There are several culprits funding the healthcare bubble. Health insurance,
however, is number one. Investopedia defines insurance “as the equitable
transfer of the risk of a loss from one entity to another in exchange
for payment.” By this definition, health insurance is not insurance.
Health insurance isn’t transferring the risk of a loss; it has evolved
in to the payment methodology for substantially all healthcare services.
Health insurance is not for the purpose of transferring risk. It’s
for the purpose of transferring responsibility to pay for healthcare.
Compare health insurance to other common forms of insurance, like automobile
or homeowners. These insurances are designed to protect the purchaser
from a “catastrophic” loss. Imagine the premium if auto or
homeowner insurances were similar to healthcare, where you would be buying
coverage to have your grass cut, your leaves raked, your house painted,
your air conditioners replaced, your oil changed, your engine tuned up,
your car washed and polished, etc…you get my point. In both cases,
you can imagine what the “transfer” of “ownership costs”
might look like if they were covered by insurance (some will argue this
is, in fact, happening with the “extended warranty” options
that are now available with almost anything you can buy). The reality
is most of these costs are still paid by consumers with out of pocket money.
Besides not being real insurance, another difference between health insurance
and other forms of insurance is that a significant amount of it is purchased
by employers and provided to employees in the form of a tax-free “benefit.”
Because of the cost of healthcare, health insurance becomes an even more
valuable benefit. Just how valuable made national headlines in 2003 when
20,000 General Electric workers went on strike over healthcare benefits.
In 2008, General Motors made headlines when CEO, Rick Wagoner, reported
“GM spent more on healthcare than it paid for steel.”
In 2009, healthcare continued to make headlines when a study in the American
Journal of Medicine reported 60% of individual bankruptcies were triggered
by medical bills. So one could argue that health insurance has become
insurance against going bankrupt.
Other culprits in funding the bubble are the government programs, Medicare
and Medicaid. These do not so much contribute to the inflation levels
of healthcare, but they move healthcare further away from market-based
economic influences, in the same way Freddie Mac and Fannie Mae influenced
real estate prices. All combined, commercial insurance and government
payors have essentially created a sub-currency within the American economy,
which I call “healthcare dollars.” In some unusual way, buying
health insurance is as much purchasing a currency hedge as it is buying
insurance. I’m sure someone a lot smarter than me could figure out
what the actual currency conversion rate is between a regular dollar and
a healthcare dollar, but I’m going to guess the health care dollar
has at least double the value of a regular dollar. This is why the uninsured
have become such a large social issue in this country. They only have
access to regular dollars and which are not worth very much in the healthcare
marketplace. Ironically, Obamacare was created to provide the uninsured
with an “access to healthcare dollars”, but a toxic side effect
will be that it's just another source funding the bubble.
Nothing funds a bubble better than an inflated source of funding.