Health Insurance, Health Care and Reform
The current debate regarding health insurance and health care is really a discussion over two distinct issues. Health insurance is a risk management product sold by insurance companies, while health care involves medical services provided by hospitals and doctors. This distinction is very important when discussing the reforms proposed by lawmakers, and an examination of the issues surrounding each is important to reform.
Health Insurance
Health insurance is a product sold to those who cannot afford to pay for the service of doctors and hospitals out of their own pocket, and this includes most Americans. While there are various types of health insurance programs, they are all designed to accomplish one important task; to provide the funding necessary to pay for expensive medical treatments that the policyholder would otherwise not be able to afford. The economics of health insurance companies is based on a general insurance concept known as the “law of large numbers”. This means that many people together will pay money to an insurer. Some of them will need to use some of that money at some point, but not everyone will. The insurance company takes a chance that enough people will not need to use the coverage so that they will have enough money from premiums collected from everyone to pay for the medical bills of those who do need to use the insurance. In other words, everyone pools their money so that the sick and injured can get their bills paid. Insurance companies primarily make money from the investment income derived from the premiums. If there is money left over at the end of a year in premiums not used to pay claims, insurers will have what is called an underwriting profit. Insurance companies do not often realize an underwriting profit, especially during down economic times.
Insurance companies use people called actuaries to make a best guess as to what type of customer is more likely to need to use the insurance and health insurance rates are determined from this data. In some cases, those more likely to use the coverage are charged more, and sometimes the costs are spread around to everyone.
Health Care
The cost of medical care in the United States has risen at a rate higher than the growth rate of GDP since 1970, and the trend is expected to continue. There are many causes for this growth including technological advances in medicine, more frequent need for health care as baby-boomers age, and widespread fraud and waste. Many also argue that the high cost of malpractice lawsuits make medical care expensive.
When insurers pay more for health care, it follows that they will charge higher premiums to avoid an underwriting loss.
Reform
The current reform debate involves proposals that will change the way health insurance works, but may also change the way that health care is administered. This has become a very contentious issue as people consider the possibility that government administrators may have control over decisions that their doctors will make. It should be recognized that health insurance companies currently have a significant role in deciding what treatments are covered. With the current system of health insurance however, an appeal process exists that may not be available under a government run program.
Health care is simply too expensive, and that is why health insurance was developed. The problem now is that health insurance is also becoming too expensive for many Americans and that is why lawmakers are working hard on a reform bill to address this issue.
I am concerned about the Obama Healthcare Plan. Will it cause costly reprocussions on my families expenses? Will the improvements overshadow the cons?