Monday, July 13, 2009

We Need Real Reform

If you waited to pay into a retirement system until you were ready to retire, the premium would be ridiculous. You would have to pay a premium every year amounting to a living wage to pay for a benefit that you could live on. You solve that problem by paying into that insurance early in life, at a low rate for your entire life, and allowing that money to accumulate so that it can pay the benefit when you are in need of it.

Health “insurance” is priced, however, as if each year stood on its own. Your premiums are based each year on how much is expected to be paid out on your behalf that year, and if too much payout is anticipated you are denied coverage.

In part, that’s because insurance is an individual responsibility and young people, feeling the “invincibility of youth” don’t sign up for it. That leaves insurance companies bearing the burden of paying out for the unhealthy and elderly without the benefit of receiving the premiums for the young and healthy who would not be incurring costs. Mandating insurance would seem to correct this imbalance, but there are flaws in that argument.

One such flaw is that we are still looking at individual years and, with many insurance companies competing for profit, the system is all too easily gamed. Premiums can be adjusted to attract the young and healthy and drive off older people, for instance. Individuals can also game the system by shopping insurers as they age or as health conditions change.

And, gamed or not, as long as the insurance is based on individual years, the older and less healthy the age group becomes the more the cost of insurance rises. That’s why Medicare was created; private insurance premiums were unaffordable to that age group. Our existing system had utterly failed that portion of our population.

Extending the existing system of health insurance to people who do not have it is not “fundamental reform.”

One form of actual reform would be to instigate a system of health insurance modeled on retirement; you obtain health insurance at birth, at a fixed premium adjusted only for inflation, and you maintain that same insurance for life. In your youth you are paying more than you receive, and the insurance company “stores” your money and uses it for investment, just as is done with life insurance and retirement funding today. As you age the money is paid back in the form of “no deductible, no copay” payment for medical services.

Would that work? I have no idea, but this is the kind of thing we should be looking for; not just an extension of our existing system, but real reform.

When your plan isn't working, do something different.

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