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Small Business Employee Benefits and HR Blog

We Need to Keep the Insurance Horror Stories in Perspective

August 11, 2009
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Anytime a political group is trying to make a point, they find someone that was victimized by the policies of their opponents.  If the argument is about regulating banks, they'll find the victim of a ponzi scheme.  If the argument is about regulating pollution, they'll find a child who has suffered some sort of illness because of pollution.

This is a great way to put a face on these important issues, but it's can also be incredibly manipulative.  There are about 300 million people in America so it's not that shocking that someone is hurt by just about every decision that comes out of Washington.  It's important that we try to maintain some perspective when hearing these horror stories.

This is especially true with the current healthcare reform debate.  Both sides are parading victims around to make their opponents seem heartless and cruel.  The sad fact is that whether you're talking about group insurance, individual insurance, or a single payer system, there's no shortage of horror stories.

So what can we do to sort through the horror stories and figure out which ones are rare exceptions and which ones are a result of a fundamental flaw in the system?  Let's look at what has to go wrong in the system in order for the horror story to have occurred.  I'll examine three common types of stories that we hear:

Individual Insurance

It's easy to find people that were screwed over by individual insurance.  Most of the time the person bought a policy that they thought covered something (like maternity) that wasn't actually covered.  It's sad when this happens, but this is almost always due to an uninformed consumer that buys a policy without researching it, or an insurance agent who lies about what the policy covers.

Group Insurance

The most common problem you hear about with group insurance is when someone with group coverage gets sick and can't work.  This in turn causes them to lose their job which causes them to lose their insurance when they need it most.  About a quarter of all bankruptcies in the U.S are the result of that exact chain of events.

Universal Coverage

When discussing a single-payer system, it's common to look at how other countries are faring.  Canada in particular has no shortage of horror stories where someone is sick and needs treatment but the doctors are too backed up to see them immediately.  Even if these people are able to afford to pay for the treatment themselves, it's illegal for doctors to accept payment, so there's nothing to be done.

All of these anecdotes are terrible, but there's a fundamental difference between the problems with individual insurance and the other two.  Individual insurance horror stories are almost all caused by something going wrong.  The insurance agent isn't supposed to lie and the consumer isn't supposed to make an uninformed decision.  If the system works how it was intended, the horror stories stop (for the most part).

The problems with group and universal coverage aren't cause by something going wrong.  As a matter of fact, the problems I described happen when the system works exactly how it is designed.  Group insurance is fundamentally structured to only provide coverage for as long as a person can work.  When someone loses their insurance because they are too sick to work, that's an example of the system working exactly how it was designed.  The same is true of the most common complaints with universal coverage.

I'm not saying that there are fewer problems with individual insurance, But I have a lot more confidence in a system where problems occur when something goes wrong as opposed to one where the problems are directly built into the system. 

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