If you are a regular reader of this blog, you've probably noticed the last few months have been pretty dry around here. I don't post as much as I used to, but I am going to try to change that. I try to post only when I think have something useful or meaningful to say. Sometimes, it's not for a month or so, but I'm going to try to up that to once a week.

I dislike the Republican Party more than the Democratic Party, but President Obama and his entire administration has given me a lot to think about, and consequently a lot to say. And, just for the record, I'm not a racist (even though yours truly does disagree with the President about a great many things).

Since this is a blog about financial planning - and insurance is a rather large part of financial planning - let's talk about health insurance for a moment.

 I will agree with the politicians in Washington on one point. We do have a health care problem in this country. The costs are astronomical. The problem, however, is not the "system".

The problem is the Government. But, the solution is simple. Since the Government caused the problem, the only way for the Government to solve it is to get out of the business of insurance and leave the American people alone.

Yes, you heard me correctly, the Government is directly responsible for the current heath care problems in America.

Up until the 1930s, the health care market was relatively free. People paid out of pocket for basic testing and doctor visits. The health insurance industry (which is different from the health care industry) was just starting, and was very young. America was still reeling from the Great Depression (also caused by the Government's interference into the banking industry, and inflating the money supply during the 1920s via the Federal Reserve).

Doctors and hospitals were getting concerned that patients would not be able to pay for their services. So, what did they do? They formed a union, of sorts. A business arrangement that offered prepaid medical care. You paid for services up front, and then when you came to a member hospital or doctor, there were no worries about your ability to pay for their services.

The Blues also wanted a system where doctors and hospitals would provide care without worrying about the cost of the care (haven't we heard that rhetoric from somewhere else lately?). Thus, community rating was born. Community rating is a system where traditional principles of insurance are abandoned in favor of egalitarianism. All patients are treated the same, in terms of their health status.

This means that a 20 year old pays the same premiums that a 50 year old pays - regardless of their health condition. I hope you can see that this produces a veritable "run on the hospitals" as the hypochondriacs of the world and those who are older, or not concerned about their own health (and therefore don't take care of themselves) start visiting the doctor or the emergency room every time they get a sniffle.

This system, which was actuarially unsound from day one, sounded so good to the U.S. Government that they gave those group of doctors and hospitals, who would become Blue Cross and Blue Shield, special privileges in the form of tax breaks. With their tax exempt status, no other health insurance company could compete with the Blues - at least not initially. This effectively made them a monopoly - a Government created monopoly (like all true monopolies).

As time went on, other insurers eventually did enter the market, but by 1945, the Blues had captured 59% of that market and were clearly dominating the scene.

For employers, offering health benefits started out as one of a few ways to get around the wage and price freezes forced onto them by the Stabilization Act of 1942 (they were not allowed to raise wages for employees). Eventually, the Taft-Hartley Labor Relations Act of 1947 forced businesses to negotiate with labor unions for health benefits. And, in 1954, the IRS  introduced the tax deductibility of prepaid medical care, making the Blue Cross/Blue Shield business model the only business model that was viable for both businesses and individuals.

Then, in 1965, the Federal Government took the Blues' financially unsound business practices and turned them into Medicare and Medicaid. The costs, as we now know, are (and always have been) astronomical to the taxpayer.

So, you see, there is no free market in health insurance. There is no free choice in health insurance. There is no free market in health care. What was once affordable has become a major expense for every individual and family in America.

The last time I quoted someone for health insurance, they laughed. It is not uncommon for monthly premiums to be in excess of $2,000 for private insurance. Yes, $2,000. I would love to say that health insurance is a great deal and that everyone should have it, but at these prices, you are probably better off self insuring - unless you can afford the ever increasing costs of employer-sponsored health benefits. However, at some point, those too will become unaffordable.

The only way to make health insurance affordable is to get the Government out of the insurance business (and the health care business). They don't belong there. And, no business, no matter how good they are, deserves "help" from the Government.

You might also like

1. Is Your Life Insurance Policy Safe From Government Greed?

_________________________
This entry was posted on September 21st, 2009 by David C Lewis, RFC. Edits may have been made to keep this entry current. · No Comments · Current Events, Insurance & Savings, Philosophy In Financial Planning