Do Politicians Understand Insurance?

The way some politicians talk I don’t think they understand that insurance companies don’t pay for health care, their customers do.

Insurance works in one of two basic ways.  Life insurance is part investment and part ponzi scheme.  Part of the payments to beneficiaries comes from investment of the money the insured paid in premiums and the rest comes from the premiums being paid by others.   Life insurance works as long as the death rate remains low and the number of people purchasing life insurance is high.

Health insurance may have operated through investments at one time. Today, the money paid to health care providers comes from the premiums paid by the insured.  Health insurance provides a way for many people to pool their financial resources to pay the medical bills of those who become sick or injured.

Health insurance can only function as long as the healthy insured outnumber the unhealthy insured.  A health insurance company can only stay in business if most of its customers during any given year pay more in premiums than the company pays for their medical expenses.

The problem in American health care isn’t a lack of insurance, but the high cost of medical care.  The high cost of medical care  hampers the ability of individuals and their employers to pay for medical care or purchase  insurance.

Government and private insurance played a role in increased medical charges by routinely paying medical charges without question for decades.

The first step to health care reform should be reduction of costs which will require extensive congressional hearings to determine why costs are so high. The investigation should include determining if health insurance companies are overcharging customers in order to make excessive profits or pay excessive salaries to executives.

For example, what role do malpractice cases play in health care costs?  Are medical tests or hospital dispensed medications overpriced?  Are doctors’ fees too high considering the financial resources of patients?  Do states adequately regulate the quality of medical care?  Correcting mistakes by doctors and hospitals  is expensive and leads to malpractice suits.


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