Capitol Hill Blue Forums Science and Technology Health, Medicine & the healing Sciences Insurance is inherently socialist

Bored
First let me say that I think no one intended to disrespect you or your professional integrity. Let me quickly surf over some of the issues that you have mentioned.

Current reliability of insurance companies
Agreed that for many things ins co are great and serve the functions you outline. I would point out that insurance is heavily regulated. This is important info because it mitigates most of the potential abuses. And I would point out that the regulations emerged to control exactly the problems that I addressed. Which problems really did occur without regulation. And so IMO my point remains regarding the primary inclination of companies to make profits.

Mutual insurance
This is an example of an org that arose whose primary purpose is to provide a common benefit or service. Which IMO corresponds to logs initial point. It is a collective as it were. Such orgs would not exist unless a lot of people felt their needs poorly met be capitalist companies. But in existing these companies modify the market like regulations. They force other companies to deliver a better product because they offer an alternative.

I'm going to jump in here to add a couple of cents from my viewpoint. First, I believe the initial point is correct to this extent: insurance is socialistic to the extent that it spreads risk through a group. While Lloyds is an insurance company, it did not invent insurance, the concept of which had been in existence for centuries, even millenia. Lloyds created a particular model for marine insurance in the fifteenth century.

There is a certain mixing of concept here that has, I think, taken the discussion off track. On one side is the philosophy of insurance, on the other the mechanics. There are different methods of funding insurance, and 'insurance' is not "capitalistic" by nature, as Bored asserts. That is merely one model, and has been pointed out, is not a particularly efficient (for the consumer). There is also what I consider a misdefinition, in defining 'profit.' Mutuals, by definition, do not make a 'profit' as there are not outside investors. All insurance providers must maintain a 'reserve' - a pool large enough to cover expected claims. This is not a 'profit', per se (although often treated that way by for-profit insurance companies). There is a natural tension between consumers and providers, particularly when investors are involved. That is why insurance is so heavily regulated. (Full disclosure: I used to represent a regulating agency.)

For-profit health insurance has never made much sense to me. The fundamental flaws are made manifest by the ACA. That is also why Medicare is fundamentally more sound. The incentives of profit have distorted the market in manifold ways - look at any hospital bill and you'll see. But that is only one aspect of the market. Reinsurance, which is the business my father was in, is another hidden market often misunderstood.

IMO, insurance company participation in the financial markets has also fundamentally affected both the insurance and financial markets in very negative ways (to wit: AIG). While there is a need for such participation (investing the 'reserve' reduces premiums), when that investment becomes the primary motivator, insurers lose sight of their purpose, just as banks do. Both have obligations (fiduciary) to depositors/policyholders that are largely ignored in pursuit of market manipulation and profiteering.

IMO, the issues surrounding "medical" insurance provided the central context for Log's initial comments. And I would say that medical insurance has so many convolutions that it becomes quite a separate issue from other insurance products (life, auto, home, etc)

That said, after considering the comments of Bored Member, I did a little more research on the general topic.

As far as I can tell, "insurance" did not originate as a capitalistic contrivance. Basically you had merchants/shippers for whom each shipment created very large risks, And eventually these merchants formed collectives to pool and mitigate their risks.

That model was already established with a track record but in need of greater capital since individual merchants did not have the capital or inclination to manage the diverse risks of the pool. And so wealthy people were invited to participate as investors who could receive a return based upon results.

But the above arrangement always contained the risk that some individual would collect premiums and might not have the available capital to pay claims. (The AIG scenario)

The life insurance market has a similar origin. The market did not really take off until mutual insurance collectives were formed/ Again not with intent for capitalist profit, but serving the needs of the members. Once this market was established, it became clear that it was also a profit making opportunity for a well run company that carefully considered the relevant loss statistics.

In all of this, it is clear that the origin of insurance is not capitalistic but collectivist risk pooling.

As I previously posted, without regulation, there is a natural tendency for a private company to write more insurance than it can cover in some worst case scenario (AIG)

It is also the case that without regulation, there is a natural inclination for private companies to provide products which the buyer does not understand and which do not cover him like he expects. Medical insurance is such an area where there is a long history of people thinking that they are covered but then not being able to collect.

The medical insurance companies also have a long history of wanting to avoid covering sick people. From a business perspective, they are happy to collect premiums from people who are not sick. But then seek various means to not cover those same people when they do get sick.

Medical insurance companies have a long history of innovative means to deny claims.... without intense regulation.

To summarize, I would say that the origin of insurance was collectivist. And that medical insurance is problematical for private insurance companies even with intense regulation. Over all, IMO, a socialist option is better able to deliver what people want from "medical insurance" As evidence, I would submit the results of virtually every other country in the world. Our commitment to a capitalist centered solution has in general delivered worse results at higher cost with more frustration for the consumers.

How many people in the world would choose our more capitalist approach to the problem?

Each and every person in the world would choose America's World-Best Medical System were it not for the poison of Socialist lies and the Statists' nefarious and successful plot to carefully maintain the weak among us addicted to handouts.

I suppose that my point is that the initial premise is not supported, that is, that insurance has never really been inherently socialist.

That premise really does not hold if you consider those who were the underwriters in the case of Lloyd's Coffee shop. Those people were indeed investors who had the means and basically gambled that a maritime shipment would make it to the port of destination.

I would suppose they were a bit like the bookie of today taking bets on a football game. These investors took into consideration the experience of the captain, first mate and the crew of a particular voyage, knowing the track records of the people involved..... having at least some idea of how well that crew might fare if they had to deal with piracy, when the voyage would take place, weather conditions and such.

These underwriters would base their decisions on how much of the risk they were willing to cover and at what rate based on these facts and likely statistical information on past voyages to determine rates for said coverage.

This is what I elude to as the beginnings of what we refer to as insurance today. If you think about it, one could imagine that there were likely more moneyed people looking for an investment than there were actual shipment to insure. Therefore, there were less risks to pool than there were folks willing to underwrite such risks.

The issue of health insurance is admittedly out of my scope of expertise but I will give you that one of the main problems with traditional insurance plans is that you don't really get to read and study them before you buy them. Further, the agent who sells them, I have found, don't really know these policies well enough to explain them properly.

Add to this obscurity, most folks who buy them never read them and therein lies the confusion and the essence of why people feel they didn't get what they thought they were buying.

I can't really recall how many times an insured thought I was being less than fair, called his agent to complain about it and I'd have to explain the policy provisions to the agent. Because the agent didn't explain the policy to the insured properly initially, differences of policy interpretations arise.

I see logtroll's premise as if he believes healthcare should be not for profit and should be socialized. I'm sure there are many who agree with him, even I myself don't disagree with this idea but I also submit that I'm not certain that it's the best thing for America at this point in time.

In closing I still maintain that what the initial post and Mr. Troll's premise is not really insurance but socialized healthcare.

@ logtroll:

I read your post regarding rate classifications and my information indicates that you are correct that you or your WC carrier really has no way of knowing what the actual premium will be at the beginning of the year and that is why the insurer will base your premium deposit on previous years.

The rates determined per classification are multiplied per $100 in payroll. At the end of a given year you would receive either a credit for unused premium or a bill for amounts owed if you had a busy year. Depending on the insurer they may require you to report payroll earnings either quarterly of bi-annually.

@ Ardy:

I take no offense at these postings with regard to my profession, I am quite accustomed to folks not being fully aware if their policy coverages, exclusions, endorsements and limitations. There are not many average people who actually read the policies they buy.

What is "insurance"? What is "socialism"? As I noted earlier, Lloyds did not invent insurance, it merely provided a new way of funding it. At the same time the capitalist model grew, the multual model continued on apace. Most "fire" policies continued to be provided on a community-mutual basis. The majority of "health" policies, too, were mutuals, and the "life" and "casualty" markets still have significant mutual participants.

If you limit the definition of "insurance" to the act of underwriting, you can skew the interpretation. Most people, however, don't understand or equate insurance to underwriting. The difference between mutuals (Mutual Insurance - Wikipedia) and stock insurance is the funding mechanism, not the mechanics of being insured. If you have received a dividend refund from your "insurance company" you belong to a mutual. Many of the biggest players in the market are "mutuals." (Ever hear of "Mutual of Omaha"? "State Farm"? USAA?) The capitalist funding mechanism is an overlay on the market, not the essence of the system. Indeed, it is entirely possible to provide an insurance market with no outside investors whatsoever. (See the list of mutuals in the linked article.)

Similarly, if you define "socialism" as only goverment-mandated, most insurance is not socialistic. If, however, by "socialism" you mean pooling resources for mutual support, nearly (but not) all insurance schemes have significant socialistic elements.

Adding investors to the funding of the "risk pool" has advantages and disadvantages. The ratio of dis/advantage changes largely upon the type of product. On the one hand, investors can reduce premium costs because the reserve is funded by a larger pool of participants. On the other hand, adding a different interest group changes the fundamental dynamic of risk sharing. In some (many) instances, the interests of the investors are so starkly at odds with the premium payers that it ceases to really be "insurance" at all, and is really just another investment vehicle. Does anyone really think of AIG as an insurance company? Or are they more akin to an investment house like Bear Sterns? What, really, is the difference?

I go back to definitions: Philosophy? Mechanics? log, I think, is approaching the question philosophically, and Bored, (some of) the mechanics. It is sometimes hard to reconcile those viewpoints.

NWP clarified my point of this thread nicely. Thanks.

I agree this may be the essence of our differing opinions.


But as you must know State Farm, USAA and other Mutuals may have started out as a social endeavor for a few Americans but they are far from it today.

USAA, for instance began with a group of military officers who pooled their insurance dollars to the mutual benefit of each other and their families who felt they were paying to much for their insurance needs. Then in the late 90s they included enlisted men and their families. By this time their company had expanded to the point that their facility is now a mile long, has it's own post office and zip code.

I would hardly consider this a social non-profit organization. The same with State Farm, they are the largest property insurer in America and I believe Canada as well.

I would also add that the ACA could be classified as a blend of both a social program and for profit insurance. The idea of the state paying a portion anyone who qualifies premiums is indeed socialist. But I think this is a social program that makes sense and will ultimately reduce overall healthcare costs in the future.

Bored
Since nwp has covered most substance, allow me to add a someway tangential thought

In your recent posting you mentioned many of the confusions that arise regarding insurance. That agents do not explain what they sell and that customers do not read their policy.

IMO it is not far fetched to think that insurance companies are aware of the situation. Which in my view raises the question whether at times confusion may be tolerated because it is may be more profitable.

Might an agent not fully explain a policy in order to make a sale when the policy would not be sold if the buyer fully understood its limitations? Might an insurance company develop a product that is attractively priced because of limitations that most customers will not understand until the are unable to collect benefits?

Without government regulation, might a company write more policies than it could cover in a worst case scenario.

Now what is the commonality in all of these examples? IMO they are all examples of how a drive to achieve profits could take precedence over concern for addressing customers need for risk mitigation

This sort of tension seems to me to be built in to a capitalist insurance model. Of course the problems are not universal. Many people do get the coverage they need thx to insurance companies. Problems are controlled through gov regulation and market competition. Never the less the problems still remain lurking

Now consider the "socialist". Alternative model. When the government or a cooperative provide insurance the risks of misrepresentation and confusion plummet. Socialist insurance is designed to break even and mitigate the risk. Socialist insurance has no need to misrepresent or confuse in order to amplify profits. The main concern of a collective insurance product is to meet the need in the best way possible.

Of course not all insurance needs can be provided within a collectivist model So clearly there remains a large area of value where private insurance is a highly valuable and necessary part of the insurance market

So in the end it is not possible to make a binary judgement that insurance is fundamentally socialist or capitalist. And in that context I guess I am agreeing with what you are saying.