Warranty or Insurance: the Health Care conundrum

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The debate over health care reform in the United States has quickly degenerated into heated rhetoric and uninspired but unsurprising name calling.  Congressmen are being shouted down at town hall meetings across the country as Barack Obama hides out in Massachusetts in hopes that the stormy winds of the health care hurricane don’t blow away what little remains of his dwindling political capital.

In the center of the debate lies a remarkably simple misunderstanding of the major issue concerning health care coverage:

Health insurance is NOT really insurance.  It is a warranty.

Both insurance and warranties operate on the same basic principles: the law of large numbers, spreading of risk, unlikelihood of all warranty holders (or insureds) filing claims simultaneously.  Other than that though, they are very different.

Most of us are familiar with warranties, which are product quality guarantees issued by manufacturers or sold by third party interests.  These warranties provide coverage for the product for a specified period of time and for specified defects.  You can buy a warranty for your house,  for major appliances, for your computer, and for your car.  If anything goes wrong, the issuer of the warranty promises to pay for the repair or replacement of the item.  The interesting thing about warranties is that they are on items that will inevitably decay or need repair, and most people never invoke their warranty coverage, even when in the warranty period.

Insurance is designed to cover infrequent, catastrophic losses.  Insurance policies are remarkably brief and incredibly straightforward.  If the insured property (or person) is destroyed, a certain dollar amount is paid out to the insured; an amount usually equal to the replacement value of the object, or in the case of life insurance, the previously agreed upon amount.

So why isn’t health insurance health insurance?

Quite simply, one cannot insure effectively what is essential maintenance.   Follow the example.

A car comes with regular maintenance costs and over time becomes increasingly expensive to maintain.  Certain parts inevitably wear out and must be replaced.  Even the sturdiest and most well built vehicles eventually succumb to the stress of time and use. The meticulous car owner may perhaps avoid some of the more expensive costs of repair by diligently maintaining the vehicle, going for regular tune ups and oil changes, using good fuel, driving the car well, and giving it overall good care by going to the best trained and most trusted mechanics.  Even so, timing belts, hoses, fans, gears, and pistons don’t last forever.  They will be replaced.

The human body likewise requires regular maintenance and over time becomes increasingly expensive to maintain.  Most health care costs are the last twenty years of life.  Certain parts wear out, as recipients of joint replacement can

Can we get Cash for this Clunker?

attest, and must be replaced.  The most health conscious among us eventually succumb to the ravages of time that no amount of cosmetic surgery or botoxed beauty can obscure.  The most health conscious and most meticulous may perhaps avoid some of the more tragic health problems by going for regular check ups and exams, eating right, exercising and taking good care of his overall health by going to the best trained and most trusted doctor (who is after all, nothing more than a highly trained mechanic of the human body).  Even so, heart valves don’t last forever.  Death will come.

So you see it makes little sense to compare the ongoing cost associated with maintaining the human body in optimum health with insurance.  It is as a result of this unfortunate conflation that people have come to expect health care to be essentially free, at least as far as their out of pocket costs are concerned.  No automobile owner would expect to have a third party (and certainly not their insurance company) pay for oil changes, tune ups, brake pad replacements or even a transmission rebuild, and yet routine visits to the doctor, xrays, and tests are all submitted to the much maligned insurance company for payment.

Those companies, whether non profit or not, then do all they can to keep costs down and so  find every way possible to avoid paying the bill.

If however, health care insurance is seen for what it is in reality supposed to be, a warranty covering major medical misfortune and not a catch all for every possible repair, it will change the way people think about it.   Such policies could be written on two pages, in easy to understand language, just as warranties generally are.   A few last points.

The care of one’s health (health care) is NOT a right, but the responsibility of each person

Free access to contract for needed medical services is a right as is the right to contract with a third party to pay the costs for certain agreed upon medical services.

The need to provide access to medical services for the indigent, and otherwise incapacitated is a moral imperative of a decent society.

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