Thursday, December 03, 2009

The Healthcare Problem

I was about to give up on the healthcare series, but I've gained some additional perspective on the issue. So far we've established a problem with the transparency and cost of healthcare. I've also pointed you to a couple of suggestions including the reduction of regulation.

There is, however, a fundamental problem at the heart of health insurance that is difficult to solve. The basic idea of either socialized or privatized health insurance is for the fortunate healthy to pay for some of the care for the unfortunate unhealthy. Ideally, the healthier people are on an insurance plan, the less the entire plan costs.

In theory, on average it will cost more to have health insurance than not to. The reason is that you are paying not only for the medical expenses but also for the paycheck of the people who offer the insurance. (It is the same with car insurance.) Therefore, having health insurance is only advantageous for 2 reasons:
  1. Using it essentially as a savings account that spreads out the cost over a longer period of time.
  2. The less than 50% of those that actually spend less on insurance than their health care would have cost without it.
The problem when this system is voluntary is that the healthy are less likely to get health insurance, raising premiums. Additionally, because the companies need to turn a profit, they try to limit how unhealthy a person can be and still carry their insurance. This leads to health insurance companies rejecting the most unhealthy and targeting healthier people.

In other words, those who need health insurance aren't able to get it, and those who don't need health insurance don't tend to get it. All that is left is the middle group that is neither extremely unhealthy nor in perfect health. Part of the healthcare problem then is trying to insure the most unhealthy Americans so that they do not have to give up their entire livelihood.

So what exactly are the current proposals to solve this problem? That's for another time....

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