Saturday, April 17, 2010

The Inherent Immorality of Health Insurance

Matt Yglesias points to one of the main pieces of Health Care Reform.
One of the most important elements of the Affordable Care Act is the requirement that insurance companies maintain a “medical loss ratio” of at least 85 percent—which is to say, spend at least 85 percent of what they take in in premiums on purchasing health care, rather than on profits and salaries for insurance company employees.

He provides the following chart:

The strange thing to me about the entire health care debate (or gosh, is it over?) is that there is an enormous conflict of interest inherent to the health insurance business.  In order for businesses to be successful, they need to, well, be businesses - in other words to try to make money.

But unlike just about every other business, health care determines people's lives.  I mean, if people don't get proper treatment they get sick and die.  But that can get really expensive, thus caps and pre-existing condition lock-outs.  So now, to try and make things more moral (i.e. not force people into dangerous ER situations and the cost-shifting that involves), we require equal access.  But as businesses, this is terrible for the industry.  It basically means sacrificing profit for morality. So then you get the mandate, the subsidies, the 3-legged stool, yadda, yadda. 

But all of this to account for the fact that insurance companies, to provide a social good, must sacrifice profitability.  We don't ask other businesses to do this.  It would be like, in the absence of a public school system, requiring private schools to take on charity cases from the neighborhood.  The only reason we wouldn't dream of that is that we allow for a certain level of decency to children that we don't adults.  (Although many people have been perfectly willing to allow kids to go uninsured.  These people are sick.  And Republican.  And they wonder why they get a bad rap?).

It seems reasonable that in markets where there is a moral obligation to sacrifice profit, morality will lose out.  It isn't as if some noble insurance companies decided to open their doors to pre-existing conditions "out of the good of their hearts".  They wouldn't be very good businesses if they did.

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