Reason and Health Insurance

The debate over health care keeps getting wrapped up in a discussion over health insurance in a manner that continues to sow confusion.  This confusion makes it impossible to properly frame the debate, leaving Congress free to pursue whatever their goals are, nefarious or otherwise.

When one buys auto liability insurance, there is one major purpose – to protect the insured against a catastrophic loss, generally due to harming another individual, but also to protect one’s own self in case of a major bodily harm.  But the purpose is not to ensure that adequate care in the hospital is achieved, as we’ll see in a minute.

When one buys home insurance, the main reason is not to insure the house.  If one carries a mortgage, the main goal of the insurance is to pay off the loan in the event of a catastrophe.  If one does not have a mortgage, the main purpose is to ensure the equity one has stored up in the house, generally a significant portion of one’s life savings.

In both cases, the insurance is not designed so much to fix what was lost, but rather to avoid losing one’s life savings and face financial ruin.  A lawsuit arising from a car accident could wipe out one’s entire wealth, including future earnings.  One generally sets liability limits at a level much higher than one’s ability to cover by liquidating everything else one owns.  The same is true of liability limits for personal injury on one’s property.  Insurance levels are set high enough so that an injured party goes after the insurance and not your own personal wealth.

In this country, if you are in a car accident, or if you have a heart attack, or are faced with advanced COPD, you will get all the help you need from our health care system.  You will also get bills for the services provided.  If you have no ability to pay, you ultimately will not be required to.  But if you have assets, and a sound credit history that you wish to protect, you will be required to pay.  Depending on the extent of your bills, you could be wiped out financially just meeting your payment obligations.  For this reason, if you have assets, you require health insurance.  Not because you won’t get the treatment you require if you don’t (because you will), but rather to avoid losing one’s life savings or facing financial ruin.

Insurance is for those with something to lose, to protect against such loss.  It actually makes no sense for an individual with very little to lose financially to have insurance, since there is very little to protect, and the risk of loss is small.  Individuals with moderate to great net worth, on the other hand, do need insurance to protect those assets.

The media and the government have very effectively tied the concept of insurance together with the concept of the health care system, implying that government control of the health care system is really just a form of insurance for all individuals.

This country needs a free market health system where innovations thrive due to the need to secure a profit and outperform the competition.  Gross product and revenue from this system feeds the government in the form of taxes on services and supplies.  Making health care a part of the government system eliminates this tax base, making the entire system an expense; a budget item; one to be fed by tax revenues from all other segments of the economy.  A revenue and innovation producer, one seventh of the economy, will become a tax burden, and quality and innovation will falter.

Health care is the entire economic system of innovation, treatments, research, individuals and ideas.  Health insurance is a means to determine how and how much any individual is on the hook for.  The two cannot be confused, and certainly cannot be merged.  The government has no business in the business of health care.