Why Require Every Adult to Carrry Health Insurance

Before I begin, in the interest of full disclosure, I should mention that I spent four years of my life working in the insurance industry. Initially, I was an insurance agent and later became the agency coordinator for the Quaker Life Insurance Company in Tulsa, Oklahoma. Jim Inhofe, a current Republican senator from that state was the company president. But in those days, he was the mayor of Tulsa and had not yet gone to Washington.

One of the items that was an integral component of the health care proposals made by both John Edwards and Hillary Clinton was a mandate that all individuals have and maintain health insurance. This would be similar to the requirement for vehicle insurance that exists in most states. Naturally, the insurance industry supports such a mandate.

At first glance, one might think the insurance industry's support for requiring everyone to have health insurance would be motivated by the lure of big profits. Actually, that potential cannot be entirely ruled out. However, there is another, more important reason.

Insurance companies operate by collecting money from all their customers and paying claims to those who need them. The company decides what to charge their customers based on how much they expect to need to pay the claims. They spend a lot of time and effort on statistical analysis to balance keeping their respective company's policies competitive while still reaping a profit for their investors. This actuarial science is what separates insurance plans from fraudulent ponzi schemes.

Most of the health care reform proposals call for eliminating the right of insurers to exclude people or to charge them higher premiums because of their existing health insurance problems. This is desirable for everyone except the insurers. As has been mentioned, insurance companies make their money by collecting money from all their insured while paying out as little as possible. Those people who have health conditions that cost more to treat than they pay in for health insurance premiums actually cost the insurance company money. Currently, the only way to control this loss is for insurance companies to be able to exclude offering coverage to those people or to charge them much higher rates. This also provides provides something of an incentive for healthy people to lock in their health insurance before something adverse happens.

If you eliminate the right of insurance companies to exclude the unhealthy, then many healthy people will wait until their expected medical expenses are greater than than the insurance premiums before getting coverage. It makes perfect sense from a personal financial management perspective. But, it will bankrupt the insurance companies!

Only requiring everyone to have insurance as a matter of law whether they are healthy or not will enable insurance companies to remain in business even if they accept people with health conditions at the sames rates as everyone else. That will guarantee the insurance companies have the money to pay the claims for those who need it. You can argue the politics, but some things are what they are regardless of how you feel about it. You cannot make health insurance available to everyone without requiring it for everyone.

That's Wade's two cents!

Wade Houston
June 18, 2009