It seems many politicians in Washington D.C. these days seem to have forgotten the basic concept of insurance, and they would be wise to take an insurance 101 class to freshen up their limited knowledge of this toxic topic (been to a town-hall meeting lately?).
In the simplest of forms, insurance is risk management that hedges against a loss. It’s been working really well in many forms ever since the Genovese started the concept of contract insurance during the 14th century. What makes insurance great for both parties (insured entities/people and the insurance companies themselves) is that for a small fee a person/entity can protect itself from a catastrophic loss, and in return many small fees combined allow for the insurance company to make a profit as they calculate the margin at which they have to pay for certain losses, yet still have money left over for overhead and profit.
This basic concept can only work if the pool of people/entities is large enough (to keep the fees low), and the payouts for the insurance companies are kept to a minimum (to stay in business). So how do you we make both parties happy in the U.S. healthcare system?
- Entities/People – keeping fees low (premiums)
- Universal Healthcare: the U.S. has over 320 mm citizens living within its borders. If everyone chipped in, it stands to reason the risk level to insurance companies goes down. The larger the pool of people/entities, the less riskier it is for insurance companies to cover payouts
- Preventive Care: a healthier population equates to less payouts by insurance companies, thus keeping premiums in check, and affordable to all. Therefore, people not living a healthy lifestyle need to either improve their health (with assistance), or pay a financial penalty
- Insurance Companies – keeping payouts down (remain profitable)
- Pricing Controls: set industry standards for pricing controls. If you’re a hospital, doctor’s office, clinic, etc. and want to attract business (patients) you have no choice but to accept insurance for payment. The insurance industry, with assistance from the government should allow for price controls so that for example the cost for a simple knee operation are within a few % points between various clinics/hospitals as opposed to 25%-75% now. Margins still need to be there to cover overhead and single digits profits, but that’s it
- Drug Prices: when you’re the largest market for purchasing pharmaceutical drugs you can command price controls there as well. Again, this will require government assistance – think Medicaid and Medicare – but allowing negotiations would drop drug prices dramatically across the board. Plus allow foreign pharmaceuticals from Brazil, India, South Africa (to name a few) to sell their drugs here as well. What’s wrong with a little competition?
You start there, and it would cover pre-existing conditions, drug treatment, preventive care, etc. and therefore make the country healthier in the long run as it shifts the focus of our healthcare industry from treatment to prevention. It would still keep salaries high for doctors, specialists, pharma executives, etc. as the pool of people being covered now covers everyone – yet payouts by insurance companies goes down (preventive care) so everyone wins in the end.
It just takes a little guts for our politicians to cut through the red-tape, avoid the lobbyists, and a little understanding of how insurance works. You do that, and it would keep millions employed in the healthcare industry, yet make it affordable for everyone – including the U.S. government.