Why insurance is the wrong model for health care


Insurance, in its traditional form, is the wrong model for health care financing. It is the wrong commodity to be bought and sold. We don’t need health insurance, and I will tell you why. I will also tell you what we do need.

Insurance is something you buy, and then hope you never have to use. It is a hedging of your bets against bad outcomes. Term life insurance is the best model for insurance as a commodity. When you buy term life insurance, you are placing a bet with the insurance company. They are betting that you will not die before the end of the term of the policy. You are betting that you will; or really, that you might.   Expressed that way, it is a lousy bet, and you hope you will lose.

However, the real bet you are making is that it would be financially disastrous for your family (or dependents or business or whatever depends on you being alive) if you were to die prematurely. So you buy the policy, and it is a rational decision because the premium is relatively low and the peace of mind that comes with the policy is worth the cost of the premium. Still, you hope you never have to use it.

Auto and home insurance is essentially the same, in that you buy it and you hope you never have to use it. However, these are (generally speaking) more expensive because it is more likely that you will have to make a claim. As with term life, the peace of mind that comes with the policy is generally perceived to be worth the cost of the premium.

Insurance as a commodity only truly works if the people buying the insurance policies are motivated by their own self-interest to avoid making claims.

Health care is different. I am hardly the first person to have said this, but it is clear from the bogus clamor around Obamacare that this simple fact has not sunk in for a large portion of the American population. Health care is different because everyone, at some point, will get sick. It is very unlikely that you will die before the end of the term of your term life insurance, and it is also unlikely (although less so) that your house will burn down or your car will get totaled. There is a reasonable chance that you will never need to use your life or car or home insurance, but there is no chance that you will not have to use health care. Everyone needs to go to the doctor, even if they are healthy. Everyone gets sick at some point. And when people get sick, they want to be able to go to the doctor.

Health insurance premiums, in this insurance-as-commodity model, cannot be priced affordably. The odds are very high (approaching 100%) that each insured member will have to make a claim, at some point. Therefore, the insurance issuer cannot make a profit unless the premium is high enough to cover all the costs, or if restrictions are applied to reduce the odds that insured members will have to make claims. Imagine if everyone’s house was destined to burn down at some point. How expensive would homeowners insurance become?

This is a simple, basic, and obvious fact. It is imperative that everyone, regardless of political ideology, concede the basic fact that we all get sick and we all will need to go to the doctor. This is the common ground on which health care reform must be built.

We need a health care financing system, not a health insurance system. We need a way for the inevitable costs of providing good health care to all of our citizens to be spread out in a way that is rational, fair, and affordable. The financing system needs to be effective at promoting good health maintenance for the well and high quality medical services and interventions for the sick.

How to create this kind of system is what we need to be debating, but the attacks on health care reform are all focused on bogus political rhetoric about freedom and liberty. The false arguments and blatant fear-mongering of the far right are distracting this country from the important topic that must be addressed. Freedom and liberty are promoted by a health care financing system that includes everyone. Free market enterprise is fostered by a health care financing system that uncouples health insurance from employment, and that minimizes the risk of bad medical outcomes and financial ruin for those who get sick and need care. The country as a whole is stronger if everyone has affordable access to health care.

If the almighty free-market system could have solved this problem, it would have done so by now. Health insurance as a commodity has failed, because health insurance as a commodity is the wrong model for how to finance health care. It is not wrong because of political ideology. It is wrong because of basic math and actuarial reality. The proponents of maintaining this system have endless empty political rhetoric about freedom and liberty, but not one single proposal for how to make it work in the way we need it to work.

I will never forget the first time I had a patient die directly as a result of not having health insurance. He was a man in his early 40’s, a self-employed carpenter. He had a wife and children. He had the work ethic and the sense of personal responsibility that our modern-day politicians love to canonize. What he did not have was health insurance.

He started having chest pains at work. You can all imagine where this story is going. He had a treadmill stress test, and it showed a high likelihood of significant obstructive coronary artery disease. I sent him to a cardiologist, who recommended a cardiac catheterization. The patient declined the procedure because he could not afford it. Less than a month later, he dropped dead from a heart attack at work.

As if the tragedy of this story is not enough to make one lose sleep, we all know that it was completely preventable. We know that if he had been able to get the cardiac catheterization, he likely would have been stented and back to work in a few weeks. And if that had been the case, he would still be alive, working and providing for his wife and children.

It boggles my mind that anyone, of any political persuasion, can find this story to be an acceptable side-effect of a health care system that protects our abstract “freedom of choice” by sacrificing our real hard-working uninsured citizens.

Paul Laband is an internal medicine physician.


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