I often listen to the public radio show, “Freakonomics Radio” by Stephen J. Dubner. Today, the story was about insurance and how intractable it is, both from the insurance providers’ and the buyers’ perspectives.
We all have some forms of insurance: Life, health, accident, liability, home, personal property, unemployment, retirement, and many others.
Lloyds of London has a reputation for creating individualized policies to insure anything: An actress’s legs, a quarterback’s arm, a pianist’s fingers.
Among the several insurance problems, the fundamental problem is adverse selection. The insurance company wants to cover people who will not have an immediate claim. The buyer wants to get his money’s worth in claims.
A life insurance seller wants young, healthy customers who will not make claims for many years while paying premiums all those years.
All insurers want the insured to buy as soon as possible, then wait a long time before making a claim (for instance, a health policy) or never make a claim (an auto liability policy),
But the insured ideally would like to purchase his insurance as late as possible — just before making a claim — or never.
To minimize adverse selection, insurers hire actuaries. These people use research and probability formulas to determine the likelihood of a person making a claim and how significant that claim is might be.
This leads to another problem: Adverse denial. Suppose those who will make the fewest and most minor claims are the only people accepted, and all others are denied. In that case, many people will be denied insurance, and the basic premise of insurance — to protect against misfortune — would be lost.
For example, on average, black people get sick and die sooner than white people. If the law allowed, insurance companies would charge blacks higher premiums than whites or refuse insurance to blacks altogether.
However, the law does not allow this, so the premiums charged to white people must be higher than they ordinarily would be to make up the difference.
Any time an insurer accepts something other than the lowest possible risk, the lowest risk people must pay more. Some, but not all, of this can be baked into the premiums. For example, most life insurance policies consider age and prior illness when determining premiums. But no insurer can consider every possible risk category and remain competitive.
So, in general, the lowest-risk people do, in part, fund higher-risk people for all sorts of insurance.
That said, a substantial portion of our population is not financially protected by insurance, either because no company will insure them or because the premium is higher than what people wish to pay.
In short, the risk is too high for any potential insurer, and the premium is too high for potential insureds.
The fact that the problem is considered intractable puzzles me because we already have solved it, not just once, but many times.
Medicare, for instance, solves it for the worst health risks: Older people who already are sick with terminal illnesses cannot be refused when they reach the qualifying age.
More than 18 percent of Americans depend on Medicare for their health coverage, and in 2019 Medicare the enrollment reached over 60 million.
You can start receiving Medicare Part A (hospital insurance) benefits with no premium once you are 65 or older if you or your spouse worked and paid Medicare taxes for a certain period. You can know you are eligible for premium-free Medicare A if one of the following applies to you:
You currently receive or are eligible for Social Security.
You currently receive or are eligible for Railroad Retirement Board (RRB) benefits.
You or your spouse served in a Medicare-covered government job.
You can purchase Medicare Part B benefits if you are eligible for Medicare Part A. It is a voluntary program that requires you to pay monthly premiums. For 2022, the standard premium is $170.10 (or higher, depending on income).
No matter how sick you are, even on death’s doorstep, you can receive insurance if you meet the above requirements.
How does the government avoid adverse selection? Mostly, it doesn’t. Yes, there are qualifications; adverse selection is not the consideration.
Why can the government afford Medicare when private insurance companies must worry about adverse selection? Contrary to popular belief, people with FICA deducted from their salaries do not fund Medicare.
The federal government, being Monetarily Sovereign, has the infinite ability to create U.S. dollars.
It neither needs nor uses tax dollars to pay for anything. Even if total FICA collections equaled $0, the federal government still has the infinite power to fund something better than our current Medicare.
The government could fund a comprehensive, no-deductible Medicare for every man, woman, and child in America.
Alan Greenspan: “There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”
Quote from former Fed Chairman Ben Bernanke when he was on 60 Minutes:
Scott Pelley: Is that tax money that the Fed is spending?
Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account.
And that is the solution to the healthcare insurance problem. The federal government should “use the computer to mark up the size of the account” and fund a form of Medicare far better than current Medicare.
I have Medicare, but I also pay for a concierge primary care doctor. I pay her an annual fee in addition to what she receives from Medicare.
My previous primary care doctor, who received Medicare reimbursement, had about 2,500 patients. My concierge doctor self-limits to about 600 patients. This allows her more time to do precisely what she studied for years to do: Treat patients.
She spends time studying my particular needs and discussing my health with me. If I go into the hospital, she has admittance privileges and can oversee my treatment there while discussing my case with all the doctors and nurses.
The federal government has sufficient resources to pay every primary care doctor to be a concierge doctor who can spend the time each patient deserves.
(The federal government also has the resources to provide free medical schooling for all prospective doctors, so there would be plenty of people available to be the abovementioned concierge doctors.)
All drivers need auto liability insurance. The federal government should provide it free. All homeowners and renters need insurance. The federal government should provide it.
There is no logical reason why more affluent people can afford insurance while poorer people cannot. Ironically, it is the poorer who need insurance more than, the richer.
The Freakonomics radio show ignored the fundamental truths about the American economy:
- Our government is Monetarily Sovereign. It has infinite dollars.
- Our people have needs that can be purchased with those infinite dollars
- Housing assistance
- Food assistance
- Liability insurance
- Narrower income/wealth/power Gaps between the rich and the rest
- The federal government should use #1 to fund #2.
The solution to many of life’s problems stares us in the face, yet disinformation from the top prevents it.
No, federal financing is not the dreaded “socialism” (which is government ownership and direction, not just government funding.)
And no, federal spending does not cause inflation. On the contrary, federal spending can reduce inflation by acquiring goods and services, the scarcity of which is the real cause of inflation.
There is a solution. We need only to recognize it.
Rodger Malcolm Mitchell
Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell
The Sole Purpose of Government Is to Improve and Protect the Lives of the People.
12 thoughts on “The insurance mystery solved”
The very thing you want is the very thing you’d destroy. Once the cat is out of the bag and everyone finds out all is affordable, the insurance people will make claims of their own and would want reimbursement for every policy lost to the government’s horn of plenty. In fact every business wiped out by federal intrusion would stake a claim for lost business. This is why the “establishment” won’t ever allow monetary sovereignty its due recognition; that is, not until it’s almost too late and everything is about to implode or actually does. Unfortunately, I feel that’s exactly what will happen. I hope I’m wrong.
[” the insurance people will make claims of their own and would want reimbursement for every policy lost to the government’s horn of plenty.”]
I don’t understand. Why would the government insure an insurance company’s claims? Medicare doesn’t insure Blue Cross’s claims.
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If monetary sovereignty becomes the accepted model of economic reality ( sans Big Oil price manipulation and other temporary scarcity woes) there’s really no need for insurance. The Fed’s freed up “printing” press in theory can afford to feed/care for everybody and everything.
A citizenry aware of a no-debt horn of plenty would stop worrying. The whole concept would flourish like wildfire world around. No more insurance of any kind, no labor strikes, no gambling casinos, no Kentucky Derby, Preakness, no inbreeding horses, greyhounds, cockfights, no moonshiners, no cheap car manufacturing, everyone driving rentals or a Mercedes, Jaguar, Cadillac, no more…. well you get the idea.
In short, monetary sovereignty will prove to be, in the short run, a shock to the system, in the long run a welcome change to centuries of scarcity economics’ legal strangle hold on the 99% who’ll finally enjoy punching a clock and doing a good job in return for great pay in a non-inflationary system where unprecedented consumer purchasing power will discourage corporate price increases, while stockholders can still expect to reap healthy dividends. In fact the whole world can expect to partake in this unfolding new system, which will only multiply the worth of every corporation. The stock markets will no longer jitter in peaks and valleys; only a smooth, steady all encompassing rise of the bull curve.
The point of monetary sovereignty is freedom, not conspicuous/over consumption. In fact in my book I suggest a sliding scale of required investment of increased purchasing power depending on income level in infrastructure, re-industrialization and green projects in order to keep consumption at sustainable levels. The publicly administered national bank could easily guarantee 3-5% eco/infrastructure bonds.
Actually a doubling of purchasing power doesn’t ipso facto mean a doubling of consumption/economic throughput. Not everyone is going to eat twice as much as they do now, or buy twice as many pairs of shoes or underwear. We/the government needs to foster wisdom as in positive constructive purpose which is the secret to human happiness.
I would agree. On second thought the need to reveal what the “plan” would and wouldn’t do is necessary. Limits would have to be established especially with regard to inflation control. Corporations (cooperations) would have to be all-in; a general understanding of “how” for starters. Corrosive competition/selfishness can’t be part of the mix. The question now is: how bad do things have to get before a philosophic switchover is made.
The plan for inflation control always should be federal spending to make scarce goods and services available to the private sector.
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The answer to inflation is a 50% Discount/Rebate policy at retail sale. That mathematically would end any possibility of inflation while immediately doubling everyone’s purchasing power. With that combination we’d be able to quickly re-industrialize in the most technologically efficient and ecologically sane way possible preventing any scarcities. Then you say to all commerciall agents: “Okay, in return for potentially doubling the demand for every one of your goods and services, in order to opt into the rebate aspect of the policy you pledge not to increase your prices. and if you break the rules we’re going to tax any revenue you got from that price rise at a rate of 100% and if you continue to inflate you’ll lose your rebate privileges. Opting in of course is a beneficial God father proposition in that if they don’t opt in they go out of business because they’d then have to get 100% of their price from the consumer when the consumer only has to walk down the street to their competitor and pay only 50%. Just play by the new gracious and beneficial rules and everybody prospers.
YES! Monetary Gifting strategically integrated into the Debt Only based system is the new monetary paradigm. And a 50% gift of price to the consumer at retail sale, all of which is reciprocally rebated back to the merchant by the monetary authority, will mathematically resign inflation to the dust bin of history by implementing beneficial price and asset deflation. Holy paradoxical inversion of problematic temporal reality…one of the signatures of historical paradigm changes!
Very well-said, Rodger. I would also add that New Zealand does exactly that for no-fault liability insurance of all kinds. That would also solve the problem of lawsuit abuse as well. Two birds, one stone.
Look at the education dollars necessary then and now: https://www.demos.org/sites/default/files/publications/DEMOS_DFC_Yearbook_FA_Optimized_0.pdf
Such insane education inflation really helps to keep that gap wide.
The irony is that our ancestors recognized the value of education for America. They forced the monetarily non-sovereign states and towns, which have limited dollars, to pay for K-12.
Now, our Monetarily Sovereign government, with infinite dollars available, can’t afford, or see a reason to, pay for grades 13+ (except for a trifle at community colleges).
It is the usual shortsightedness of legislators more interested in lying, cheating, criminality, and investigations of criminality, than in improving America. A pox on them all.
“the usual shortsightedness of legislators”
How many hundreds and thousands of political appointees are there all throughout our federal government?
Never really hear anything about civil service exams in the US anymore. In India each year about a million people annually compete in a series of exams [32 hours of them] to sift down to about 3000 that make it to interviews and back ground investigations for about 1000-1200 top level civil service positions. The best and brightest who will run the country for the next thirty or so years before hitting mandatory retirement in their late fifties.
No revolving door bouncing back and forth between Treasury and Goldman Sachs as one sees year after year in DC