Obama and health care reform

June 26, 12:29 PMRichmond Political Buzz ExaminerArlon Staywell

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     In several speeches in that last few weeks President Obama pressed the need for health care reform.  An issue Hillary Clinton once championed, she was perhaps beset with other duties as Secretary of State and or the accident to her elbow for much participation in these latest rounds.
Understanding insurance
     The mathematical function that makes insurance a practical solution is the division of risk.  If the likelyhood of a particular disease is one in one hundred then the risk is divided by one hundred. If the cost of the cure is $500 dollars then insurance against the disease can be sold for $5, or slighty more than $5 considering the expenses of operating the insurance company.  If the actual number of cases of the disease is as expected then the insurance company can maintain itself.  While this principle of operation should be within the grasp of elementary math students there have been indications that it is not understood even by some adults.  Years ago there was an effort to make insurance companies pay the cost of mammograms at the same time there was an effort to make those tests required.  Checking the math on that if one hundred percent of people who buy the insurance need the test then the insurance company must charge each person one hundred percent of the cost of the test, plus a small part of the operating expenses of the insurance company.  Observe that there are no savings at all to the insured in that scenario.  Evidently the proponents of those requirements were depending on some other principle by which insurance companies would find the money needed.
     Another example indicating that people do not understand how insurance works is the extent to which they believe insurance companies should cover conditions that existed before the insurance is purchased.  If people can wait until they get sick before they buy insurance why would anyone not sick buy it?  And how can the risk be divided if again in this scenario one hundred percent of people need to be paid by the insurance company?  Perhaps there are particulars about just what sort of pre-existing conditions should be covered and just how that makes the idea sensible to its proponents.
     And still another example that the principle is not understood is the belief that insurance costs can be lowered if more people are insured. Take another look at the example disease that costs $500 to cure and appears in about one in a hundred cases. It makes no difference how many people buy the insurace the risk is still one in a hundred and the charge to the insured is about one hundredth the cost of the cure. At extremely low levels of participation the insurance company might take a huge loss or perhaps make a huge gain because the small number of cases does not reflect the wider population, but the risk is basically the same one in a hundred.
     Of course there are other reasons for wanting everyone insured. Some people for example have difficulty calculating risks and preparing for them.  And perhaps that is obvious.
     In Virginia you may not drive without automobile insurance unless you pay the state a fee to be excused from having insurance.
What is new
     The troublesome point for many about the president's new ideas is the "public option."  That doesn't mean the option to have that medicare deduction on your paycheck or not.  It means a government operated insurace company.  The theory is that an insurance company run by the government might have such sterling performance and low costs that the private companies would be forced to compete in the marketplace with similar performance and costs.  Is that supposed to be like the run the United States Postal Service is giving private carriers?
     And the perhaps tainted profit motive would interfere less with the publicly run company somehow.  Wary of government operation of anything, many voiced concerns that such an option would be error prone and unfairly compete having access to money in ways non-governmental agencies cannot.  The president acknowledged risks in the funding but was not clear exactly what he could do about them.

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     Are there really such things as heart transplants?  Consider for just a moment.  Read  A Heart Transplant Debate.