Insurance Companies 101- for Demmies (updated)
By streetwise Posted in 2008 — Comments (1) / Email this page » / Leave a comment »
I will give the insurance companies an ultimatum - Hillary Clinton at Democratic candidate debate - 10/30/07
Reviewing clips of last night's Democratic debate, it is clear that the mythology of the Big Bad Insurance Company is alive and well. The image is that the Evil Insurers are interfering with medical care to line their pockets.
The reality is that insurance, by its nature, depends on the concept of pooled risk. The details are complicated, but the basics are clear enough. The insurer must live off the difference between premium income and the expenses of processing and paying claims. Cost control is part of the equation, because rising costs must inevitably be passed on to the premium payers, which means us.
In fact, with the large self-insured plans that are common in corporate America, the insurer just gets paid to PROCESS claims, and makes their profit from that activity alone. Claim PAYMENTS are funded from the general revenues of the corporate plan sponsor. The sponsor computes a per employee cost or premium, which is adjusted from year-to-year. The corporation "pays" the premium on behalf of the employee.
So with these plans, the insurance company is not mournfully removing gold from its overstuffed coffers every time it has to pay a claim. The claims are simply part of corporate compensation expense, just as salaries are.
Cost control will be a part of any insurance system, including government-run health care. If you need any convincing, just look at Medicare and its myriad rules on eligible expenses. Ineligible expenses have to be paid through supplemental insurance or directly out-of-pocket. The federal government's vigorous efforts to control eligible expenses simply pushes up the premium costs for the supplemental programs.
As with all things, the voter should keep one thing in mind when evaluating Democratic campaign pledges on health care: caveat emptor. And we are the emptors.
Unfortunately this argument is far too logical for those on the other side of the issue. Healthcare (as with any other mainstay of the liberal agenda) relies on prying on the emotional state of the general population. In that respect, the Democrats are far better salesmen for their points of view than those of us on the free market side of the equation. One of the foundations in the sales industry is that enthusiasm sells "it", emotion buys "it" and logic keeps "it". What many on the left are able to do is continually cycle back to the emotional part of the purchase keeping many from looking at the reasons why they bought "it" in the first place.