Ask the doctor


Auto Insurance Principles Should Apply To Health Insurance

Many Americans rely on their automobiles toautomobiles are to our lifestyles, there is
get to work. No automobile means no job, nono loud national movement, accompanied by
rent or mortgage money, no food. A singlemoral  outrage,  to  change these principles.
parent, struggling to make ends meet in the
suburbs with 100,000 miles on the odometer,Unsustainable  Market
would presumably welcome the guaranteed
opportunity for low-priced insurance thatIn contrast, similar principles are routinely
would take care of every possible repair onviolated in health insurance. To demonstrate
her auto until the day that it reachesthis, let's return to the same suburban
200,000 miles or falls apart, whichever comesmother from the opening paragraph. She's busy
first. Especially if the insurance is validworking, driving to and from work, and
regardless of whether she even changes thedriving her kids to school and activities.
oil  in  the  interim.She ends each day exhausted, sitting on the
couch with fast food. She's obese, has a
So why aren't the auto insurance companiessedentary life, a bad diet, and hasn't taken
writing such coverage, either directly orthe time to go to the doctor in years. After
through used auto dealers? And given thea simple injury doesn't heal for weeks, she
importance of reliable transportation, whyturns up at the emergency room and learns she
isn't the public demanding such coverage? Thehas type II diabetes. Although type II
answer is that both auto insurers and thediabetes is controllable, changing diet and
public know that such insurance can't beexercise habits and properly tracking her
written for a premium the insured can afford,condition takes time and effort and she's
while still allowing the insurers to staynever quite successful in implementing the
solvent and make a profit. As a society, wenecessary  lifestyle  changes.
intuitively understand that the costs
associated with taking care of everySo the initial emergency room visit is only
mechanical need of an old automobile,the first of a long list of health care
particularly in the absence of regularrelated to non-controlled diabetes and other
maintenance, aren't insurable. Yet we don'tproblems associated with obesity. Whether she
seem to have these same intuitions withhas individual or group insurance, her
respect  to  health  insurance.insurance pays for each episode of care,
without singling her out for a premium
If we pull the emotions out of healthincrease, and without charging her any more
insurance, which is admittedly hard to docost sharing than is charged to the
even for this author, and look at healthhealthiest and most medically diligent
insurance from the economic perspective,insureds. Her coverage continues until she
there are several insights from autovoluntarily changes insurance companies and
insurance that can illuminate the design,or employers or becomes eligible for
risk selection, and rating of healthMedicare. If she's covered under group
insurance.insurance she may not even pay any premium.
Her insurance continues unabated, even though
Auto insurance comes in two forms: thethe disease was caused by neglecting her body
traditional insurance you buy from your agentand she maintains her poor lifestyle even
or direct from an insurance company, andafter  the  disease  becomes  known.
warranties that are purchased from auto
manufacturers and dealers. Both are riskThis just wouldn't happen in auto insurance.
transfer and sharing devices and I'llThis scenario is the auto insurance
generically refer to both as insurance.equivalent of guaranteed access to low-priced
Because auto third-party liability insuranceauto insurance that takes care of every
has no equivalent in health insurance, forpossible repair, including damage already
traditional auto insurance, I'll examine onlydone, until the day the car falls apart so
collision and comprehensive insurance -completely it's unsalvageable (death) or
insurance covering the vehicle - and notreaches 200,000 miles (Medicare), regardless
third-party  liability  insurance.of whether she even changes the oil (takes
care  of  herself)  in  the  interim.
Bumper  to  Bumper
As a society, we don't expect this in
The following are some commonly acceptedprivate-market auto insurance, but we expect
principles  from  auto  insurance:it in private-market health insurance.
Furthermore, there's a chorus of national and
* Bad maintenance voids certain insurance. Ifstate interests, which continuously pushes us
an automobile owner never changes the oil,further away from the auto insurance
the auto's power train warranty is void. Inprinciples.
fact, not only does the oil need to be
changed, the change needs to be performed byThe current private health insurance market
a certified mechanic and documented.isn't sustainable. Prices have been
Collision insurance doesn't cover carsconsistently increasing faster than inflation
purposefully  driven  over  a  cliff.for decades. Each year, insureds use more
health care than ever before and more people
* The best insurance is offered for newhave no insurance at all. Most actuaries and
models. Bumper-to-bumper warranties areother people in the private health insurance
offered only on new cars. As they roll offmarket don't want national health insurance
the assembly line, automobiles have a low andwith its bureaucracy and one-size-fits-all
relatively consistent risk profile,benefits. Yet, we're trying to sustain a
satisfying the actuarial test for insuranceprivate insurance system, which violates the
pricing. Furthermore, auto manufacturersvery principles we know are necessary for
usually wrap at least some coverage into theprivate  insurance  markets.
price of the new auto in order to encourage
an  ongoing  relationship  with  the  owner.Yes, health insurance involves the sacredness
of human life and is therefore different from
* Limited insurance is offered for old modelauto insurance. But if we're to sustain a
autos. Increasingly limited insurance isprivate-market solution to health insurance,
offered for old model autos. Theactuaries need to explain to the larger
bumper-to-bumper warranty expires, the powersociety, in terms that society understands,
train warranty eventually expires, and thethe  rationale  for the following principles:
amount of collision and comprehensive
insurance steadily decreases based on the* As sacred as health care is, it's still an
market  value  of  the  auto.economic transaction that has to be balanced
by individuals and societies, against other
* Certain older autos qualify for additionaleconomic choices. It can't be unlimited.
insurance. Certain older autos can qualifySometimes it will be secondary to other
for additional coverage, either in terms ofchoices. On a given day, for example, the
warranties for used autos or increasedmother in our scenario may value her car more
collision and comprehensive insurance forthan  her  health.
vintage autos. But such insurance is offered
only after a careful inspection of the* Insurance premiums should be paid by the
automobile  itself.individual and tied to controllable risk
factors. This will provide the best incentive
* No insurance is offered for normal wear andfor  the  control  of  risk  factors.
tear. Wiper blades need replacement, brake
pads wear out, and bumpers get dings. These* Although it's hard to draw the line between
aren't insurable events. To the extent that aabuse, neglect and ignorance, self-abuse
new car dealer will sometimes cover some ofshouldn't be insured and we need to draw that
these costs, we intuitively understand thatline  somewhere.
we're 'paying for it' in the cost of the
automobile and that it's 'not really'* The private market can't provide unlimited,
insurance.self-directed  health  insurance.
* Accidents are the only insurable event for* Routine care and ongoing treatments of
the oldest automobiles. Accidents arechronic conditions can be pre-funded, can
generally insurable events even for theeven be subsidized, but they don't constitute
oldest autos; with few exceptions service'insurable  events.'
work  isn't.
* Insurance can't be expected to keep every
* Insurance doesn't restore all vehicles tohuman body in pristine condition. No amount
pre-accident condition. Auto insurance isof health care will prevent everyone's
limited. If the damage to the auto at any ageultimate  death.
exceeds the value of the auto, the insurer
then pays only the value of the auto. With* Comprehensive, unlimited, non-subsidized
the exception of vintage autos, the valueprivate-market coverage isn't possible for
assigned to the auto goes down over time. Sopeople  with  severely  impaired  health.
whereas accidents are insurable at any
vehicle age, the amount of the accident* The private health market can provide
insurance  is  increasingly  limited.limited non-subsidized health insurance, such
as protection from accidents, to even
* Insurance is priced to the risk. Insurancehealth-impaired  individuals.
is priced based on the risk profile of both
the automobile and the driver. The auto* Individuals who can afford to do so and who
insurer carefully examines both when settingtake good care of themselves should be able
rates.to 'buy up' to better coverage. People have
the option of buying up for everything else
* We pay for our own insurance. And with fewin  life.
exceptions, automobile insurance isn't tax
deductible. As a result, the fear ofDiscussion of these principles is lacking
increasing insurance rates due to trafficfrom most of the current health insurance
violations and/or accidents changes ourdebate. If society can intuitively understand
driving behavior and we sometimes select ourhow similar principles apply to health
automobiles  based  on  their  insurability.insurance, then they should be able
understand the principles in the health
Each of the above principles is supported byinsurance context. We need to initiate the
solid actuarial theory. Although mostdebate.
Americans can't describe the underlying
actuarial theories, most everyone understandsThis commentary is solely the opinion of its
the above principles of auto insurance at theauthor.
intuitive level. For sure, as indispensable



1 A B C D E F 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136