Wednesday, August 19, 2009

Some Insurance Basics

Despite the detailed and heated health care debate, I haven't read much discussion of what insurance is and why we have it. It's worth discussing briefly, as it gets at some of the fundamental need for reform.

Insurance in theory is a pretty great idea. When you pay your periodic fire insurance bill, you're basically paying for a portion of all the fire damage that occurred during that time period, in the understanding that if you ever suffer fire damage then you too will be covered. That's a really rough sketch of the idea, but it's basically about looking after each other and your own self-interest.

This works fine, in theory, until the people controlling the inflow and outflow of money realize that they're sitting on a huge pot of money that can be played with and invested, and that their profits can be maximized by increasing the in-payments, restricting any out-payments and denying coverage to anyone who looks risky. Suddenly they've gone from being a simple conduit between participants in the insurance program to being a self-interested, profit-maximizing entity.

Now, here's the thing: it's possible to have a perfectly good functioning insurance system without having a bloated middleman skimming billions of dollars for profit and denying coverage to millions of people. This morning I followed an Atrios link to this post by John Cole:

Hell, I can’t, for the life of me, figure out what value the insurance companies add at all. Seems like all they do is skim money off the top, add layers of paperwork, and then screw people when they get a serious illness.

This is precisely the function of private insurers, and there's no need for it. You could have a non-profit co-op or a public option for providing insurance. I've never heard a single good reason why it's better to have a huge, bureaucratic, profit-driven corporation that looks after only its own bottom line and sabotages the purpose of insurance in the first place.

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