Insurance is a four-letter word

Dear Readers,

I have been ghosting you for the last several weeks, and for this I am sorry. I have excuses, sure. I’m a man, after all, and as any woman can tell you, a dude has nothing if he don’t have a whole pocketful of excuses.

For starters the rising temperature in political rhetoric has me somewhat traumatized. It’s impossible to escape, even though I’ve seriously curbed my intake of news and commentary. But you can’t avoid it entirely, not by quarantine, not by turning the TV off. It seeps through, and it’s ugly.

Then there’s work. I work in the insurance industry and if you want to see what it’s like to be universally vilified, mention the words “insurance company” to someone at a party. Many people think Donald Trump is the human incarnation of Satan himself, but you still have a better chance of finding someone who will defend him at a cocktail party than you do finding someone to say a nice word about insurance companies.

Which is unfair, by the way, because the very origin and nature of insurance is to help people cope with and recover from financial losses that they could never have reasonably planned for. The health insurance crisis in the United States (disclosure: I do NOT work for a health insurance company) is borne not of greed but of the bastardization of the fundamental concept of insurance.

Hang with me a moment.

Everyone blames health insurers for routinely denying claims in order to get rich at the expense – even the lives – of their insured members. But remember what I just said about the origin of insurance. Insurance was created to build reserves for catastrophic and unusual financial losses. A shop owner buys insurance so that, in the event a fire starts in a neighboring property and burns his livelihood to the ground, he is able to rebuild his life from the ashes.

In comparison, health care in the US has pivoted over the last 100 years from being a personal or family expense to being a percentage, or perk, of one’s salary and wages; or a burden assigned to the public treasury. In other words, working citizens are expected to pay for their own care, through negotiated compensation, as well as the care of those who are not as gainfully employed, through taxes. 

As a result, two fundamental schisms have formed: First, the use of health coverage as a “benefit” of employment long ago created classes of consumers based on exactly how much care their insurance would actually cover. This broke wide open in the late 1980s and 90s with the emergence of health maintenance organizations, or HMOs, which sought to curtail expenses by siphoning off the healthy segments of the population (something underwriters call “adverse selection”) and compensating physicians for being conservative stewards of expensive diagnostic and therapeutic resources. 

It should be noted that an HMO – in which you receive NO care unless your physician authorizes it – is the precise opposite of the concept of insurance, in which you are expected to pay for what you can anticipate, and invest (in insurance) to pay for the unexpected and catastrophic.

The second, and related, obstacle goes like this: Because the definition of health insurance became forever drawn in dollars and cents, the resulting class warfare aligned on the same side of the battleground. Once you define “good” insurance as the insurance that pays for everything, with incrementally “bad” insurance defined as anything less, it’s easy to demonize the insurance companies who seem to be in charge of making these decisions.

This is a lie. Insurance companies execute on financially binding contracts that SOMEONE agrees to. If it’s an employer sponsored plan, the employer agreed to it. If it’s Medicare, the federal government agreed to it. When both private employers and dumbfounded legislators found themselves bleeding money out of every orifice, they looked for ways to stop the hemorrhage and spend less – or at least flatten the curve. 

Insurance companies are among the most simple organizations on the planet, far simpler than operating your average corner grocery store. They figure out a math problem: How much would we need to collect in order to pay all our anticipated claims and keep some for our shareholders? And then they collect money, and pay out money. They bill policyholders what they have already agreed to pay; and pay claims on anything they are obliged, by contract, to pay for. 

They are not charities, although some of the earliest insurance companies were operated as such, to protect groups of people who were unable to bear the full burden of protection themselves. They are not obliged, morally or by any implied or explicit contract, to pay for things just because they are awesome and/or available. Insurance companies are financial engines that exist to collect money from many people and use it to benefit a much smaller slice of those people, i.e. the people who need help right now.

This is not the health insurance model as it exists in the US today. And when people debate, bitterly, about the state of health care and our access to it, the common belief is that the insurance companies, somehow, are the ones victimizing the public. 

Au contraire. The insurance companies are the ones who take your money and then ask someone else how they should spend it. If you are covered by an employer-sponsored plan, your employer decides what will be covered and what you have to pay for out-of-pocket. If you are supplemented by, or covered in full by, Medicare or Medicaid, the government decides how much of your money to take (from everyone) in taxes, and what will be reimbursed to health care providers for what specific care and services. 

When people get angry, government – in the form of elected officials – steps in and creates extra-contractual rules that INSURANCE COMPANIES have to follow: for example, whether or not a person can be covered if he has a pre-existing condition, or how old a legal “dependent” should be. This reinforces the fallacy that the insurance companies are the ones who are stacking the deck to deliver less care and retain more money. 

Insurance is just math: as long as you pay what the actuaries say the premium is, and they pay for the care required by the policy, all is well. When a fourth party – the government – steps in and makes demands that change the actuarial model, whose fault is that? And who is it helping? 

It’s election season and you probably know in a nanosecond which party is for big business and which one is for big government. But which one is for big insurance? Neither, right? That’s because both sides benefit by keeping the insurance companies in the middle. It gives them a common enemy, an evil empire to direct the heat away from themselves. And it gives them the right to legislate morality without committing to how it should be paid for.

How much more would you get paid right now if you didn’t have to pay for health insurance? Or if you paid only for the potential of catastrophic illness or injury? I promise you, you have no idea because none of you have ever lived in a country where that was an operable model.

And let’s assume for a moment someone had a magic wand and could wave it, and put back all that money into your paycheck – with the condition that you pay for the lion’s share, virtually all, of your family’s anticipated medical care out of your own pocket every year. Would your family be better off, or worse off? Would you have the money when the inevitable happened? 

Nope, me neither.