Tuesday, March 23, 2010

Health Insurance Explained With Food

I like food - a lot - so it becomes a frame of reference for me with a lot of things, but there is a food reference which really helps to explain health insurance and why some of these new provisions have the potential to be disastrous.

An individual health insurance plan is like ordering off the menu.  You pay for what you as an individual are going to eat.  Your cost for the bill reflects what you are costing the restaurant to feed you.  The more you're going to cost them, the more you're going to pay.  A group insurance plan is like a buffet with the same price for every individual.  The buffet works because it's a balance between those who eat enough for 4 people against those who barely eat anything.  That's the insurance premium balance as well.  Those who are sick and will cost the insurance company thousands, hundreds of thousands or even millions of dollars against the healthy people who cost the company nothing or next to nothing.  It balances and, as with a buffet, those who use less pay for those who use more.

However, with a buffet, everybody who uses it is paying for it.  Now imagine that the restaurant has to offer the buffet to people who can't pay for it because it's unfair that some people get the benefit of all you can eat while others do not.  Now the restaraunt has their balance thrown off and are feeding more people with no additional money coming in and no more food.  Some of these new people will also be eating in excess of the average and costing the company even more.  When this occurs, one of two things will happen at that buffet.  Either the cost will go up for those who pay for their meal, or the restaurant will be unable to cover the cost of the new eaters and go out of business.

This of course does nothing to really increase the availability of an all you can eat privilege for all.  It is still limited to how much food there is, how many seats the restaraunt has and the locations of them.  There are still those that will not be able to get all you can eat because there are simply not enough buffets to serve all of the people in the area.  Will the government then mandate that all restaraunts offer an all you can eat option thereby forcing them into bankruptcy?  Probably.

The insurance companies are all risk mitigation.  They exist to cover the cost of your health care.  If the costs you accrue rise, then the premium whose sole purpose is to cover those costs will have to rise as well.  The group policy is nothing but a buffet with the high cost of a few members being offset by the low cost of the majority of the members.  As you increase the number of high cost users without increasing the low cost members as well, the price for everybody goes up.  If you do all of this without increasing the number of doctors - and this new plan has the potential to actually decrease that number - you do nothing to improve access to health care.

What this bill does is give people access to health insurance but does nothing to give them access to health care.  It potentially has the opposite effect.  A health insurance card does nothing but take up space in your wallet if you can't find a doctor.

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