I’m beginning to wonder whether anyone in Washington or in the media has the slightest clue what insurance is? Here is a standard dictionary definition of the term: “Insurance — A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss.”
The operative words here are “future and unexpected losses.”
Then how in the world can you get insurance for a “pre-existing” condition? This is like getting homeowners insurance after a tree falls on your house and visits your living room. Or signing up for auto insurance after you smash into a telephone pole.
Under Obamacare it is only a slight exaggeration that you can be on the way to the hospital for a broken leg and get “insurance” to cover the expenses. Time out for a personal story. Several years ago a tree did fall on my house. I inadvertently had fallen months behind paying my homeowners insurance premiums. Of course that is when the tree crashed down. I had to eat more than $60,000 of repair costs because of my own carelessness. I couldn’t renew my coverage, and tell the insurance agent: “By the way, my home has a pre-existing condition.”
But health insurance companies are often forced to cover people if and when they stop paying in. Somebody has to pay, of course, so it’s those of us who do pay our premiums regularly and on time. Our costs go up.
I’m not trying to sound cold-hearted or insensitive here. But if we want to provide public support for a child with say a life threatening disease, as in the Jimmy Kimmel story, then do it. But don’t pretend this is insurance.
I’ve known people who have had three “free” separate surgeries and never paid a dime of insurance. Is this fair to the schmucks who pay their insurance dutifully and now pay higher premiums to cover the costs for those who don’t act responsibly? There’s no free lunch or free medical service. The health insurance market is screwed up in many other ways. With auto or homeowners insurance, if you’re a good driver with no accidents or claims in 5 or 10 years, you pay a lot less in premiums than the person who has been in four accidents and has a drunk driving citation. In other words, insurance works because it is based on actuarial risks. The insurance companies like Geico advertise: good driving record, low insurance. A good driver pays hundreds or even thousands of dollars less than a bad driver.
Another personal example. I have hearing aids that cost several thousand dollars and I have purchased insurance in case I lose them. But I’m careless and have lost them four times in two years. I’m a bad risk and my hearing aid insurance costs have gonesthrough the roof. That’s life.
The politicians pretend that health is beyond the control of the individual. Yet people who overeat, use drugs, smoke, are obese, don’t exercise, fail to take vitamins, take excessive risks (like riding a motorcycle), get too little sleep, etc., have much higher odds of getting heart disease, cancer, stroke, diabetes, etc. They have every right to lead the life they want to lead, but why should someone else bear the cost? Medical studies have found that about half of health outcomes are due to lifestyle decisions that individuals make — with the rest due to genetics and randomness.
Encyclopaedia Brittanica says that to be insured “the possible loss must be accidental in nature, and beyond the control of the insured. If the insured could cause the loss, the element of randomness and predictability would be destroyed.”
Under Obamacare it is illegal in most cases to charge higher insurance costs to those whose bad health outcomes are not “accidental” and are not “beyond their control.” This rewards bad health.
Here’s the bottom line economics lesson for why America has such a collapsing health insurance market: we reward people for not buying insurance and make people who do buy insurance pay for them. Then we reward people who make bad lifestyle decisions and shift the costs to people who make healthy decisions.
Liberals think that people are too dumb to figure this out and they are deadly wrong. The Republican health reform bill better fix all this or their bill will fail as Obamacare has.
• Stephen Moore is an economic consultant with Freedom Works and a strategic partner with 32 Advisors.