In Which Health Insurance is Demystified

Dear Donald,

Sorry I’ve been out of touch, but work and kids and calling my congressional representatives every day have taken their toll. Plus I’m training for a charity dance competition – you can support me here. I know you can afford it!

Anyway, today I want to talk about health care. As you know, I’m a doctor in an inner-city emergency department. Emergency departments are the primary providers of health care to Americans who are uninsured, underinsured, or unable to access care in other venues. Emergency physicians have a unique firsthand perspective on the failings of our health care system, and we are the ones who will have to pick up the pieces of your “repeal and replace” efforts, so you would be wise to listen to what I have to say.

It has come to my attention that people really don’t understand how insurance works. The concept behind insurance is that it spreads out risk over the population. Statistically speaking, we know how much health care people are likely to need on average – we just don’t know which specific people are going to need a lot of health care, and which will need only a little. So we solve this problem by charging everyone for the average amount. This means, by definition, that some people will end up needing more care than they pay for, and some will end up needing less. Payments from healthy people who need little or no care are used to subsidize sick people who need more care. This is the fundamental essence of insurance.

A more cynical way of looking at this is to say that insurance always screws somebody over. If you’re healthy and have the good fortune of staying that way, you will pay premiums for care that you never consume. Your hard-earned money will be used to provide care for someone else – some damned stranger that you don’t know or care about. Scandalous! So why participate? You’re healthy – why shouldn’t you be allowed to just opt out of the system altogether? Under the Affordable Care Act, you’ll be penalized for not obtaining insurance. That’s not fair, right?

Wrong! If you opt out, Healthy Person, the whole system falls apart. Insurance only works if risk can be distributed over the whole population. Here’s an example.

Let’s say that Paul is going to provide insurance for five of his friends:

• Donald and Mike are young and healthy, and they stay that way

• Reince is young and healthy, but gets hit by a bus

• Steve is middle-aged, starts off reasonably healthy, but gets cancer

• Betsy is elderly and has multiple medical conditions

Based on the age and health history of this population, Paul predicts their care needs. He estimates that Donald, Mike, and Reince will each need $10 worth of care (Paul doesn’t know that Reince is a jaywalker). He estimates that Steve’s care will cost $20, because he’s older (he also doesn’t know about the cancer), and that Betsy’s will cost $50 because she’s old and sick. That’s $100 total – so he charges each of his five friends $20 to cover their average cost.

Here’s what happens:

• Donald and Mike consume no health care, decide that their $20 premiums are a waste, and cancel their insurance.

• Reince and Steve both consume $40 worth of care, and thank their makers that they had the foresight to purchase insurance – their $20 premiums are a great investment!

• Betsy consumes the predicted $50 worth of care, also coming out ahead.

• Paul has collected $100 and paid out $90 – sweet profit margin! What a businessman!

However, after Donald and Mike say buh-bye to Paul, we have a problem. Collectively, Reince, Steve, and Betsy consume $130 worth of care, but their premiums at the original rate only add up to $60. That’s a huge loss for Paul, so he will be forced to raise premiums. In order to cover the $130 worth of care consumed by these three unfortunate citizens, Paul has to charge them each $43.33 – rounded up to $50 to allow for a profit margin. That’s a 150% increase in premiums for Reince, Steve, and Betsy. OUCH!!

This, Donald, is why the ACA penalizes people for leaving the insurance market. The Donalds and Mikes of the world are the ones who are most likely to opt out, and they are the very ones who are most needed to opt in. The ACA isn’t “hurting Americans” by punishing people who choose not to participate in the insurance market. It is doing what insurance does at its most fundamental level: hurting some Americans in order to help others. We need Donald and Mike to pay premiums so that Reince can get his trauma care, Steve can get chemo, and Betsy can manage her myriad chronic medical and psychiatric illnesses. So Paul shouldn’t be running around acting like the decision of whether to purchase insurance is an “individual choice” – he knows full well that when young and healthy people choose to remain uninsured, that older and sicker people get screwed.

Okay, enough for now. This is the groundwork – tomorrow I’ll address some of the specific impacts of the Republican bill. I hope you found this helpful, Donald. Have a great week.

Your Friend,

Jules