As we were saying last week, most political decisions are based on \u201cnarratives\u201d — histories of how we got here, reduced to easy-to-grasp stories a few sentences in length.<\/p>\n
The problem is, if we get the \u201cnarrative\u201d wrong, bad outcomes grow far more likely, since we\u2019ll be working to \u201csolve\u201d the wrong problem, or even applying larger doses of the \u201cmedicine\u201d that got us here in the first place.<\/p>\n
Let\u2019s review one more \u201cnarrative\u201d now in current circulation:<\/p>\n
3) Many — even \u201cmoderate\u201d Republicans — have been heard of late to say \u201cThere are sections of Obamacare that need tweaking, maybe even repeal. But there are some provisions that should be kept, that we can all agree make sense, including the ban on insurance companies refusing to cover people for pre-existing conditions.\u201d<\/p>\n
To say this provision is POPULAR is unexceptional. It sounds nice to say anyone who gets sick should receive free medical care, with the money coming from … somewhere.<\/p>\n
Unfortunately, this single stipulation destroys the whole economic basis for \u201cinsurance,\u201d turning \u201cmedical insurance plans\u201d into nothing more than \u201cpre-paid medical service accounts,\u201d which will be either vastly more expensive or subject to rationing and other draconian restrictions once the new (government or government-controlled) purveyors figure out their real costs, as the British and others have learned.<\/p>\n
Why?<\/p>\n
The first modern insurance contract was signed in Genoa by 1347; the first modern insurance company founded in 1688 at Lloyd\u2019s Coffee House in London, where merchants, ship-owners, and underwriters met to do business. The basic model grew out of the risks European merchants faced as they made their fortunes — or lost them — sending trade ships to the Orient.<\/p>\n
They knew that — let\u2019s round the numbers for simplicity — 5 percent of their ships might be lost to storms, rocks or pirates. The problem was that nature doesn\u2019t destroy precisely one ship in 20 every year, rationing out her bad news to each owner in turn. Some years you might escape without loss, but then a year might come when you lost five ships in one season and went to the poorhouse.<\/p>\n
So, some genius went to his fellow merchants and said, \u201cLet\u2019s each put 6 or 7 percent of the value of each of our ships into a pool when it sails. If we lose one in 20 the owners can be made good out of the pool, leaving 1 or 2 percent over for administrative costs. That way we share our risk, reducing the chance of a single disastrous year for any one of us.\u201d<\/p>\n
Assuming your primitive \u201cactuaries\u201d figured the loss rate correctly, it worked.<\/p>\n
But what if you were part of such a \u201cmutual assurance group,\u201d one of your \u201cpartners\u201d paid in 6 percent of the value of a ship called the \u201cStar of the Orient,\u201d and a week later came in a \u201cfiled a claim\u201d contending the ship had been sunk?<\/p>\n
What if you subsequently learned the ship had indeed been sunk … but a full month before your colleague \u201ctook out his insurance policy\u201d on her?<\/p>\n
That would be fraud. No insurance enterprise — which spreads among participants the risk of FUTURE misfortunes which cannot be precisely predicted — could long survive if people were allowed to buy \u201cinsurance\u201d against unhappy events which HAD ALREADY OCCURRED, paying in (say) $6,000 to get back a guaranteed $100,000.<\/p>\n
But this is the practice in which the government will now require insurers to engage when it requires them to \u201cinsure against the risk\u201d of someone contracting, say, a brain tumor, when a physical exam and routine check of that person\u2019s medical records reveals they ALREADY HAVE ONE at the time they apply for \u201ccoverage.\u201d<\/p>\n
The only sensible response to such a mandate is to charge an exorbitant annual \u201cpremium\u201d which will add up to all the medical costs that person is likely to run up in the year to come, plus administrative costs — no longer \u201cinsurance\u201d but really \u201cpre-paid medical coverage.\u201d If the government orders you to provide the \u201ccoverage\u201d WITHOUT raising the \u201cpremium\u201d to those levels, the state has just, in effect, put you out of business.<\/p>\n
Sure, seeking to survive, firms can \u201ccost shift\u201d by charging healthy patients more to help cover the care of the profoundly sick — but only for so long. Eventually, the whole scheme, based on a fraud which we are barred from calling \u201cfraud,\u201d must self-destruct.<\/p>\n
Now, if the insurance company is refusing to issue coverage against other risks, totally unrelated to a pre-existing illness — fire insurance for your house, say — that\u2019s a different matter, best served by allowing more competitors into the market to bid for that still-profitable business. But the narrative above contends \u201cwe can all agree\u201d that insurance companies \u201cshould be made to cover pre-existing conditions.\u201d<\/p>\n
When in fact we don\u2019t all agree, since it won\u2019t work, since that\u2019s no longer \u201cinsurance.\u201d<\/p>\n
Certainly it\u2019s \u201cnot a happy thing\u201d that one can\u2019t sign up for fire insurance on a house that\u2019s already burned down. But the laws of physics, mathematics and economics cannot be repealed by the central state, as they must eventually learn.<\/p>\n
Unless, of course, the whole POINT is to drive the private insurance firms out of business. <\/p>\n","protected":false},"excerpt":{"rendered":"
As we were saying last week, most political decisions are based on \u201cnarratives\u201d — histories of how we got here, reduced to easy-to-grasp stories a few sentences in length. The problem is, if we get the \u201cnarrative\u201d wrong, bad outcomes grow far more likely, since we\u2019ll be working to \u201csolve\u201d the wrong problem, or even […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[20],"tags":[],"class_list":["post-634","post","type-post","status-publish","format-standard","hentry","category-medicine"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/sWqFl-634","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/vinsuprynowicz.com\/index.php?rest_route=\/wp\/v2\/posts\/634","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vinsuprynowicz.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vinsuprynowicz.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vinsuprynowicz.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/vinsuprynowicz.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=634"}],"version-history":[{"count":2,"href":"https:\/\/vinsuprynowicz.com\/index.php?rest_route=\/wp\/v2\/posts\/634\/revisions"}],"predecessor-version":[{"id":636,"href":"https:\/\/vinsuprynowicz.com\/index.php?rest_route=\/wp\/v2\/posts\/634\/revisions\/636"}],"wp:attachment":[{"href":"https:\/\/vinsuprynowicz.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=634"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vinsuprynowicz.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=634"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vinsuprynowicz.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=634"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}