Thursday, March 11, 2010

An heretical thought about health "insurance"

I realize it's probably too late in the process to go back to first principles in the American health care debate, but I have a day job and I can't think about these things full-time.

I am an insurance lawyer by trade. I started out in insurance defense and moved into coverage work. I have limited experience, though, in life, accident or health coverages. My work has been primarily in the area of auto, homeowners, OLT (owner-landlord-tenant) or CGL (business) coverages. At one point I did a lot of fire work, both first and third-party stuff (meaning sometimes I was representing the insurer directly and sometimes I represented an insured who was accused of causing a fire loss at someone else's property).

In the course of my career I've learned that the bedrock principle of insurance is fortuity. Basically, insurance can be procured to protect against things that might happen -- not for things that must happen. For example, if the wind blows very hard and tears the roof off your house -- that's covered. However, if the roof wears out and lets the rain in -- that's inevitable and, therefore, not covered. (Entropy increases.)

And therein lies the difference between property insurance and what we call health insurance: With proper maintenance, a building can last indefinitely. (Tourism depends upon it.) The fortuitous risks to which a building may be exposed in the course of any given year can be identified and measured and rated accordingly.

On the other hand, with the best possible maintenance, and a dollop of good luck, a person can expect to last for... what? A hundred years? 90? As people age, even those who've enjoyed very good health can expect increasing problems. They may never occur -- but, when they do, they're not unexpected.

Doesn't the very idea of health insurance violate the principle of fortuity?

I think that the principle, or something very much like it, might apply if large groups of people are considered. But individual health policies take into account the health of the insured at the time of application -- they are 'rated' individually. Thus -- as the reformers keep telling us -- people with pre-existing conditions or predispositions to certain conditions or even prior conditions can't find insurance. Well, of course not -- not if we're talking about a product that only covers fortuitous losses.

The Democrats in Congress are shortly expected to pass mandatory health insurance requirements as part of the bloated, however-many-thousand-pages-this-week health care bill. Yet I'm not sure we know whether there is such a thing, really, as health insurance.

I'd like some guidance on this, please.


Dave said...


Not guidance; but, the exception to your dichotomy is flood insurance and that is only covered because of government intervention for social reasons.

So, given the surety (hah!) of health expenditures maybe we should quit calling the payment system for health care insurance.

The Curmudgeon said...

Now you see the reason why private companies DO NOT offer "flood insurance" -- it is available ONLY from the G.