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