Monthly Archives: August 2009

On Health Insurance Reform

As things heat up in the health care debate, I found this article a very good reminder of some of the shortcomings of the system we have in the U.S. today:  “You Do Not Have Health Insurance” by James Kwak.

The point of insurance is to protect you against unlikely but damaging events. You are generally happy to pay premiums in all the years that nothing goes wrong (your house doesn’t burn down), because in exchange your insurer promises to be there in the one year that things do go wrong (your house burns down). That’s why, when shopping for insurance, you are supposed to look for a company that is financially sound – so they will be there when you need them.

If, like most people, your health coverage is through your employer or your spouse’s employer, that is not what you have. At some point in the future, you will get sick and need expensive health care. What are some of the things that could happen between now and then?

  • Your company could drop its health plan. According to the U.S. Census Bureau (see Table HIA-1), the percentage of the population covered by employer-based health insurance has fallen every year since 2000, from 64.2% to 59.3%.
  • You could lose your job. I don’t think I need to tell anyone what the unemployment rate is these days.
  • You could voluntarily leave your job, for example because you have to move to take care of an elderly relative.
  • You could get divorced from the spouse you depend on for health coverage.

For all of these reasons, you can’t count on your health insurer being there when you need it. That’s not insurance; that’s employer-subsidized health care for the duration of your employment.

And the bottom line:

The first-order problem is that as long as your health insurance depends on your job, your health is only insured insofar as your job is insured – and your job isn’t insured.

Now I don’t claim to know what the solution is; but I definitely agree that there are problems with our current ‘health insurance’ model.  The employer-based system was a bit of an accident in the first place, and at this point I would think that many businesses would be relieved to be out of it, particularly those that have to compete with firms that don’t have to worry about such problems.  It would be great to see more creative thought going into how to improve the situation for both employers and individuals.