get your employer to buy in, you can contribute tax exempt money to that account, in the case that an emergency should occur.

    Mark

    Reply
  2. KEB Post author

    Mark,
    I think you missed the whole point. It isn’t that health insurance or any kind of insurance for that matter, is a particularly bad thing to have. For some people it is a very good thing to have, but for the vast majority of people it is a money losing proposition.

    Lets address the points you make regarding your particular situation. You say you have gotten your money’s worth. Perhaps you have, however, as with most employer sponsored health plans, your $35 every 2 weeks is likely a paltry amount against the true cost of your premiums. Consider that at my employer, the employee portion is $46 per week, while the employer portion is $243 per week.

    Now, lets compare where you are in this scenario. If the percentages hold true, your employer is likely paying about $200 every 2 weeks, suddenly your $840 a year turns into $6110 per year. That extra $5k per year is money you could be earning or that your company’s product could be reduced in cost thereby reducing inflation. Did all of your medical care exceed $6110 last year, if so, then you are a liability to the group, if there are more people who are liabilities, then the rate goes up for everyone, even those who have not used a single penny of benefits.

    In the end, someone else is paying for part of your medical care if you exceed the total premiums paid on your behalf. This is where the system starts to fall apart.

    There must always be more non-users than users, in otherwords, most of the people paying for health insurance will never receive the full benefits for which they paid. It is that fact that gets overlooked.

    We are told how terrible it is that 15% of americans don’t have health insurance. The truely sad fact is that quite possibly 75% of americans have health insurance they don’t need.

    Reply
  3. markross

    Hey KEB,

    I did miss a critical point, however, I don’t think that I missed the entire point.

    I did not realize that you were looking at the sum total of the premiums, employer + employee. Now that you clarified that, I see what you mean.

    Yes, if we look at it like that, then there is no way that I have used the total premium paid to the insurance company.

    I used your same analogy when I described car insurance.
    I have not been in a car accident, however, I still pay approximately $130 a month. Why do I pay that? I don’t plan on having a car accident.

    Perhaps if the “government” didn’t make me buy it, then I would be able to afford health insurance; I think my health is a bit more important then my car : )

    What did you think about the suggestion that I may about privatizing health care and having an ala carte system?

    I am one that does not believe that the employer should pay for our health care. I am doing a job for them and they should pay me for the work I do; they should not be responsible for my health care.

    The problem there is that if you have a pre-existing condition and you try to go buy an individual health care plan, you are flat out denied.

    There is no doubt that health care, as it is today, is not a good, efficient system, in this country.

    Without turning this into a full blown political discussion, just imagine how it would be if the government tries to institute a national health care plan; then we can say goodbye to possibly 50% of our salary irregardless if we use the benefits or not.

    I really think there are some viable solutions, such as privatizing health care with an ala carte system, underwritten by risk assessment, irregardless of pre-existing conditions.

    or

    We go to the tax exempt Health Savings Account system which will spur on more competition among health care providers which may in return drive costs down.

    If you went to 10 people and asked them..
    How much did your doctor charge you for that visit today, including the shots etc..
    How many do you think would be able to give you a definitive number? The likely answer would be, I don’t know, I gave them my card.

    That is another variable, they can basically charge the health care providers anything they like, in hopes that they get paid.

    It is currently a very bad system indeed.

    Mark

    Reply
  4. KEB Post author

    I agree that HSAs are probably the way to go, particularly with regard to the amount you are out of pocket every year.

    I don’t like socialized medical care, especially how they have implemented it in Europe and Canada. The taxes that go to support these systems is extremely high and the care received is slow and poor. In fact, in Europe the government pays doctors to NOT hospitalize patients. Imagine if you were sick and needed medical care, but the government was paying your doctor to NOT treat you. How incredibly insane that is.

    Of course I have heard the mantra “if everyone had medical insurance” … well, I am not buying it … the official figures are that 47 million americans don’t have health insurance. That is roughly 15% of the country’s population. Now, the kicker is that nearly 36 million of those people live at or near poverty. Given that, most of them would be eligible for medicaid or medicare. Of the roughly 11 million people left without insurance, the largest percentage of those are in households making in excess of $50,000 per year. In those households, most are eligible for health insurance through employer sponsored programs.

    All of this points to:
    1) if you don’t have insurance and you can’t afford it, you likely qualify for medicaid
    2) if you don’t have insurance and your household income is above $50k, you probably have it available but elect to not have it.
    3) some people don’t have insurance because they choose to not have it

    Reply
  5. markross

    I agree with you on all points except that I would add a fourth point; that is that there are also people that are trying to start small business’s (and such) of their own, but irregardless if they have the money or not, if they have a pre-existing condition, they are not getting an “individual” health care plan.

    I agree with you 150% about the socialized health care; it seems to be an overall failure for all the countries that have tried it. As you said, it is poor care and ultimately you are paying for the ones using it, when in fact, you may not be using it at all.

    Our government seems very good at throwing more money at the problem instead of working to fix or reform the problem.

    Yes, so we are in agreement, HSA’s should be available to all; employers can elect to contribute or not contribute to them; then beyond that, I like my ala carte system idea.

    Could you imagine if we only paid taxes toward the services that we used? Would that be called anti-socialism?

    Mark

    Reply
  6. markross

    K,

    You know, we never did mention credit cards; man, they are an even bigger lie. Straight up, legal loan sharking. Also, a "large" contributor to our current economic situation.

    Mark

    Reply
  7. markross

    You know, after reading back over our above conversation, it really has made me think a lot…

    As we were discussing, we, and our employers, combined, are paying a large amount of money to these dam insurance companies…and why are we doing this?

    We should have Health Savings Accounts that are completely free of taxes; and we should deal directly with our doctors and the hospitals, in regards to costs and services.

    Geeez, you get rid of these middle man-insurance companies, that would like save millions of dollars a year and keep health care in the private sector, while allowing us to maintain our liberty and freedom of choice in regards to service.

    Not to mention, when we see how much health care truly is, and it is coming from our savings accounts, then we will likely be more prudent, shop around for better cost/care; that would cause health care providers to be more prudent with the prices they charge, which would spur competition between health care providers, and likely cause positive effects for our economy.

    Reply

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