Issue #146
With the annual Open Enrollment season approaching, it's the perfect time to talk about health insurance. On a free market, insurance is an innovative and useful product that can help protect the policyholder from catastrophic financial losses. Unfortunately, government interference in the marketplace has turned this once-useful product into a scam.
The problem began when the federal government enacted the Stabilization Act of 1942, which imposed wage and price controls (naturally, due to war), but insurance was excluded. Up until then, consumers purchased health insurance on an individual basis, just like all of their other insurance policies. As Wikipedia says, “One consequence of the wage stabilization under the Act was that employers, unable to provide higher salaries to attract or retain employees, began to offer insurance plans, including health care packages, as a fringe benefit, thereby beginning the practice of employer-sponsored health insurance.”
Ever since then, health insurance coverage for employees has generally been tied to their employer. This unintended consequence of the Stabilization Act has had a number of unintended consequences of its own. For example, it has reduced consumer choice and health insurer accountability since most employees don't explicitly choose their own health insurance company and coverage. These plans often change every year due to employers shopping for the cheapest coverage, which usually means covered employees get assigned a new primary care physician who knows nothing about them or their health history. Additionally, if an employee quits or gets laid off or fired, they'll have to find new coverage (and doctors) unless it can be continued under COBRA for 18-36 months.
Historically, there have been three types of health insurance coverage. First, a traditional indemnity plan allowed you to choose your own doctors and refer yourself to specialists. This was the best (and most expensive) type of coverage. I have not heard of such coverage in many years and would be surprised if it still exists.
Second, a PPO (preferred provider organization) allows you to choose your own doctors, but a higher percentage of your medical expenses are covered if you obtain care within the plan's network of health care providers. It's the second best coverage, with lower premiums than traditional indemnity.
Third, an HMO (health maintenance organization) only provides coverage if you obtain care within the plan's network of health care providers. You must have a primary care physician, and only he/she can refer you to a specialist. Providers are paid per capita, so are financially at risk if they provide a patient with “too much” expensive care. Therefore, they have a financial incentive to deny you care.
Health insurance only pays out if you have met you individual and/or family deductible for the year, and the charges are “reasonable and customary” for the procedure in that area. Invariably, what the insurance company considers “reasonable and customary” is usually about 20 to 50% of what the provider actually charged. So you have to cover the difference, usually until you meet a stop loss limit.
In the last few decades, health insurance has become exorbitantly expensive due to government interference in the marketplace, the lack of insurer accountability by the consumer, and the much greater involvement of third party payers (insurance companies and the government). Ironically, as health care and insurance become more expensive, the role of third party players becomes more important, which causes the cost to rise even more. It's a doom loop.
Government interference includes Medicare and Medicaid (both totally unfunded), regulations, job-destroying and poverty-producing policies (which results in indigent patients who can't afford health insurance or health care) and (especially in recent years) lax or nonexistent enforcement of immigration policy.
The federal government can't afford to provide all of the health care benefits it has promised under Medicare, so it has become common for it to reduce its reimbursements to health care providers every year, which results in providers spending less time and money on patients and more providers decling to see Medicare patients.
Hospitals still have to provide care to indigents (which increasingly includes illegal immigrants). This has to be done using emergency rooms and ambulances, which is the most expensive method. So hospitals have to pass on these costs to their non-Medicare patients (who are usually Gen Xers).
Starting in 1994, for years, I tracked the annual increase in my health insurance premiums. They increased at an average annual rate of about 20%. A typical monthly premium for a PPO policy for a small, healthy and relatively young family was about $1,400, and that was with an annual family deductible of about $15,000, but before any “reasonable and customary” disallowances were included. So paying for health insurance was like shoveling piles of cash into the maw of a soulless bureaucracy that never provided any tangible benefit.
Obamacare destroyed the market for health insurance, especially for the self-employed. Which is ironic because the website through which you could shop for health insurance was called “the marketplace.” It was like Fidel Castro had taken over all of the grocery stores and set up a website on which you could order groceries, but the shelves were now almost bare.
In the years after Obamacare became law, more and more insurance companies left the health insurance “marketplace” because it became unprofitable, especially due to the unnecessary additional coverages that Obamacare mandated. I'm not sure if this consequence was intended or unintended. Eventually, the only options in my area were an HMO from one insurance company, or my state's Medicaid plan (which provides health care for poor people). So much for “the marketplace.”
At that point, I switched to
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