Health insurance is not insurance

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Is health insurance a plan to help healthy people mitigate against an unexpected illness, or an income subsidy to help the sick pay for medical care?

Conservatives ought to have a clear answer to that question.  Congressman Morris Brooks from Alabama did not and found himself on the receiving end of liberal ridicule.

By suggesting that those who take better care of themselves should pay lower health insurance premiums, Brooks implied that health insurance is indeed a type of insurance arrangement.  After all, the risk adjustment of premiums is a practice proper to all other kinds of insurance services: A prudent driver pays less for auto insurance than one with a pre-existing driving record.  A home owner pays more for home insurance if the property is on muddy terrain rather than on sturdy ground.  A smoker pays more for life insurance than a non-smoker, as does anyone whose risk of dying prematurely is high, even if that predisposition is inherited genetically.

Brooks’ conception of health insurance, however, intuitive as it may be, is wrong.  Health insurance is not insurance even if, on the surface, health insurance policies meet the dictionary definition of insurance as contractual arrangements “in which one party agrees to indemnify or reimburse another for loss that occurs under the terms of the contract.”

Health insurance cannot really be insurance because human health is un-insurablehuman beings are not machines or buildings whose function or condition can be ascertained objectively.  Yet, an objective assessment of damages and costs is essential for any contractual arrangement to function in a sustainable manner.

Consider, for example, that medical care is based on the legal principle of “medical necessity.”  Medical necessity is invoked when, presumably, there is an impairment in the patient’s health that could be remedied by a medical intervention.  But medical necessity is a perniciously elastic concept that cannot possibly satisfy the precise contractual requirements of insurance.

Take Joe, an overweight truck driver, who suffers from back pain and whose MRI shows a slipped disk at the location corresponding to his symptoms.  He and his doctor wish to proceed with surgery.  Is surgery medically necessary?

To answer that question, the insurer would need to know several other things: to what degree is Joe incapacitated by his back pain?  Did he give physical therapy a fair try?  Could he improve his condition by losing weight?  If so, how willing is he to try to lose weight?  In other words, did he do his very best to avoid expensive medical care? And, similarly, for the doctor: Did he carefully advise Joe on all his options?  Is his advice disinterested?  How confident is he that the surgery will help? Etc.

These are all legitimate questions, the answers to which are completely inaccessible to the insurer, for they reside in Joe’s mind and his doctor’s—and possibly below their level of consciousness.

No amount of utilization review can overcome this insurmountable “information asymmetry,” yet medical care is replete with situations that are just like Joe’s:  doctors and patients who wish to pursue a plan of care, without objective evidence to show—one way or another—that the care is necessary, let alone effective.

This consideration is not meant to cast doubt on the integrity of doctors and patients, but to point out that medicine is an occupation that frequently deals with intangibles.  And even for conditions which, on the surface, seem objectively determinable, like heart attacks or cancer, the tentative way in which medical care necessarily proceeds is antagonistic to the aims of insurance.

Take Laura, who has sudden severe chest pain in the middle of the night.  Concerned, she calls an ambulance and is taken to an emergency department staffed by competent and cost-conscious doctors.  For a variety of reasons (the character of the pain, the fact that Laura has a family history of heart disease, the equivocal finding on the electrocardiogram, etc.), expensive tests and scans must be performed before the doctors can reassure themselves—and Laura—that she is fine, and that her chest pain was simply a bad case of acid reflux, or perhaps a panic attack.

Should the insurance cover the expensive work-up for this false alarm?  A “no” answer seems absurd: people cannot be penalized for misjudging the severity of their condition.  If the answer is “yes,” on the other hand, the program is no longer insuring against objective health impairments, but against any concern that can cross someone’s mind—be he a stoic or a hypochondriac.

In short, it’s in the nature of medical care to conspire against insurance plans that, by nature, must necessarily deal with objectively verifiable claims to remain viable.

So, health insurance is definitely not insurance in the proper sense of the term.  Instead, health insurance is—and always was—an income subsidy, ostensibly designed to help the sick pay for medical care.

Such an understanding of the essence of health insurance should not be controversial if we consider government health insurance programs. After all, the first health insurance program was plainly designed by Bismarck as an income subsidy, if only to gain for the Prussian state the loyalty of the working class.

In the United States, the Medicare and Medicaid programs were also enacted as income subsidies to help the elderly and the poor pay for medical care.  The subsidies seemed justified by the sharp increase in the cost of medical care that followed the widespread adoption of private health insurance after World War II.

As it turns out, however, even American private health insurance plans were conceived as income subsidy programs.  In the 1930s, the early Blue Cross and Blue Shield experiments were carried out not to actually provide insurance against illness, but to alleviate the surge in hospital bed vacancies that occurred when the Great Depression corrected the hospital construction boom of the 1920s.

A decade or two later, employer-based private health insurance emerged as a means for businesses to circumvent war time wage controls and recruit employees whose salaries could not be raised.  After the war ended, the government made that form of income subsidy permanent by specifically exempting health insurance from payroll and income taxes.

In short, be it a public initiative or privately provided service, health insurance is an income subsidy program and can only be considered as such.

As far as income subsidy programs go, however, health insurance has its own peculiarities.

First, health insurance essentially operates as an unlimited voucher program for medical care, since neither the government nor private insurers can set limits to the amount of allowable coverage.  As such, then, health insurance is one of the most generous income subsidy program conceivable.  It is no wonder, then, that the health care industry has grown to command nearly one fifth of the gross domestic product.

Second, the income subsidy conveyed by health insurance is not allocated based on a person’s income or wealth.  After all, it is the wealthy and securely employed who have historically benefited from “Cadillac plans,” while those uninsured tend to come primarily from the lower middle class.

By forcing health insurance on everyone, the Affordable Care Act is admittedly trying to close the gap separating those who do from those who do not currently benefit from health insurance.  The plain result of that policy is to ensure that, in principle, no one is left un-subsidized.

Are income subsidy programs that make unlimited amounts of health care funds available to anyone and everyone sustainable?  Conservatives had better answer that question correctly.

This article originally appeared on the website of The America Conservative magazine.

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16 thoughts on “Health insurance is not insurance

  1. Another piece of the puzzle clarified, thank you Michel!
    Insurance does cover specific events. But health is not specific. Lets turn it around, can we insure against the cost of specific disease?
    (such as diagnosis based on ICD-10). After all, some diseases/disorders are objectifiable.

    • Thank you, Marc. The question of whether an insurance company could insure against a pre-specified set of conditions is ultimately an entrepreneurial one to be settled under market conditions. That said, I find it hard to conceive that it would work out, for some of the reasons sketched in the article.

      • objectifiable: because we treat SYMPTOMS which are really not treatable….

        Flu is not a ‘disease’


        Dr. Stefan Lanka exposes the “viral fraud” – Neue-Medizin – Similarto Dr. Stefan Lanka exposes the “viral fraud” – Neue-Medizin
        Dr. Stefan Lanka, virologist and molecular biologist, is internationally mostly known as an “AIDS dissident” (and maybe “gentechnology dissident”) who has been …

        Dr. Stefan Lanka – Why HIV has never been isolated. – YouTube
        Virologist Says Virus Pictures are a Fraud – That Means Vaccines must be a Fraud
        German virologist and molecular biologist Dr. Stefan Lanka came to startling realizations when doing his own virus research as a University Student. (translated from German):

        Viruses which are claimed to be very dangerous — in fact do not exist at all. The pictures of influenza, herpes, HIV, measles, hepatitis B, smallpox and other diseases are not pictures of viruses, but pictures of damaged cells with typical particles or other cellular material.

        In Lanka’s words,

        It must be said that these photos are an attempt of fraud committed by the researchers and medical scientists involved, as far as they assert that these structures are viruses or even isolated viruses.

        • and: What to do if you can’t afford Health Insurance:

          First let’s state unequivocally, “Yes, Virginia… except for some surgical requirements, e.g., hernias, or broken bones, etc., YOU CAN BE HEALTHY WITHOUT having medical insurance, or even without being able to afford to see a doctor.” Robert O. Young D.Sc., Ph.D.

          I want to say. “ALL dis-ease symptoms are caused by systemic acidic imbalances in the body”, BUT I try not to use the words “Never”, “Ever”, or “All”. As sure as I do, there will be some “exception”, which, while rare, will catch me up. I will say that the extreme “majority” of sickness and dis-ease conditions do not and cannot exist in a properly alkalinized human body. Over acidic conditions from lifestyle and dietary choice cause the symptoms, which we define as “dis-ease” states.
          You will note that I hyphenate the word “disease” as “dis-ease”, because I cannot bring myself to acknowledge that “diseases” even exist. There are, in fact, “symptom syndromes”, or collections of symptoms, which when identified, are given “names” in the medical lexicon. Once a “name” is given to a Symptom Syndrome, then it gets diagnosed, and pharmaceutical companies set about to produce drugs to ameliorate the symptoms. None of these drugs addresses the underlying cause of the dis-ease symptoms.

          For example, there is NO disease “out there” such as Diabetes, just waiting for us to catch it. Diabetes is a Symptom Syndrome, which is caused by systemic over acidic conditions in the body resulting from our bad lifestyle and dietary choices.

        • and: INSURANCE vs ENSURANCE

          We are taught to believe that some people are just “lucky” because they experience “good health” and some people are “unlucky” because they experience “bad health”. We are also taught that as we get older, we are going to start falling apart and develop “degenerative conditions”. People buy “health insurance” because they “plan” on getting sick and/or falling apart. What’s wrong with this picture?

          The terms “HEALTH INSURANCE and LIFE INSURANCE” are oxymorons. We insure against something. We insure against death and disease … We ensure for life and health.

          Think about this. How many people would buy “death insurance” or “disease insurance”? That’s not politically correct. Isn’t it interesting how just changing the name of something changes our whole perception of that something?

          So the “powers that be” call death and sickness insurance “life and health” insurance and we scramble over each other to get some!? As a matter of fact, in many cases insurance has become mandatory!! But the question remains “who does it benefit?”

          Consider this. Insurance is a wagering contract, contrary to some religious beliefs that prohibit betting. You bet that you will lose your health or even your life. You put up your bet (insurance premium). The insurance company bets that you don’t lose your health or your life. The insurance company’s bet is the “policy”. (They don’t even put up any front-end bet money. They just give you a ‘promise” to pay if they lose their bet and you get sick or die.)

          Now, the insurance company is not in business to lose money. Like the Las Vegas casinos, they build certainty into their contract. They increase their “house odds” by requiring you to behave in a certain manner to reduce their risk and increase their win.

          If you keep your health and/or your life, you lose your bet (and forfeit your premium). Consequently, you win your bet by losing your health and/or life and the insurance company loses its bet by paying out “settlements” if you win by losing your health or your life. And you can’t even enjoy your “winnings” because you’re dead or disabled. Sounds like a lose/lose deal to me.

          To compound this issue, the insurance companies, (through the influence of other multinational organizations who stand to gain a handsome profit) invariably guarantee that you will lose your health and your life prematurely by insisting that you subject yourself to potions and procedures (drugs and surgery) that the insurance companies believe will lessen their risk. But they are in fact causing you to suffer from the very thing that they are attempting to insure you against.

          Insurance predisposes a negative approach that implies no responsibility. “My loss is someone else’s fault and responsibility”. As long as we have a third party payer system, there is a tendency to take more risks in life because someone else will pick up the tab for my mistakes and errors in judgments. Unfortunately, government welfare systems and religious teachings deflect individual responsibility to someone outside ourselves. As Flip Wilson used to say:

          “The devil made me do it.”

          And I don’t have to worry because religious leaders tell me that Jesus is going to save me.

          And the government tells me that if He doesn’t, the government will take care of me.

          Under this concept, I have nothing to lose or worry about. I can continue to destroy everything around me and inside me and “someone else” is going to come along to “pick up my mess” and pay the bill. But, you see, there is something very important here which most of us choose to neglect.

  2. This makes a lot of sense and explains some of my general dislike of health “insurance,” which I had felt, but had not found a way to articulate. If more people understood this, it could help the discussion, assuming people want to do more than argue…

  3. If we are to have an income subsidy to pay for care, we might as well be explicit about it and fund Health-Savings accounts (preferably in a means-tested fashion) so that at least we can bring out viable pricing (and subsequently competition) out into the open.

    • It would be more transparent, but why not just give a wad of cash? Funding an HSA would be a gift to the healthcare industry.

  4. Michael, of course you are correct about present day “health” insurance. But conservatives with any Econ 101 knowledge have for years understood how tax-subsidies have brought on medical demand inflation–moral hazard of insurance at work on steroids thanks to the subsidies.

    I also believe that real insurance for medical care (not “health”) is quite possible. The problem is that desire for re-election has for decades led to political malpractice. The appearance of tax-subsidized “free care” makes repeal of the subsidies politically impossible.

    Enjoyed your recent “Mountain” book!

    Keep up the good work and many thanks,

    Bob Geist

    • Thank you, Bob!

      As for real insurance for medical care, I’m willing to be proven wrong but I’m skeptical. It was never offered when there was a market opportunity to do so (i.e., before the 1940’s). Somewhat life and casualty insurance companies were always skittish about entering the health care market, and they only did so when the demand was subsidized and ensured.


  5. This is the most interesting article I’ve read in years. I’ve only begun reading it and will continue reading asap.

  6. Is health insurance a plan to help healthy people mitigate against an unexpected illness, or an income subsidy to help the sick pay for medical care?
    That question is a bit woodier than permitted to clarify the function of health care. There’s no such thing as healthy people. Everybody gets sick (or killed) at least once. The big part of all health care expenditure is made during the last months of a persons life, three or maybe six. A problem with US healthcare is that it is sold to a customer. This carries with it the usual accoutrements of a sales program. Even in a country like Sweden physicians have a propensity of pushing their services onto the public. The books are often written by US:rs and consequently appended with a market oriented outlook. Sweden’s and other countries’ health care was combined with elder care and poverty care and financed by the church and charity for a long time. In the 1800’s it grew into a public commitment mainly by initiative within the labor movement to create insurance funds for sicknesses and funerals. In the US it’s necessary to somehow familiarize the public with the concept of a single payer system. That will allow significant savings in administrative expenses. The exorbitant over-demand for and oversupply of health care can be controlled by limiting the marketing of healthcare products. The discussion about “death panels” is probably less serious than believed, as an over demand of health care always will have as consequence that some people will be without it. Unless the supply of health care balances the demand for it, it must be rationed one way or an other, via prioritization by sensible principles or by the ability to pay. By reduction of the demand for health care a tenable situation can be achieved and reduced it must become! Cut screenings of millions of healthy members of the public as efforts of “case collection”, stop the lies that cancer treatment is facing a breakthrough, hold off mass marketing of drugs and services. These will be great starters toward a healthier people and a healthier economy.

  7. Amazing as always, this thought process I think allows for a more honest, unbiased and open discussion about health care.

  8. Instead of jumping into the middle of this “to be or not to be insurance” topic, let’s see if the discussion premises rest on sound legal grounding. Let’s ask if We The People even gave the general government in DC any right to exercise power over our health. If health care fails to appear in one of the 17 enumerated powers, where might we find it, or is this but a typical power usurpation? Since the People’s health doesn’t exist in my copy of the US Constitution’s Article One, Section Eight, perhaps someone can tell us how Congress can exercise this Constitutionally un-enumerated power to meddle with what has essentially become Rockefeller’s allopathic medicine, aka Affordable Care Act.