Wednesday, February 27, 2013

What is Insurance?

Writing from the USA:

 What is insurance intended to accomplish?  What is insurance actually doing?

Purpose of insurance:  Pay the insured for losses incurred as specified in the contract.  This prevents loss of assets and possible impoverishment of the family incurring the losses.  The idea is to have a 'pool' of people who pay into it and who then take turns using the fund as losses occur.  The theory is that the fund will remain solvent.  Originally, insurance purchase was voluntary. 

Problems with this voluntary insurance design:

Insurance funds do go bankrupt due to thievery or stupidity. 

Thievery can come from many directions, from bogus medical claims, through the denial of legitimate claims and gambling clients' money while calling their activities 'investments'.  Medical personnel have been known to bill for no visits, or to milk the number of visits like an overripe cow.  The biggest problem is that these insurance schemes 'insure' more value than they have, so if there is a flood of claims, money is lacking to pay the claims.  I know of one 'insurance' scheme that was drained while paying for a political campaign.

The voluntary insurance plans were competitive in the marketplace, which tended to bring costs down.  The unions pushed for 'benefits' and employers were forced to buy insurance for their workers, again without any mechanism to keep costs down.   

And this was before even more insurance schemes became mandatory.   When insurance became mandatory, several more problems surfaced like pond scum.

Mandatory auto insurance was instated in Arizona by one of the most crooked legislatures on record.  The prices for insurance immediately rose and the insurance people went out and bought new Cadillacs.  Their income is so secure, the police are even notified if a driver does not buy insurance.  The state takes away your license to drive if you do not pay these insurance people.  It was suggested that this insurance be voluntary, that individuals insure themselves if they so desire, but we were told that these insurance brokers are the best people to handle our money, and if you were lucky enough never to use it, you just lost the money.  You are not permitted to save this money in a special account so if you do not use it, you could have it.  These insurance people get richer and richer because actual price controls were never instituted.  Insurance prices are so high, people struggle to make the payments. 

I see a huge new problem when mandatory health insurance is instituted.  The medical profession protests low government payments for services for the insured while they pad the bills.  Exorbitant charges are foisted off on the uninsured and 'costs' are out of control.  They say that about 60-70% of all personal bankruptcies are caused by medical bills while the patient has insurance.  Thus the insurance is expensive, does not cover the hospital costs  yet the patient is forced to buy it while the medical costs rise unchecked.  The cost of the insurance has few controls, so people must pay more and more every year.  Some attempts have been made to cut administrative costs of the insurance companies, forcing them to spend on the insured instead of their second yacht.

The main gripe with mandatory insurance is that the free market is not working when individuals are forced to buy anything.  The lack of controls on charges while forcing individuals to buy creates inflation in the health care market and a further drain on other sectors of the economy.  Anybody who calls this capitalism is foolish.  The politicians have merged the indigent care problem with the private market and then expanded it to include more people, displacing church and traditional family based care systems, while subsidizing some private businesses paying CEOs huge sums . 

My second question:  What is insurance actually accomplishing? 

Medical care was already available for the indigent but is expensive for the ordinary individual needing specialty treatment.  Express medical care clinics are located all over town and are reasonable in cost.  So the question was never if medical care is available.  The real question is who could be forced to buy insurance, which would then increase the size of the insurance pool money.  So now the IRS is leading the charge to punish those who do not buy insurance, whether or not they make a claim on the health care system.  They will be charged whether they use it or not and they will never see their money again.  I think it is a function of individual rights not to be forced to buy.  The insurance companies and the government are now taking a sizeable chunk of income from consumers, who cannot now spend it on the economy.  More and more money is tied up in insurance every year, which drains the rest of the economy.  Unions have negotiated exorbitant benefit plans that are bankrupting local governments and more and more money is controlled by the insurance brokers.

So the majority of the people in the USA have good medical care but at exorbitant escalating costs to themselves now mandated by the government.  Indigent care has always been freely given.  The health care charge forced by the IRS is justly called a tax by the Supreme Court.   All this is not the quality of the health care, but is about the scramble to collect and hold the money mandated from the taxpayers.  Current insurance systems are larded with bureaucracy, high operating costs and administrative perks, all at the expense of the insured.  Our health care money is being spent on expensive administration costs and resort vacations.  I think the system needs reform.

Health care goals are being met but the financial cost is crippling other segments of the economy as the people struggle under the burdens of mandatory auto and health insurance costs, high fuel prices, and guaranteed inflation of at least 2% a year, which devalues the money and raises consumer prices. 
                                              Washington D.C. Grand Central Station