“Bread crumbs”(perhaps how you got here)

Abandon Insurance

© J W Durham, 2009

In the current chaos about medical care there is one thing that seems to be accepted by both left and right: that “insurance” is the right model for financing. Whether the insurance should be run by private insurers or the government – or someone else – is the main issue.

The basis of the insurance model derives from life and casualty insurance systems; these have been around for something like three centuries. The way such insurance works is, in principle, simple: the insured parties pay into an insurance fund. When one of them experiences the event that the insurance is supposed to cover, the fund pays out “benefits” to the insured, and life goes on.

Obviously, the “premiums” paid must at least equal the long-run total (whatever that means) of the benefits paid, or the insurance fund goes broke. In the Euro-American world, most insurance is sold by for-profit companies. Again somewhat oversimplified but basically correct is the following notion: we have an equation:

 Total Premiums = Total Benefits + Total Profits

This equation needs only to be true in the long run. In principle (but not in practice) in the short term we could have situations in which total benefits exceed total premiums (and profit is hence below zero; that is, it is a loss).

Again in principle, it is possible for insurance companies to have all the characteristics of steel companies, railroads, or software publishers. The companies could be public, could branch out into other businesses, and could be auditable. Insurance companies could be bought or sold.

For a long time this system has worked well for such catastrophes as fires. Statistical studies can be conducted on the frequency of fires and their costs, and those studies can form the basis of premiums that will be charged, as well as of benefits that can be paid.

It is the statistical issue that is so crucial here. Health statistics can also be compiled; it is possible to determine the incidence of, let us say, lung cancer; it is possible to determine costs for treating lung cancer.

For many years, insurers have argued that they ought to be allowed to distinguish between high-risk groups and low-risk groups. In the case of lung cancer, this might mean making the distinction between smokers and nonsmokers. Presumably the statistics would usually show that nonsmokers are cheaper to ensure, so they “should” pay lower premiums.

 Or should they? One particularly troublesome group (leaving aside smokers and nonsmokers for the moment) is those who come into an insurance company’s system having already contracted the disease. From the company’s viewpoint this is a very bad deal. The company could find itself paying massive benefits to a person who has never paid a dollar of premiums, and whose eligibility for the benefits cannot be in doubt, since he already has the disease. In recent years, as a general rule in such flagrant cases, the insurance company is allowed (by law or regulation) to refuse insurance to the sick person, on the grounds of a “pre-existing condition.”

But things are not so simple. For one thing, it is possible that the person seeking insurance is unaware of his illness. Perhaps no symptoms have yet come to light. Or perhaps the symptoms have been mis-diagnosed as, say, bronchitis. Insurers still want to be able to refuse benefits in such situations, even when the insured applied in good faith for coverage and submitted good-faith answers to all the questions asked.

Still, things look fairly simple. But it’s not so. Let us suppose that we have someone that has lung cancer, knows it, and wants insurance coverage.

Why would we want to require the insurance company to go against all the fundamental principles of insurance, want that company to issue the insurance policy. There might be at least two reasons. One reason might be simple compassion; society as a whole takes pity on the afflicted individual and wants to help. Another reason might be that the sick person poses (in some way) a threat to others sufficient that we want him treated, as part of an effort to help innocent third parties.

This, of course, never happens in the case of lung cancer.

Or does it? In the Nineteenth Century cases of tuberculosis and lung cancer were often lumped together under the name of “consumption”. Even today, there are still probably a few case of tuberculosis (a somewhat contagious disease) that are confused with lung cancer (a disease that seems, at least at present, not very contagious).

 Well, those are two reasons why we might make the insurance companies pay benefits to a sick person – compassion and fear of contagion. (And, of course, I have oversimplified the risks associated with just letting someone with lung cancer go through a long and painful dying with little or no help; such a person could become the victim of a contagious disease as a consequence of weakened immunity. I remember that among both dogs and cats the diseases called “distemper” are of concern partly because they attack the animal’s immune system and render it vulnerable to other diseases that can be spread, in addition to the original disease called “distemper” (a term reminiscent of “consumption”)).

But there is a third reason, a more powerful reason, why we might want to abandon the true insurance model for medical care.

That reason is hinted in the phrase sometimes uttered to the effect that we should be helping people to stay well, not trying to fix them up when they get sick.

There’s the crucial point. “Insurance” for medical care is not merely provision against catastrophes. Such a model misses the need for an honest public-policy debate about how much we ought to expend resources in one direction (prevention) as opposed to another direction (treatment). Insurance companies may have a legitimate voice in such a discussion. It’s hard to imagine they wouldn’t; but since their model associates profit with payout of benefits, there is always the risk that insurers will have some interest in continuing a system that pays out benefits. Pays out, that is, when someone gets sick.

In fact, they might even have an interest in perpetuating a system in which the consequences of getting sick are so disastrous financially that many people will be willing to pay very high premiums, which can cover the rising profitability of an insurance company that operates in an environment of extremely expensive medical care. In fact, this happens – there are many cases in which a person being treated for diseases such as lung cancer gets medical bills that total well over a million dollars. And that’s a total that few people are able to pay without “help” from an insurance company.

The present debate over medical care is phrased almost entirely in terms of who should be given a subsidy for the purchase of insurance, and how much that subsidy should be. Some rules are being written – that the insurer would have to insure certain classes of people, or that certain diseases must be covered (or not covered).

And we get the usual gang of intellectual thugs attacking an insurance system operated by government as “socialism” (as if that has even the slightest relevance to what germs are doing to your body), or claiming that the government wants to set up “death panels” that will decide who lives and who dies (as if that’s not already being done by insurance companies and governments).

But the key point is really this: those with a vested interest in making money from the current system have a corresponding interest in phrasing the debate so as to conceal legitimate public-policy questions whose answers may harm their profits.

Once we realize that the costs of treatment are variable and poorly predictable, and that there are major concerns about treatment and prevention that deserve honest public debate, we immediately step away from the insurance model. We enter the realm of a model more like that of national defense, where we establish some credible notion of threats and the cost of measures to counter those threats, then develop a budget that accomplishes our purpose. (By the way, note that talking about national defense is also a matter of life and death; soldiers make life-and-death decisions all the time, at least in combat.)

For stable situations where the statistics are well-known – oops, there’s another interesting problem. Statistics about some diseases are not very controversial. For example, the statistics of small pox were well-known for a long time; the statistics of strokes related to high blood pressure are fairly well-known.

But the statistics of some diseases are very poorly known. The most obvious example is probably in the realm of sexually-transmitted diseases, such as AIDS. In that area we encounter people’s prejudices about sexual behavior; those that have the disease and those that engage in behaviors that might expose them to the diseases may be prone to lying. Or the insurance company might be prone to lying by failing to recognize some diagnoses, purely because they represent unanticipated payouts of benefits.

Actually, costly though AIDS and other sexually-transmitted diseases might be, it may well be that the greatest area of misrepresented or simply falsified statistics is in the matter of degenerative diseases of nervous tissue. Of these ailments, Alzheimer’s Disease may be the best known. We must remember that for many years, no such disease “existed”; insurance companies and government (perhaps at the behest of the insurers) did not wish to admit the existence of such a pervasive and potentially costly disease. Even today, a diagnosis of Alzheimer’s is often not accepted by insurers. (There are various ways to do this – it can be excluded from coverage, or the company can simply insist on second or third opinions until one of them states that the patient does not have the disease.)

Well, then. I was about to say that, for cases where the statistics are well-known, and where cost of treatment is accurately predictable in some sense, the insurance model makes sense, just as fire insurance makes sense. But in many important cases, the situation is different from a home or business that is destroyed by a fire. In many cases, it is a legitimate matter of public debate to decide whether we should cover something.

Alzheimer’s is an excellent example. This disease inflicts little to no physical pain. It often does not kill the victim for many years after the initial diagnosis. There is (at present) only partial and not terribly effective treatment. The cause of the disease is, at best, poorly understood. But it occurs, and it is a proper question for voters to ask – should our society as a whole expend its wealth trying to treat those that have this disease?

I don’t know the answer. But just as I would object to a “death committee” making such a decision behind closed doors, I also object to insurance companies doing that same thing. I object to insurers’ natural tendency to marry benefits and profits under the umbrella of premiums; that model creates an unavoidable conflict of interest that can only be ameliorated by full and public debate.

There must be many other examples of such diseases or public health problems. Before I close, let me give one more: I have friends who are resolutely determined that illegal aliens present in the United States should not get medical care at public expense (through the welfare systems, I presume). Yet this population (which exists, although we have only a poor idea of numbers), is at risk for contraction of this year’s most stylish plague, the H1N1 “swine flu” virus. Moreover, it is highly likely that illegal immigrants are a mobile population that come into contact with many other people. In other words, these people who are so scorned by much of society while they undertake the most arduous and sometimes dangerous work on our behalf – and at low wages, a fact that makes them all the more vulnerable to contagious diseases – would constitute a danger to the entire country if they do not receive at least enough medical care to minimize the incidence of diseases like “swine flu”.

And, beyond the questions that are implied by thinking about contagious diseases in marginalized populations lie other questions – questions of compassion, of justice, and of the need to construct useful long-term strategies for assuring the best health for the most people at the least cost. I do not believe that such assurance can be obtained from the present insurance-oriented debate.

 All text on this page is the work of J W Durham and is licensed only under terms of the Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License. Other licensing terms may be available. E-mail me