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Sunday, August 09, 2009

The Guise of Consumer Protection

The AP has a story today about how the health care arguement is focusing too much on government control and reach, not enough on the consumer protections built into legislation in various parts of congress.

The protection that's talked about the most is the one most likely to drive your private insurer to drop health insurance, or jack up everyone's rates. That's the idea that you can't deny insurance based on pre-existing conditions, or charge higher rates based on them.

For those who don't realize it, and by listening to people argue about this for years, many don't, insurance is a risk pool. That means that the company's are trying to take in clients where the risk of paying more than they collect in premiums is low. The more risk factors you have, the higher your premium is, to hedge their bet. At a certain point you aren't worth insuring because the company won't be able to charge enough to not lose money.

The idea in HR 3200 (the big one in the House) and other bills is that the company would only be able to charge premiums based on age, not pre-existing conditions, which is insanity at it's finest. It basically requires companies to either raise all rates to a point where they don't lose their shirts, or quit offering health insurance. My guess is that point wasn't missed by Congress, in fact it's one they probably love especially with a "public option" plan out there.

If you look at insurance from a different angle, it's easier to see my point. Think of insurance companies as investment houses. Both are risk based businesses. Now, suppose your investment broker decided that instead of going with low to medium risk investments, he publicly said that the company was going to start putting large amounts of money into a group of investments that were sure to lose money, with no hope of ever returning your original investment, much less make a profit.

The SEC would investigate them for fraud, the Elliot Spitzers of the world would be filing suits, and the entire board of directors would most likely be fired by the shareholders.

Yet for some reason that same scenario sounds not only good, but somehow "fair" when it comes to health insurance companies. We now want to demand that they operate at a loss for a segment of their clients, when any other business would be investigated for it.

While Nancy Pelosi and others rail about the "obscene profits" of insurance companies, they really aren't that high. Aetna will make about $640 in profit from each of it's 19 million policies this year. That's in the area of one month's premiums for most folks, about an 8% profit.

Compare that to your mortgage. For the first twenty years of a 200,000 loan you'd pay more than that in interest PER MONTH! In fact, if the mortgage industry were to operate like Congress wants the health insurance one to work, our housing crisis would probably be even worse. I'm sorry, Barny Frank liked exactly that scenario, then held hearings when mortgage writers went belly up.

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