November 4, 2013
The Problem With Health Insurance
By Michael D. Shaw
Don’t worry. This is not another piece about Obamacare. Instead, we’ll go back to basics, and see if health insurance can ever satisfy the demands of the payers, the providers, and the patients. It’s not as if people haven’t been working on this for awhile. The notion of health insurance stems from the so-called “friendly societies,” and dates back to the very dawn of the Industrial Revolution.
Arguably, those associations can trace their own origins back to the burial societies of ancient Greek and Roman artisans. In the Middle Ages, they morphed into the trade guilds of Europe, and expanded their mutual assistance programs to cover the financial burdens of illness.
But the founder of modern health insurance is Otto von Bismarck, chancellor of Germany, who in 1883 passed the Reichsversicherungsverordnung (Reich Insurance Act). As such, it became mandatory for certain segments of the workforce to pay premiums in support of sickness funds. This effort, and the rest of its early social welfare programs, was a means for the government to counteract the appeal of Communism, especially to those on the lower economic strata.
However, it would take another German chancellor—better known than von Bismarck—to inflate this concept into universal government-controlled health care. His name was Adolf Hitler. It must be noted that Hitler was quick to see the potential in such control, and it is a sad fact that the mass extermination methods of the Nazis were first perfected in government hospitals.
A few years earlier, in Dallas, what would eventually be known as the Blue Cross and Blue Shield Association began in the wake of the October, 1929 stock market crash. Justin Ford Kimball, who had set up a sick benefit system for Dallas teachers, was recruited to deal with Baylor University Hospital’s falling admissions and problems in getting paid by its patients.
Kimball’s non-profit low cost prepaid plan concept was an immediate success, and for-profit insurance carriers would enter the fray during World War II. Given the wartime labor shortage, health plans were a valuable incentive that beleaguered employers could offer. Medicare, introduced in 1965, put the Feds into health care in a big way, and it was only a matter of time before its rubrics would spill over into private insurance.
Meanwhile, the Baby Boomers entered the job market, and competition in the private health insurance space exploded. For sure, that is what led to the amazing transition of health insurance covering catastrophic needs to its covering nearly everything—at a price, of course. In fact, there is no other form of insurance that remotely fits this paradigm. Today’s health insurance is much more like a platinum-level extended warranty program, even if it is called “insurance.”
In a pathetically ironic twist, the one similarity that health insurance does have with other forms of insurance is that claims processing must be based on easy to understand cookbook formulations. This massively favors procedural medicine and acute care over cognitive medicine, and drug dispensing over lifestyle modification. In other words, there is a lot more money in disease than in health.
While longevity might increase under such a structure, health and wellness will probably not. Thus, the current system is bound to create an ever-increasing population of older, sicker individuals. This is not exactly an actuarial model for success. Given limited resources, choices must be made on both the distribution of health care and the reimbursement to the providers, whether it is a fully socialized system or a fully private one.
In a socialized system, such choices will be based on the “welfare of society.” In a commercial system, such choices will be based on marketability and return on investment. Either way, the rights of the individual disappear, along with the long diminished doctor-patient relationship. Moreover, since the entire enterprise is based on third-party payers, the true value of the covered products and services is grotesquely distorted.
So, let’s summarize what we have here: A system based on the shakiest of actuarial foundations, in which hard choices will have to be made that can only destroy individual rights, operating in a platform whereby the core component values are unknown. What could possibly go wrong?