Is the Insurance Mechanism Broken?

A DAY DOES NOT PASS without hearing the con-

sequences of an ill person not having health insur- ance. The health experts debate the numbers of uninsured:

Is it 32 or 37 million? The policymakers look for solutions

to a larger number of Americans not receiving health care. Hospitals lament providing uncompensated care and public health officials describe an increasing number of clients.

Absent from the rhetoric is the real discussion about health

insurance: Insurance does not work anymore!

Today, health knowledge has advanced to the point that

the conditions for health insurance no longer exist. A brief

review of these prerequisites make obvious the reason that major reform in financing health care is a necessity.

Condition #I: The event must be random, ie, there is an equal probability of an event occurring for one individual as for any other.

Health Inswance: Before an individual can become in-

sured, he or she must undergo a waiting period. Preexist- ing conditions are usually excluded. These waiting periods

or exclusion clauses protect insurance companies from en-

rolling only those persons who need health care. This idea is referred to as “adverse selection,” ie, those who know

they will be (or are) sick choose health insurance.

Uninrwed: Individuals with chronic illnesses are ex-

cluded from health care policies. Condition #2: There must be a sufficiently large number

of homogeneous exposure units to make the loss reasonably

predictable. Health Insurance: Companies with many employees are

able to insure the employees since the number of accidents

or new cases of illness can be reasonably well predicted. The

insurer can then predict how much it will cost to provide coverage and, therefore, charge the company.

Uninsured: Persons working in small businesses, espe-

cially in the service sector, do not have health insurance.

Contrary to common belief, the single largest category of

uninsured is the employed.

Condition #.?: The loss produced must be measurable. Health Insurance: Mental health services have often been

excluded from policies. The insurer asks, “How do you know he is sick?“whereas the acute phase of a heart attack or stroke is never questioned. Insurance companies limit

mental health coverage to a predetermined number of vis- its.

CONNIE F. MULLINIX, RN, PHD, MBA Clinical Assistant Professor

CB# 7460 Cawington Hall

University of North Carolina at Chapel Hill

Chapel Hill, NC 27599-7460

Copyright 0 1991 by W.B. Saunders Company 8755-7223/91/0706-0006$03.0010

Uninsured: Persons who are chronically mentally ill or

who need substance abuse treatment must arrive at cure before the defined number of visits are used. Follow-up

care, needed for prevention of relapse, is often not avail-

able. Condition #4: The health problem must be accidental. Health Insurance: Health care providers are able to predict

the probability of a person becoming ill given certain he-

reditary, life-style, and socioeconomic factors. Those who are overweight, those who smoke, and those with a family

history of heart disease are more likely to have health prob- lems

Uninsured: Persons at risk for developing AIDS are ex-

cluded from health insurance.

Condition #5: The loss must not be catastrophic. Health Insurance: Policies specifically exclude injuries re-

sulting from “acts of war” from all health care policies.

Uninsured: All veterans who have health problems result-

ing from combat would be uninsured if the federal govern- ment, through its Veterans Affairs, did not provide health

benefits and services. A final condition is the result of the presence of insurance

financed by the insuree. This condition, although not a

prerequisite for insurance to work, certainly operates as a

force in the insurance dilemma. This condition is “moral hazard” (Pauly, 1968), the term applied to the consumer’s

belief that if he or she has paid for a health service, then he

or she should use it. Therefore, Condition #6: Moral hazard: The belief that if one has

purchased insurance, one should receive the benefit from it. Health Insurance: Consumers tend to obtain health ser-

vices immediately when these services are prepaid, but might wait and see if the health problem resolves if there

were an out-of-pocket cost today.

Uninsured: The cost of providing health care to the in- sured has risen so drastically that the money available can-

not be spread to those who do not have health care. Em-

ployers increase copays and deductibles or decrease benefits in order to control costs, thus not insuring health care for

their workers.

In effect, the mechanism of insurance is broken. The tinkering with regulating third-party payors and require- ments for employers to finance health benefits is not ade-

quate to fix a financing mechanism that no longer safe-

guards consumers. Major change in the form of a national health insurance that covers all Americans is the only so- lution that satisfies the conditions under which insurance can again work.

Reference

Pauly, M. (1968). The economics of moral hazard. Amwican Economic Review, 58(6), 531-537.

330 Journal of Professional Nursing, Vol 7, No 6 (November-December), 1991: p 330