Tag Archives: Dennis Prager

Why Is Health Insurance so Complicated?

Why is health insurance so complicated, while car insurance and life insurance are so simple? Can health insurance be more like, well, insurance? Lanhee Chen, fellow at the Hoover Institution, explains.

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Script:

Americans carry many different forms of insurance. There’s car insurance, home insurance, life insurance, even pet insurance . . . Most of these insurance policies work well and are fairly priced. But there is one glaring exception: health insurance. Only health insurance becomes more complicated and more expensive at the same time. So, the obvious question is: why?

To answer this question, we have to start at the beginning. What is insurance? It’s pretty straight-forward: You pay a monthly fee which provides financial protection against unforeseen, sometimes catastrophic, events. People buy homeowners insurance, for example, to protect themselves from the financial loss incurred in the event of a fire, a flood or theft. Because millions of people are paying into the insurance pool, the pool has enough money to cover the unlucky person whose house does burn down.

And since insurance is meant to share risk, it only stands to reason that higher-risk individuals have to pay more to be insured. Someone who has had two accidents is going to pay more for car insurance than someone who has never had an accident. Why? Because their track record indicates they are more likely to have another accident.

But while insurance provides a bulwark against unforeseen loss, it does not protect against routine expenses. Car insurance protects you in the event that you wind up in a car wreck or your vehicle is stolen, but it doesn’t cover routine maintenance like oil changes, replacing brake pads or tire erosion. Why? Because everyone needs routine oil changes, new brake pads, and new tires. So, there is no risk to protect against.

Health insurance in America works very differently. Many of us have health insurance plans that aren’t insurance at all. They’re really pre-paid health care plans. They cover routine check-ups, less serious illnesses, and recurring expenses like prescription medications in addition to protecting you from a health disaster. All of this has made healthcare much more expensive and complex than any other form of insurance. That is true whether you get your insurance through your employer, through the government, or if you pay for your own plan.

The Affordable Care Act, known as Obamacare, was passed on the promise that it would fix these issues and bring down healthcare costs. But it has actually made the problem much worse.

First, it limited the variety of health insurance plans private companies could offer. It did this by mandating that every plan had to cover the same set of ten health benefits, including preventive care, maternity care, mental health care, and contraception.

Second, Obamacare prevented insurers from charging premiums based on the risk they were assuming. A person with a much higher risk of getting sick couldn’t be charged more than a person with a much lower chance.

These two aspects of Obamacare – requiring all policies to have certain coverages and not allowing insurance companies to charge more for riskier clients – caused the price of insurance to rise dramatically. In Arizona, for example, the price more than doubled between 2016 and 2017 alone.

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Government Can’t Fix Healthcare

Why is the government so bad at healthcare? Why did Obamacare make it more expensive than it already was? Is there a solution? Former Member of Congress Bob McEwen explains.
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Script:

Why is the government so bad at healthcare? They’ve been at it for seventy-five years and still can’t get it right. It’s expensive. Access is spotty. It’s mired in bureaucracy. And it’s fraught with waste.
Obamacare was supposed to fix all this, but instead, like every other government healthcare program before it, it just made things worse.

Why?

Because the government is a third-party payer.

Let me explain.

Suppose you are going to buy something for yourself. You have two priorities: price and quality. You want the highest quality for the lowest possible price.

Say you’re buying a television. You have many options: the size of the screen, the quality of the image, the price. Only you know which one best suits your needs and your budget. And a lot of companies are competing for your business. You do your research; you make your choice.

This is called a first-party purchase – the person paying is the person using.

Now, let’s suppose that either the price or quality is not controlled by you; in this case, you are buying something for someone else. You care about the price because you are paying for it, but you are a little more flexible on the quality. A good example would be a wedding gift – say, a coffee maker.

You might think, by the time it breaks they’ll forget who gave it to them anyway…the cheaper one will be fine.

All of us have bought things for others we never would have bought for ourselves. We care about the price because we’re paying for it, but not so much about the quality because we’re not going to use it.

Or, suppose that we’re going to use something, but we’re not going to pay for it. Then we’re concerned about the quality because we’re consuming it, but the cost is not as important because we’re not paying for it. Any father who ever got roped into paying for an open bar at a wedding understands this program. Nobody ever orders the cheap stuff when it’s free.

These are called second-party purchases. The person paying is not the person using.

And now, for the coup de grace: when it is not your money paying for something, AND you don’t use it. Then you’re not concerned about either the price or the quality.

Suppose the boss gives you $150 to buy a door prize for the office party. In a store window, you see a six-foot tall stuffed frog marked $149.00 You think, Oh, that’s perfect – let’s buy it. The raffle winner is awarded the six-foot frog. Everyone laughs at the gag.

Now, this is called a third-party purchase – a purchase that is made with money that is not yours (therefore you don’t care about the cost) to buy something you’re not going to consume (therefore you don’t care about the quality).

Here’s the point: By definition, all government purchases are third-party purchases. The government spends other people's money on things it won't consume. It doesn’t care about the price or the quality. Thus, there will always be waste in government spending.

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