Is The Website the Crisis…or is it something else entirely??

The technical issues are very frustrating for people who are trying to enroll in the Affordable Care Act programs for January.  It has been less than smooth, to say the least.  But I want to let you know what the next dilemma will be with the direction that we are traveling.  The problem is not one of ideology, but rather one of basic insurance structure.  When you build a structure on a foundation that is not strong, the end result is a structure that will eventually fail.

Insurance 101.  Insurance is based on “spreading the risk” of the few, across the financial buy in of the many.  From the earliest insurance products this simple fact has prevailed.  I have been taught that the concept of insurance started with villages or cities asking its citizens to contribute to a “fund” in the event that a fire or perhaps crop damage should occur.  These risks were catastrophic in nature, and the premise was that if everyone contributed a little of their treasure, (money) there would be money to repair or replace the few that suffered a loss.  As time went by, this became a business, and risk became more predictable as more data was compiled.  This is true of auto, home, fire, life ,health,  disability, workers comp, boat, RV’s, etc. etc.  If you have something of value, and you would like to protect the value of that “investment” insurance allows you, for pennies on the dollar in most cases, to accomplish that goal of protection. Here in lies the rub.

By using the law of large numbers, mathematicians are able to determine how likely a person or object is to suffer a loss based on known risk attributes.  If a house is located by a river, it will likely experience a flood.  If a person works on an oil well, or is a firefighter, the will likely be more prone to injury than the person who works in an office setting.  Therefore, the dollar amount that those higher risk folks would pay into the system would be more than that of people who chose a location or profession that was less likely to suffer the same type of loss.  That makes sense.  But there is one thing that we haven’t taken into account.  It is the underlying cost of replacing or repairing that “asset” if it were to suffer a loss.  That is what most folks fail to consider when talking about insurance.

In the case of health insurance, people tell me all the time that they are sick and tired of health insurance premiums increasing at 15% to 20% per year.  They would like to blame someone, and the easiest target is the “big, bad insurance company”.  I get it, it is frustrating.  But let’s look a little closer at some little reported truths.  The largest segment of consumer inflation in our country is in the health care space. Notice I didn’t say Health Insurance space.  There is a difference.  Health care is the delivery of a good or service at the doctors office, hospital, urgent treatment center, dialysis clinic, pharmacy, chiropractor, and the list goes on and on. Those services year after year continue to escalate seemingly uncontrolled and unnoticed.  It baffles me that there is no real, rational correlation in the marketplace to this fact.  So, let’s put on our reasonable hats here and ask ourselves the question…If the cost of gall bladder surgery increases 15% from 2012 to 2013, how can my insurance company, who pays for the majority of the costs of this procedure remain constant???  It can’t, and if you are being honest with yourself, there is no denying that fact.  Some might say, yeah, but once I have my gall bladder removed its gone and I don’t have it anymore, why should I pay higher premiums then.  Let’s remember the concept of insurance, contributions of many to cover the losses of the few.  The premiums you pay in, don’t remain in a bucket strictly reserved for you, they are used to offset the losses of the people you don’t even know.  So the insurance company knows that it will pay for 200,000 gall bladder surgeries this year and 200,000 gall bladder surgeries next year.  If the underlying cost of all procedures increase by 15%, how long do you think that the pool of money would last if there were not an increase in premium to offset the increase in price??  At some point, there would be no money left in the bucket to pay for YOUR procedure, when you eventually need it.  I am not defending the insurance companies here; I am simply talking about math. 

My point is this.  Insurance has always been designed to cover people for catastrophic loss.  We have somehow morphed that concept into paying a little money for a policy that takes care of all my huge bills.  That is not what it was ever intended to do.  I have never been able to predict all of the possible risks I may encounter looking forward, but I do try to rationally determine what I may or may not wish to cover from an insurance point of view. I also realize that if the price of fixing what I do have continues to increase, I should expect to pay more in premiums to cover it.

If you have questions about the Affordable Care Act, give us a call here a Logan Lavelle Hunt.  We can assist you in making an informed decision.  That is what we do!  Think about what you have read, there is no spin on math, from the beginning of time 2 +2 has always equaled 4.

Peace