As most people know, I support a public-option for health reform. I also support a single-payer system. However, I think single payer is too drastic a change, whereas, public-option is a good first step that could gradually lead to single payer.
The problem with private insurance is risk pools. Here's the deal:
When you buy insurance, the insurance company puts you into a risk pool. They add up all the costs of the pool, plus profit, and the end is the amount they try to charge for premiums.
(Unfortunately, it is a myth that eliminating profit would lower costs. A large percentage of current health insurers are either nonprofit, or mutual. Mutual means they don't have shareholders... the policy-holders own the company. In both cases, the absence of profits has not led to lower premiums for policyholders.)
If you are in a sufficiently large pool, you have some very unhealthy people in your pool. You also have some very healthy people. The healthy people subsidize the unhealthy people.
Otherwise, if they rated you individually, the very fit person who was unlikely to get sick would pay about $50 a month, and the person who needs triple bypass surgery would be $25,000 a month.
That's great if you're the healthy guy, but it totally fails if you're the sick guy. The thought of a system of health-care that doesn't work if you get sick is ridiculous on its face.
It's not a perfect system, but it kinda works. If you have a big enough company, they spread the risk out over enough people that the cost of the triple bypass guy is spread out over dozens or maybe even hundreds of his co-workers.
Trouble is, if you don't belong to a very large pool, a single sick person can influence the cost of your pool. For instance, I knew a small business owner who paid for insurance for his employees. One of the employees' children developed a very expensive health condition. The result was that the employer was going to have to go from paying $600 per employee to about $3,000 per employee, per month, since his "pool" was only a couple dozen employees.
What did he do? He shopped around for cheaper policies, but now that the employee was rated as having a "pre-existing condition", the cost of treating that condition was factored into the policies.
He had two choices: fire the employee or buy a policy that excluded treatment for that employee's condition.
Firing the employee due to a medical condition is legally tricky, if not downright illegal. So, he bought a new group policy that specifically excluded that condition.
Premiums went back down closer to the $600 a month number. The employee had little choice but to find an employer with a better health plan or watch their child die.
You may think that employer was being pretty heartless. Yeah, in a way. However, having to fork over another six-figures, annually, to provide health insurance meant that his only other options were to forego paying for health insurance at all for the remaining healthy people, or go bankrupt, depriving jobs to everybody.
So, he did what created the greatest good for the greatest number of people. He totally shafted the one person, but in doing so, he avoided having to shaft all his other employees.
The problem is, unless you work for one of the larger corporations in the country, and I'm thinking even Fortune 500 isn't exclusive enough... probably more like Fortune 200, they probably just don't have enough employees that you can spread out the risk of a handful of very expensive, very sick people.
It's particularly nasty for people with health conditions, too. They're sick. They're fatigued. They need treatment. They're impoverished. They're in no condition to compete against healthy people for the very best jobs that likely have the very best benefits.
It's not that insurance companies want to hurt anybody. They want to offer a product that people want to buy, at a price that people are willing to pay. However, once you introduce a few very sick people into a risk pool, the insurance company has to raise rates on the healthy and unhealthy alike.
I have explained before what happened when I bought private insurance. The cost of the brand-new risk pool wasn't so bad. However, who drops out of the risk pool? Not the folks who are very sick and need the negotiated rates and insurance benefits. Healthy folks drop out.
The cost of the pool goes up. More healthy people leave. The sick people stay.
The healthy people just find another brand-new risk pool.
The sick people? Their premiums increase by 25% or so per year until they either can't afford the premium, or the premium is incredibly expensive.
Eventually, with only sick people, the risk pool ceases to be insurance. It just becomes prepaid medical. They figure that if the average person in the pool has $200,000 a year in medical expenses, they add about 20% for administration and overhead and make everybody pay $20,000 a month, which covers the anticipated cost of their treatment, plus the cost of administration.
The insurance company is under no obligation to keep the risk pool open, either! Once it has too few people, the insurance company can close the risk pool, essentially throwing the remaining very, very, very sick people out on the street.
Are the insurance companies evil? No, I don't think they are. They're responding to market realities.
People are not like, say, cars or houses or other things we buy insurance for. I may love my car. Heck, I may love it more than I love my body. However, when my body is broken, I need to get it fixed. Failing to do so could end my life, or cripple me, or debilitate me, or harm my earnings potential, or hurt my overall quality of life.
The risk pools NEED to be vast and large to spread out the cost of the very sick over a pool of lots and lots and lots of healthy people. However, a private market solution to this issue ensures that healthy people are mobile and can choose to simply leave a risk pool once it becomes expensive.
Sick people? They have few options, and once they become sick enough, they have no options. They're essentially tied to their risk pool.
The government is very bad at a lot of things. However, where the government is necessary is in addressing a broad societal need that the private sector cannot fill.
If we waited for individuals to pay for our military, we'd all be speaking German right now. One of the main reasons that the North annihilated the South in the civil war was that the North was able to marshall a lot of tax money to fund their military. The South, literally, had military units funded by individuals, and the quarrelling states were very inefficient at putting together a coherent fighting force.
If we waited for individuals to build an innerstate highway system, we still wouldn't have one, and the few places that had something similar would all have fee-based usage. You'd have to pay to drive on pretty much every road in the country.
Some things, unfortunately, are beyond the ability of the private sector to deal with. The private sector can insure healthy people. Unfortunately, it does a very bad job of dealing with sick people. Ultimately, the reason we have health care and health insurance is to care for sick people.
So, the private-sector solution to this problem serves everybody but the people it should be helping.
The government isn't great at things. Really, it isn't. We hold up examples like social security and the post office as models of waste and inefficiency. However, without them, our seniors would rot away their golden years in poverty and vast portions of the united states would have no way to receive a package.
Government solutions are, at best, a necessary evil. In the best of all possible cases, they are simply the least of the available evils.
Right now, we have a downright bad system of health insurance in the country. 1 in 6 Americans have no coverage. Most people with a really bad health condition will be bankrupted by it. Costs are completely uncontrolled and the growth of costs is completely unrestrained.
A government solution could fix all those problems. A private solution can't fix any of them.
Which is why I support a single-payer system or at least a strong public option. Because the very basic building block of private insurance: the risk pool, ensures that health care funding will never get better and will never really work in this country.
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