What is Insurance?
The Fluke Testimony, Part 3
By John D. Turner
19 Mar 2012

In-sur-ance (noun) – A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss. – InvestorWords.com

In the face of the controversy stimulated by the Sandra Fluke testimony before the Democratic steering and policy committee in February, there is a wider question that needs answering; what should or should not be paid for by health insurance anyway?

To me, this cuts to the heart of the matter, and the question becomes not what should health insurance pay for, but are we talking about health insurance here, or are we really talking about the birth pangs of a national healthcare system?

Let’s start off with the question, what is insurance?

Insurance, in its simplest form, is a bet. A person or a company is making a wager with you. You desire protection from some event that you perceive will cost you money. The insurance company in exchange for a sum of money is placing a bet that the event you are concerned with will not occur. If the event occurs, you “win” the bet. If it doesn’t the insurance company wins.

Take fire insurance for example. If your home were to suffer a fire, it would be an event that could cost you thousands of dollars. If it were to burn to the ground it could leave you destitute as having your home burn down does not absolve you from having to pay off the mortgage! You have a vested interest in protecting the investment you have in your home and all your belongings. The bank that holds the mortgage on your home has a vested interest in receiving all the payments you have promised to make. This is why such insurance is mandatory in most places when you take out a mortgage.

Enter the insurance company. They know, statistically speaking, that although house fires do occur, odds are you won’t have one in any given year. Statistically speaking, such fires are relatively rare; even rarer would be a fire that completely gutted your home. So they are willing to make a bet with you, that your house will not become a statistic this year. Or rather that it will fall into the statistical category of not having a fire, rather than the reverse.

They spread the risk over a large number of homes, each paying insurance based on property value (how much they would have to cough up in the worst case should your home burn to the ground). This cost is called a “premium”, and is usually a monthly payment to the insurance company by the home owner. The cost covers the expected amount the company expects to pay out in claims, the overhead cost of running the company (brick and mortar costs, employee costs, taxes, etc) plus a profit to compensate those taking the risk and to provide capital for growing the company and paying unexpected expenses. In a good year (fewer fires) the profit will be larger. This helps tide the company over during bad years (more fires) when they may operate at a loss.

It is a game of probability and statistics.

This being the case, how does one go about being “insured” for birth control? Logically, it makes no sense. In a health care context, if I want to be insured in case, for example, I get cancer, I am making a bet with the insurance company. They are betting I won’t get cancer, which is expensive to treat. I am paying them money so, if I do get cancer, they will pay for my medical expenses. That makes sense in terms of insurance.

For birth control though, what kind of “bet” am I making? None that I can see. Instead, I am requiring the “insurance company” to pay for something that I will be using on a routine basis. I have nothing to “lose” and the insurance company has nothing to “win”. There is no profit here. I am not purchasing insurance; it is more of a fee for service arrangement. I am receiving “health care”. My insurance company has now become a health care provider.

The only way I can see that contraceptive services might be an insurance issue would be if I were insuring myself against the failure of the contraceptive mechanism itself. I would be covering my losses should the procedure fail while the insurance company would be “betting” on success; that is, I do not become pregnant. In order for me as an insurance company to write such a policy, I would have to insist on several conditions.

First, the contraceptive device would need to be installed by a licensed professional in a properly prescribed manner. It could not be a “do-it-yourself” procedure dependent upon the insured. Why? There is too much room for fraud otherwise. I am in business to make a profit, remember? That is how I stay in business. Second, insurance rates would vary depending on the “risk” of pregnancy for a particular type of birth control method, as it would with any type of insurance.

This means that certain types of birth control would not qualify for insurance. Some examples of this would include the pill, contraceptive creams, condoms, cervical caps, or diaphragms. All of these contraceptive procedures are typically executed immediately before intercourse by the individual; not by qualified professionals (which would be a bit awkward). Thus, there is no way for me as the insurance company to ensure that they are done properly, or even done at all.

Procedures that would be insured would include Norplant (or other similar device), IUDs, and tubal ligation. I might cover a vasectomy on the part of the “significant other,” however I would insist on a paternity test should pregnancy occur simply because I have no way of knowing who the actual sexual partner was that caused the child to be conceived.

The customer would pay a monthly premium for the coverage. Should the customer become pregnant, the policy would pay the costs of all doctor visits required during the pregnancy, labor and delivery costs, post natal visits for one year, and any other medical costs incurred as a result of the pregnancy. For an additional fee, you could purchase “Option A” insurance which would be a lump sum amount for the purpose of purchasing anything required to prepare for the upcoming unexpected child. This could be purchased in multiples. For example, say a base amount of $5,000 with the ability to purchase up to 4 times that amount (4 times the base).

I might even decide to cover some of the aforementioned techniques as well as options with caveats, for an appropriate fee. For example I might have an option B that covers you, for an additional fee, for pregnancy resulting from being on the pill. But I might require that the policy be in force for 6 months before the coverage is effective, and limit or eliminate your option A coverage.

Notice that nowhere in this policy do I provide anything for “free.” It is an insurance policy, written to provide protection against a given risk. There are insurers who will write a policy to protect against anything you might want to insure. Lloyds of London is an example of such a company. If you wanted protection of this type they would probably write you a policy.

Health insurance works the same way. The insurer is betting you won’t get sick. You are paying a premium to mitigate the costs should the worst happen and you do. The more likely it is that you will “win” the more the policy costs. This is why policies that protect only against catastrophic illness are much cheaper than those that protect against everything under the sun. It is more likely that you will catch a cold and the company will have to pay for your visit to the doctor than it is that you will develop brain cancer. Even though the one is much cheaper than the other, it is more likely that it will occur – perhaps multiple times a year.

If I as an insurance company am forced to provide you contraceptive care for free, I am now not operating as an insurance company but rather as a health care provider. Money is flowing out and my bottom line is impacted. The only way I can balance the books and stay in business is to make up the outflow by raising premiums on everyone else; to increase the profit margin on my normal business in order to balance the money I have been force to pay out.

For those who think the work “profit” is a dirty word, keep this in mind. Without profit, the company goes out of business. If the company goes out of business everyone loses; the workers have to find new jobs, and the insured are no longer insured and must find a new company to insure them.

Sandra Fluke does not seem to understand this. She seems to think that insurance companies are some sort of infinite money sink that can be tapped on demand for whatever goodies she thinks she and others like her should receive for free. It is something she wants, she either doesn’t have the money to obtain it, or is unwilling to prioritize to obtain it, so she thinks someone should simply give it to her in the interest of “fairness.” Such “fairness” is totally self-defined; she obviously doesn’t care if it is “fair” to the insurance company, to the stock holders, or to the other people insured by the company whose costs are going to go up because she got something for free.

Hey Sandra! Wake up! TANSTAAFL! There Ain’t No Such Thing As A Free Lunch! Someone always pays for someone else’s “free” goodies.

The President doesn’t seem to understand this either. Or perhaps in his case it isn’t so much a case of misunderstanding as it is a case of misdirection. The President has stated, with regard to the “Affordable Healthcare Act” aka, Obamacare, that the ultimate aim is to eliminate private health insurance entirely and to go to a single-payer national health care system like they have in Europe. Under such a system, the whole concept of insurance goes away; you get sick, you go to the doctor, and the government pays to get you fixed. Under such a system, mandated “free” contraceptive services are simple; it’s just one more “free” service that your friendly government health care system provides.

The President has no problem mandating that private insurers provide certain services for free. Congress gave him that power through the Department of Health and Human Services when they passed the Affordable Healthcare Act (Obamacare). He knows that doing so will ultimately force private health insurers out of business. They will either go broke, or employers will drop them in favor of the cheaper government plan. Eventually they will have too few customers and will go broke that way. It is a simple matter of economics. Then we will have, by default, the single payer government system the progressives so desire.

At this time, the demands are being made on the private health insurers; this is not, per se, a taxpayer issue. Ms. Fluke is not demanding here that taxpayers pay for her and her fellow student’s sexual activity. However ultimately she is. Who else do you think will be footing the bill once private health insurers disappear and we are all on the government healthcare system?

Oh that’s right. “The rich” will be paying for our “free” contraceptive services, right? Thank heavens for the rich!

So the question I asked in the last article stands. What is there that medical insurance should not be asked to provide for free? Why should I have to pay for anything? If I should provide free contraceptive services because some law students at Georgetown (or students in any degree program at any university) can’t “afford” them, can’t I use the same criteria to demand any sort of service I want? Shouldn’t the old get free walkers, free glasses, and free Viagra? Shouldn’t the very young get free dental care? How about free hair dye for those whose graying hair is causing them mental anguish and who otherwise can’t afford to go to Walmart and buy some?

It used to be that if you couldn’t afford something you saved up for it, reprioritized your expenditures so you could pay for it, or did without. Now you just try and force someone else to pay for it instead.

America, what a great country! Say, I wonder if I can get those progressives to force someone to pay for stuff I want! I will take a look at that in part 4.