Many Americans rely on their cars to get to work. No car means no job, no money for rent or mortgage, no food. A single mother, struggling to survive in the periphery with 100,000 miles on the odometer, presumably with the opportunity guaranteed by the cheap insurance that would take care of all repairs possible in your car until the day it hits 200,000 miles or collapses, which occurs first. Especially if the insurance is valid regardless of whether she even changes the oil in the interim.So why are not the auto insurance companies writing this coverage, directly or through resellers of used cars? And given the importance of safe transport, because it is not the public demanding such coverage? The answer is that insurers and car both the public know that insurance can not be written for a premium the insured can afford, even if the insurers to stay solvent and make a profit. As a society, we intuitively understand that the costs associated with taking care of every need of an old automobile mechanic, particularly in the absence of regular maintenance, are uninsurable. However, there seem to have these same intuitions with respect to health insurance.
If you pull the emotions out of health insurance, which is admittedly hard to do, even for the author, and look for health insurance from the economic perspective, there are several visions of car insurance that can illuminate the design, selection of risk assessment and health insurance.
Auto insurance comes in two forms: traditional insurance that you buy from your agent or directly from an insurance company and securities that are purchased from manufacturers and car dealers. Both are risk transfer and sharing devices and I will generically refer to both as insurance. Because auto third party liability insurance has no equivalent in health insurance, auto insurance for the traditional, I will examine only collision and comprehensive insurance - insurance that covers the vehicle - not a third-party liability insurance.
Bumpers
The following are some generally accepted principles of motor insurance:
* Bad maintenance voids the insurance. If an automobile owner does not change the oil, ensuring the auto power train is zero. Indeed, not only the need for oil to be changed, the change needs to be done by a certified mechanic and documented. Collision insurance does not cover cars purposefully driven over a cliff.
* The safest course is offered for new models. guarantees for car bumpers are only offered on new cars. As they leave the assembly line, cars have a low risk profile and very consistent, satisfying the criteria for actuarial insurance prices. In addition, car manufacturers usually involves at least some coverage for the price of new cars, to encourage an ongoing relationship with the owner.
* Limited insurance is offered for older model cars. Increasingly insurance offered are limited to older model cars. The warranty bumper-to-bumper expires, the power train warranty eventually expires, and the amount of collision and comprehensive insurance decreases continuously based on market value of the car.
* Some older cars would qualify for additional insurance. Some older cars may qualify for additional coverage, both in terms of warranties for used cars or major collision and comprehensive insurance for vintage cars. But this insurance is offered only after a careful inspection of the automobile itself.
* No insurance is offered for normal wear and tear. brushes need replacement, brake pads wear down, and bumpers get dings. These events are not insurable. To the extent that a new car dealer sometimes cover a portion of these costs, we intuitively understand that we are "paying for it" in the cost of the car and that is "not really" safe.
* Accidents are the single event insurance for older cars. Accidents are events in general insurance, even for older cars, with service work a few exceptions, is not.
* Insurance does not restore all vehicles to pre-accident condition. Auto insurance is limited. If the damage to the car at any age exceeds the value of the automobile, the insurer then pays only the value of the car. With the exception of vintage cars, the value assigned to self down over time. So, while accidents are insurable at any age of vehicle, the amount of accident insurance is increasingly limited.
* Insurance is priced to risk. Insurance is priced based on the risk profile of both car and driver. The auto insurer carefully examines both in setting rates.
* We pay for our own insurance. And with few exceptions, automobile insurance is not deductible. As a result, the fear of rising insurance rates due to traffic violations and / or accidents changes our driving behavior and sometimes we select our cars based on their insurability.
Each of the above principles is supported by sound actuarial theory. While most Americans can not describe the underlying actuarial theories, most everyone understands the above principles of auto insurance intuitive level. Certainly the cars are indispensable to our life, there is no strong national movement, accompanied by moral outrage, to change these principles.
Unsustainable Market
In contrast, similar principles are routinely violated in health insurance. To demonstrate this, let's go back to the same suburban mother of the opening paragraph. She is busy working, driving to work, and driving their children to school and activities. She ends each day exhausted, sitting on the couch with fast food. She is obese, has a sedentary lifestyle, poor diet, and have not had time to go to the doctor in recent years. After a simple injury does not heal for weeks, she turns up in the emergency room and discovered he had Type II diabetes. Although Type II diabetes is controllable diet change and exercise habits and monitoring their condition properly takes time and effort, and it is never completely successful in implementing the lifestyle changes needed.
Thus, the fourth visit of initial emergency is just the first of a long list of health care-related uncontrolled diabetes and other problems associated with obesity. If she has an individual or group insurance, your insurance pays for each episode of care, without singling it for a premium increase, and without accusing it of any participation cost more than is charged for insured healthier and diligent physician. Your coverage continues until she voluntarily changes insurance companies and / or employers, or becomes eligible for Medicare. If it is covered by group insurance, she can not even pay any premium. Your insurance continues unabated, even though the disease was caused by neglecting her body and she keeps her poor lifestyle, even after the disease becomes known.
That just does not happen in auto insurance. This scenario is the equivalent of car insurance of guaranteed access to insurance for low-cost cars that handles all possible repairs, including damage already done, until the day when the car breaks down so completely that it (death) unsalvageable and reaches 200,000 miles (Medicare), regardless of whether she even changes the oil (take care) in the interim.
As a society, we do not expect this in the private insurance market by car, but we expect the private market health insurance. Moreover, there is a chorus of national and state interests, which continuously pushes us further away from the principles of insurance.
The market for private health insurance today is not sustainable. Prices have been rising consistently faster than inflation for decades. Each year, insureds use more health care than ever and more people are uninsured for all. Most actuaries and others in the market for private health insurance does not want national health insurance, with its bureaucracy and of a size-fits-all benefits. However, we are trying to maintain a system of private insurance, which violates the principles we know are necessary for private insurance markets.
Yes, health insurance involves the sanctity of human life and therefore different from auto insurance. But if we are to sustain a market solution for private health insurance, actuaries need to explain to the wider society in terms that society understands, the rationale for the following principles:
* As sacred as health is still an economic transaction that has to be balanced by individuals and societies, against other economic choices. It can not be unlimited. Sometimes it will be secondary to other choices. On any given day, for example, the mother of our scenario can value your car more than her health.
* Insurance premiums shall be paid by the person and associated with modifiable risk factors. This will provide the best incentive to control risk factors.
* Although it is difficult to draw the line between abuse, neglect and ignorance, self-abuse should not be insured and we need to draw the line somewhere.
* The private market can not provide unlimited health insurance self-directed.
* Routine care and ongoing treatment of chronic conditions can be pre-funded and may even be subsidized, but they do not constitute "events of insurance."
* Insurance can not be expected to keep the entire human body in pristine condition. No amount of care will prevent the ultimate death of all.
* Comprehensive, unlimited, unsubsidized private market coverage is not possible for people with severely compromised health.
* The market for private health insurance can offer non-subsidized health limited, as protection against such accidents, even for individuals in poor health.
* Individuals who can afford to do that and take good care of yourself should be able to "buy" the best coverage. People have the option of buying up everything in life.
