The primary problem with health insurance in the United States today is that it is not really, “insurance”. Insurance implies paying a premium to a central collector who will guarantee payment to make up for a loss should an unexpected problem arise. It is the insurer’s job to calculate the probability of such an event and try to gain enough clients paying premiums to make up for any statistically anticipated payouts.

This typical insurance scenario works for just about any unexpected event or scenario if:

• The insurer has all the information available to calculate accurate probability.

• There are enough clients paying into the insurance plan to reduce the price to an affordable level for the clients and a riskable level for the insurer.

  The reason why this system doesn’t work with health care is due to the the following:

• Patients need regular checkups in order to stay healthy (checking for minor problems before they become major). These are mostly covered by health insurance because it is statistically cheaper for the insurer to prevent a problem than it is to treat one. However, the fact that insurance pays for doctor’s office visits drives up the cost of these visits since care providers know that the cost to the patient is fixed (at the cost of the deductible). This creates some sub-problems:
1. Patients without health insurance are forced to pay a significantly higher price for checkups than they would if insurers didn’t subsidize the cost for everyone else.
2. Since the insurer has to make up for the costs of these visits through premiums and most their clients are taking advantage of doctor’s office visits, they have to increase premiums to make up for any aggregate price increase in services.

1. Since businesses bear most of the cost of insurance for their employees, they end up having to make up for the increased premiums (lowering wages, less raises, demand for more productivity, outsourcing, etc). This burden translates into an overall drain on the economy which eventually makes its way around to the health insurance companies who are forced to raise premiums even more (to make up for inflation, higher costs of living, rising price indexes, etc).
• Not everyone pays into the system. The poor don’t typically have jobs with health insurance benefits and the young typically don’t take advantage of health insurance (they’re the healthiest, nieve, and they also don’t typcially have jobs that provide health insurance). This means that the working middle class has to bear most of the cost of individual health insurance.
• The people who need the most expensive care are people with chronic conditions and the elderly (a specific kind of chronic genetically inherited condition =). Since the cost of care for these people must be made up for in the premiums of the non-chronic and non-elderly, premiums for everyone go up as a result. In essence, the insurance industry relies on the premiums of the perfectly healthy to subsidize the cost of the chronically ill.

• Competition hurts more than it helps: The more health insurance providers you have and the more people you have without health insurance, the more premiums have to go up to make up for the missing revenues of the uninsured and those who are on competing providers. It is a vicious cycle that is doomed to failure.