Does your car insurance pay for oil changes?
Of course not. If these things were covered by insurance the costs of these insurance coverages would be astronomical. People buy insurance for large, unexpected costs to protect their assets and savings. The basic principle of insurance is that it allows a large number of individuals to pool and share risks so as to protect the group from unexpected losses that only some would likely incur in any one period.
Therefore, homeowner's insurance is there to protect you from the catastrophic impacts of a fire or tornado that could totally destroy your home. It is not designed to pay for a furnace that needs to be repaired or replaced. The same is true for auto insurace. It is there to pay for damage caused by a hailstorm or being rearended on the freeway but it does not pay to repair or replace a transmission.
When health insurance was first introduced it followed the same general principles of all insurance. In fact, most early versions of health insurance were actually called hospitalization insurance. Coverage only was provided if you ended up in the hospital and were exposed to the risk of the high costs associated with a hospital stay. Doctor visits, x-rays, drugs and the like were not considered within the purview of health insurance.
Those were much simpler times. Health care costs were also much cheaper. In 1965, the average cost of a one day stay in the hospital was about $45. Yes, you read that right-$45! By 2002, that cost had increased over 28-fold to $1,289. Today that cost is around $4,000 per day.
Inflation since 1965 has pushed prices up by about 6.4 times. Therefore, adjusted for inflation, a day in the hospital should only cost about $288 today.
Should you not believe how much hospitalization costs have changed here is a copy of the hospital bill for the birth of my wife. The total bill was $82.56 for four days in the hospital for mother and daughter in 1952.
First and foremost, health insurance costs have increased dramatically because underlying healthcare costs have increased. You can see from the above what has happened with hospital costs. New technology, drugs, tests and treatments also have also pushed up costs over the years.
In addition, there has been a continuing trend in using health insurance to cover more and more and more costs. Routine doctor visits, physical therapy, mental health visits and the list goes on. The end result is that health insurance looks less like the traditional model of insurance, which is to protect people from catastrophic loss, and has become nothing more than a model designed to transfer costs to a third party. Health insurance today has little to do with sharing the risks of the people in the insurance pool. It really is about creating a pool where the risks and costs are transferred to a third party (an employer or the federal government) that is completely removed from the process.
It probably should not come as a surprise that the explosion in health care costs in this country began in 1965-the year that Medicare and Medicaid took effect. This is when the traditional health insurance model began to break down and the third-party pay system took over. This chart shows health care spending in the United States from 1900-2012.
We were told when Barack Obama first ran for President that he was going to do something to make health care more affordable. I remember something about reducing the average family's cost of health care by $2,500 per year. I also remember something he signed into law called "The Affordable Care Act". You might know it as Obamacare.
Obamacare is upon us and it will largely take effect in 2014. The non-partisan Society of Actuaries released a report this week on what we can expect to happen to health care premiums as a result of Obamacare. The news is not good for most Americans. This independent group of actuaries predicts that Obamacare-driven changes could drive up underlying health care costs by an average of 32% due to mandated benefits, increased use of medical services and other provisions in the law. My state of Ohio is expected to see an 81% increase in costs!
What does HHS Secretary Kathleen Sebelius have to say about the increases?
"Some of these folks," Sebelius said, referring to those hit by ObamaCare's price spikes, "have very high catastrophic plans that don't pay for anything unless you get hit by a bus. They're really mortgage protection plans, not health insurance."Investor's Business Daily says it better than I can. Obamacare is the exact opposite of what is needed to control health care costs and make it more affordable.
Sebelius has it exactly wrong. It's precisely those catastrophic plans that are real insurance, which in case anyone has forgotten is supposed to protect against unforeseen costly events, not pay $20 doctor visits.
What Obama and company are trying to force down everyone's throats isn't insurance, it's massively expensive prepaid health care.
Too bad for those who'd rather buy real insurance and spend their money on something else.
The problem is that ObamaCare's push toward comprehensive "insurance" coverage will only fuel health care cost inflation.
Back in 1960, people paid almost half the nation's health care tab out of pocket. By last year, that figure had dropped to just over 10%, with the rest paid by government health programs or increasingly generous, tax-subsidized workplace health benefits.
That, in turn, has pushed up health spending, since it looks to consumers like they're getting something for virtually nothing.
By driving out-of-pocket spending for health care down even further, ObamaCare will only succeed in driving up costs for everyone.Perhaps we should stop calling it Obamacare and just start referring to it as "The Unaffordable Care Act".
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