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The insurance mystery solved

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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:

    1. Our government is Monetarily Sovereign. It has infinite dollars.
    2. Our people have needs that can be purchased with those infinite dollars
    3. 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
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell


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