Healthcare is not Insurance

Insurance is voluntary socialism in a capitalist economy. Insurance is a collective of people (pools) that agree to take a small loss (premium) to avoid taking a larger loss in the future. Usually, you use insurance to mitigate risk of low probability but catastrophic high loss outcomes.

Example, fire insurance: Paying $1000 a year to avoid losing $300,000 as a result of a low probability event- like a catastrophic house fire. In this case, 300 homeowners could voluntarily join a collective (pool) and each contribute $1000. This collective group would now have the ability to pay out up to $300,000 in the event one or more members had a complete loss and needed to money to rebuild or replace their house.

The amount being withdrawn from the insurance pool cannot exceed the amount contributed.

This is the primary issue when discussing health insurance or Obamacare. The amount being taken out exceeds the amount being put in. Thus, there are two options to achieve balance: put more money in (raise premiums) or limit the amount taken out (reduce benefits).

In a capitalist society, people can voluntarily choose which pools they want to join: this is private insurance and insurance companies will compete in the open market by trying to offer the lowest premiums in exchange for the highest levels of benefits. Traditionally, employers make up the organizing mechanism to form “pools”. The employer chooses what level of premium they are willing to pay in exchange for a specific level of benefits. Outside of employer sponsored pools, private insurance companies sought to create pools for individuals, small business owners, etc.

In an effort to balance the amount taken in with the amount paid out, private insurance companies adjust premiums to match claims in order to compete in the market to provide the most coverage at the lowest cost. Historically, this means that premiums rise as claims rise. This is due to the quality and quantity of healthcare demanded every year. People want to be seen by their doctor immediately, they want the services and medicines to improve their quality of life (regardless of their attitude toward prevention) and want to be cured from the most vicious diseases and maladies affecting humans.

High quality medical care very quickly withdraws money from the insurance pool. Thus, more money is required to be put in to cover the flows going out.

Obamacare, in general, seeks to eliminate the ability to voluntarily participate (or not) in a pool of your choosing by compelling you to participate in a mandated pool. As noted earlier, this pool usually has higher costs and thus must be balanced by increasing premiums or reducing coverage. If neither of those levers are used, then any deficit must be funded from another source; tax revenue.

This is where insurance moves from socialism (to each according to their contribution) to communism (to each according to his need) within a capitalist economy. The ability to compel participation is the core of the opposition to Obamacare.

Reexamining the reason for compelling participation is important. More money is flowing out than is being taken in. Thus, the conversation should be about the amount of healthcare consumed and the amount an individual can purchase. Any amount of individual consumption in excess of an individual’s ability to pay for will require someone else to pay for. Institutionalizing this is redistribution of wealth. Like all taxes, it’s a question of policy in determining how much to take from one person and give it to another.

Some would argue that this redistribution should be done voluntarily through charity. Others would argue this transfer must be facilitated through a state institution. This is core of the political argument- it’s not about insurance, it’s about the amount of wealth redistribution that a society feels is acceptable and if all citizens be compelled to participate in wealth redistribution.

It’s a fact that 100% of all humans will die at some point (at least as of this writing). Should a person have a right to spend their resources to improve their quality of life or extend their life by purchasing healthcare? How much money should an individual be able to spend on extending their life for one minute, on month, one year? If a person chooses to spend their money on healthcare, they should have that right.

However, the moment an individual ask others to pay for their healthcare (not insurance), there has to be policy about how much and the type of healthcare they are able to consume. If no limit is set, there is an infinite amount of money that needs to be taken from others. Unless this money is voluntarily donated, it must be compelled (taxes) to be taken from others. This can be frightening to some. 
 
 Others find the fact the fact that people in our society do not have the means to pay for healthcare frightening; especially the basic services that can provide a person with the simplest quality of life enhancements; prenatal, pediatric, dental care, vision, etc. These basic services could be provided (through age 18) to ensure that all citizens have the same equal opportunity to start their lives as healthy adults. This is compatible with our values that our society provides equal opportunity, not equal outcomes.

From this point on, individuals should be free to decide how they spend and save their money. Adults should have the freedom to choose how much of their income they devote to the consumption of healthcare or how much they want to save for future healthcare needs. In other words, how much could they save today to avoid having to generate future income to pay for the healthcare they will consume later in their life. This is pure insurance. Having your own savings ready to pay for any health care you choose to consume later in your life.

In summary, healthcare should not be confused with insurance. Healthcare is the amount of products and services that an individual chooses to consume. If you do not choose to pay for your own consumption of healthcare, then who should pay for it and should they be compelled to pay for it. Why?

Next discussion topic is who is the best agent, regardless of pool, to balance the amount of money being taken in by the amount of money paid out. Is it the individual, a private company, federal or state government? If so, what are the incentives of each, their decision making criteria and how does this impact the ability to provide pool members with the highest service at the lowest cost?

Note: this essay originated as response to a Facebook comment and evolved into a one hour writing session to contemplate core assumptions of Obamacare as I see it. I thought this would be a great opportunity to drop my first post on Medium. Please provide your feedback. Thanks for reading.