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0 pointsbhupy5y ago0 comments

That’s captured by (1) risk sharing. Pooled risk sharing is great for things like fire departments where out of 1000 homes, one might catch fire every few months. It’s also great for societies where out of 1000 people, a small handful suffer from chronic illnesses or tragic accidents and the remaining are healthy. The problem is that it’s just a hammer, and not everything in healthcare is a nail.

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lotsofpulp5y ago

Taxes are basically risk sharing across the whole population. But I wanted to specify that it's not risk sharing like your auto insurance is, or home insurance, or term life insurance. Those are infrequent, random events for the most part.

Whereas, healthcare is a guaranteed expense, so the premiums are just prepaying for the coming expenses. But today, you're not paying for your healthcare expenses, but for the older, sicker person's healthcare, just like FICA taxes are paying for healthcare for those 65 years and older.

bhupyOP5y ago

It's incorrect to say that premiums are only prepaying for coming expenses, but not risk sharing. They cover both. That's the whole point, health insurance today is a bundle of all of those things.

While FICA taxes (partially) pay for senior citizens' healthcare, your health insurance premiums both pay for your annual physical (especially on Platinum PPO plans) as well as care for sicker people that are not eligible for Medicare/Medicaid. I assure you that there are plenty of sick people that are under the age of 65, and actuaries price them in when computing premiums for private health insurance.

And as a minor point of order, even Medicare isn't "free" for seniors — the FICA taxes only cover Part A benefits, and seniors still need to pay monthly premiums to Medicare to cover Part B benefits. And even those benefits aren't 100% covered — Medicare only covers 80% of outpatient care.

lotsofpulp5y ago

I agree that it’s risk sharing, but my point is that it’s more akin to a tax and it’s useful to view them as a tax because it’s specifically structured via the maximum age rating factors and max out of pocket to give older and sicker people a proportionally higher benefit than younger and healthier people.

While my auto insurance premiums will probably go up if the insurance company experiences losses much higher than expected, the insurance company will raise premiums on the people causing accidents more than myself (and maybe even drop them if they deem them uninsurable). If health insurance claims come in higher, the younger people will pay proportionally more even though they’re mostly going to just be getting a physical and flu shot.

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lotsofpulp5y ago

bhupyOP5y ago

It's incorrect to say that premiums are only prepaying for coming expenses, but not risk sharing. They cover both. That's the whole point, health insurance today is a bundle of all of those things.

lotsofpulp5y ago

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