LTC Bullet:  The Insurance Dilemma

Friday, November 1, 2013


LTC Comment:  Why are we losing the benefits of insurance and suffering the inevitable consequences of compulsory government benefit programs?  After the ***news.***

*** FREE LTCI CONFERENCE:  Jesse Slome and the American Association for Long-Term Care Insurance have announced that key portions of their May 2014 long-term care insurance solutions conference in Kansas City will be streamed live for free to 5,000 virtual attendees.  Read all about it here.  You can watch two hours of sessions each day, including a special one-hour workshop by Corporation for Long-Term Care Certification president Harley Gordon.  Tweet questions to presenters.  Says Slome:  “Nothing can replace face-to-face networking but technology will allow us to reach thousands of professionals who can’t dedicate the time or expense involved with attending a conference.”  Congratulations to Jesse and AALTCI for another creative effort to promote responsible LTC planning and to support the producers who make it possible. ***



LTC Comment:  What a mess!  The roll out of “health care reform,” AKA the Affordable Care Act, AKA ObamaCare is almost universally panned in the media.  But most coverage misses the real story.  Real insurance is disappearing.

Insurance is a financial tool that allows purchasers to replace the small risk of a catastrophic loss with the certainty of an affordable premium.  Because it spreads risk, insurers can sell the product to many vulnerable customers, taking a loss on some and a profit on most.  But insurance does more than spread risk.  It also prices risk.  By actuarially estimating the amount of risk each insured brings to the risk pool and pricing each individual’s coverage accordingly, insurance ensures that reserves collected from premiums will suffice to pay reasonably anticipated claims.

But pricing risk does something else of enormous importance.  When smokers pay more for life insurance than non-smokers, smoking is discouraged.  When poor drivers pay more for car insurance, bad driving is discouraged.  When older people pay for more long-term care insurance, failure to plan early is discouraged.  In other words, when insurance prices risk it performs a valuable role for individuals and for society by encouraging responsible behavior and discouraging irresponsibility.

Now consider the misnomer “social insurance.”  Social insurance programs such as Medicare and Social Security spread risk very effectively.  Everyone pays in and everyone receives benefits, equally in its pure form.  Thus social insurance does not price risk.  It has no way to determine what premiums are adequate to meet total claims in the future and it entirely lacks the valuable benefit of rewarding responsible behavior and discouraging irresponsible behavior.

In fact, how has social insurance played out in the United States and elsewhere?   Everywhere accumulated reserves are vastly inadequate compared to reasonably anticipated future costs.  Social Security has a $23 trillion unfunded liability and Medicare a staggeringly irresponsible $43 trillion shortfall.  As bad or worse, the false hope that social insurance will somehow provide future benefits has replaced the public’s sense of personal responsibility with a widespread entitlement mentality.

It’s really pretty clear what is happening to the personal values of hard work, self-reliance and individual responsibility that made this country great in the first place.  We’ve chipped away at them for decades and we’re now about to pay a tragic price for the inevitable results of social insurance.  So, why not confront that reality, explain it clearly, and advocate a return to true insurance?

Therein lies the insurance dilemma.  Imagine what would happen to the politician who advocates that insurance should price risk.  You mean people with pre-existing conditions should pay more?  How cruel.  Women should pay higher premiums for health insurance and men, for life insurance?  How unfair.  People who don’t want or can’t afford insurance should remain uninsured?  How socially irresponsible.  Never mind that everyone was better off when real private insurance prevailed.  Forget that everyone is and will be worse off as social insurance and the entitlement mentality lead to their inevitably destructive outcomes.

Bottom line, social insurance requires responsible (insurable) people to pay more to offset the cost of irresponsible (uninsurable) people.  Responsible people will not voluntarily pay more to support the irresponsible, so government has to compel citizens to participate.  That’s why the Affordable Care Act forces citizens to buy insurance and penalizes them if they do not.  It substitutes personal responsibility with a false hope of social security.  Easy to see all around us.

Ah, but make that case and you’ll be reminded that social insurance not only subsidizes the irresponsible, it helps the poor and unfortunate, who may be in that condition through no fault of their own.  Don’t you care about them?  How long will a politician survive without taking the needy into account?  Ironically, the poor fare much better in a society that rewards personal responsibility and encourages freedom.  Without the economic drag of social insurance and compulsory wealth redistribution, the economy would thrive and all, including the poor, would fare better.  Voluntary charity could and would provide for the needy better than government dependency.

But that argument is complicated and difficult to make.  Which is why few politicians who understand and believe it actually try to convey it publicly.  Thus the opposing argument that government has to force citizens to act against their own best interests prevails.  Only strong principles, grounded in human nature, could turn the tide.  But it is those principles of independence, self-reliance, personal responsibility and hard work that have been corrupted over time.

Sadly, we may have to suffer the increasingly inevitable collapse of the current system before better values can prevail again.  Whether the USA follows the dismal history of previous economic powerhouses or rises again depends on whether or not and to what extent those fundamental values have survived.  In the meantime, the relentless political efforts to destroy them, grounded in the threat of government force, continue apace.

For a more detailed account of the difference between social insurance and real insurance, see Stephen A. Moses, “The Inherent Individualism of Insurance,” Navigator, Vol. 5, Nos. 10-11, November-December 2002, pps. 10-12, 14-16, published in January 2003.