Wednesday, February 24, 2010

Health Insurance isn't really like other insurance

The idea that health insurance is different from all other types of insurance came up in a casual conversation and it got me thinking -- health insurance is something that you know you will use at some point. Prescription drugs, eye glasses, dental check ups, etc - everyone will access the health care system at some point for some thing. Health insurance also differs from other types of insurance because other types are generally focused on a negative occurrence. Fire, flood, car, homeowners, life insurance -- all associated with slightly unlikely, negative events. All of these insurance types are priced according to the risk the insurance company takes in relation to your probability of having that event. Life insurance at age 25 is much cheaper than at age 55 due to this reason.

Health insurance is a little different however, as it is insuring you for events that are highly likely to occur numerous times throughout the year. The scale and cost of being insured for these events follows the same model as the other insurance types but is used for routine access to the benefits of insurance rather than exceptional access.

So this really gets into a larger discussion of health care reform. There is an article on that gets into assessment of risk, ignoring pre-existing conditions, employer based health insurance and more. "Ignoring pre-existing conditions might sound compassionate, but it is the equivalent to declaring that a fire-insurance company must charge the same amount for a modern house with smoke detectors and interior fireproofing as a century-old, wooden-frame former stable, complete with some hay left over, and a basement full of painting supplies. Taking the analogy further, the same premium must be charged for a well-protected, unscathed house as for one that is already on fire. The business of insurance is about determining risk and charging accordingly. It's why insurance companies exist. If we eliminate that, medical insurers are just form-processing companies for the government. Worse, we lose a valuable economic input: that of accurate risk assessment and pricing, without which sensible management of medical expenses is impossible."

For the full article on please visist:

And keep in mind the original purpose of health insurance when you ponder health care/insurance reform. What is the purpose and what is the best way for accomplishing that purpose?

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