Another letter to my Congressman

Here is another email I wrote to my Congressman over the weekend. Not the best piece of writing ever, but I tried to touch on some ideas about what the health insurance and health care in general might look like if the health insurance market worked the way other insurance markets work.

Dear Congressman,

You consistently argue that it is unreasonable for insurance companies to deny coverage for pre-existing conditions. How is that unreasonable? That is like saying it’s unreasonable for MetLife to deny life insurance to someone who is already terminally ill, or that it is unreasonable for State Farm to deny homeowners insurance to someone whose house is already on fire.

That is not how insurance works.

An insurance policy should be a private contract between an individual and the insurance company, where the insurance company agrees to provide certain coverage in the event of an unexpected and catastrophic event. Our market for health care and health insurance, however, is based on an employer provided system where coverage is guaranteed as long as you have a job, and the insurance offered is usually a low deductible, first dollar type health “insurance” plan. It’s actually not insurance, it’s a prepaid medical/tax arbitrage plan.

As a result, people have no incentive to lock into an individual plan early in life the same way people have an incentive to get life or disability insurance when they are young and before they have a medical problems. Plus, people don’t care what their health care costs because in most cases a third party is paying the bill. As a result, costs skyrocket. Think about what would happen to food prices if we had “food insurance” or the cost of an oil change if our auto policy covered routine maintenance.

Everything proposed by the House and Senate makes all of these problems WORSE. It’s not really reform, it is a takeover. And by takeover, I am not referring only to the public option. I am talking about the “essential benefits package” provisions and other mandates that give complete control of the entire industry to the government. Supporters constantly talk about the need for more competition and choice, but these provisions are explicitly designed to limit the number of plan choices and variations in plan designs.

Real reform means tax reform including income and payroll tax deductions/credits for individually purchased health care, expanded access to HSA accounts, allowing for the purchase of health care across state lines, tort reform, and a general reduction in insurance mandates and other expensive regulations. If we do these things, and we will see markets for health care and health insurance begin to finally function properly.

What would that look like? It's tough to say, but there are few things likely to happen. First of all, health insurance companies will get back in the business of providing non-cancelable catastrophic insurance rather than this prepaid medical care where they operate as an expensive middleman. Insurance companies will focus on individual customers rather than groups, and as a result, insurance companies will have an incentive to maintain their reputation in the marketplace and not arbitrarily deny claims. Allstate can’t get away with arbitrarily denying legitimate auto claims. If they did, word would get out and customers would flock to State Farm and Nationwide. That’s the way health insurance could and should work as well.

Then, the patient will replace the insurance company as the health care provider’s primary customer. As a result, health care providers will become more responsive to the patient and worry less about things like reimbursement rates and insurance company billing paperwork.

Meanwhile, consumers will have a new incentive to get coverage and lock it in. And the coverage they will tend to get would be high deductible, catastrophic type coverage. This will provide consumers with an incentive to be aware of how much they are spending on health care, putting downward pressure on costs.

Plus, these reforms have the added bonus of costing the government nothing, something that is very important considering the fact that we are currently running $200-$300 billion monthly budget deficits.


Thank you for considering my recommendations.