It has been over 50 years since this writer attempted to make aliving selling health and life insurance as a licensed Floridaagent. In the two months I held that job I managed to sell onepolicy, but the underwriters rejected it for “pre-existingconditions.” At the time, I knew quite a bit about healthinsurance, but little of it is the same in the 21st century.

Instead of a private, regulated medical insurance industry, wehave state-by-state regulated health insurers and the Patient Protection and Affordable Care Act of2010 (ACA), a federal program reviled as “Obamacare.” Wheresomeone is insured under their employer's policy, disputes aresubject to federal, not state, courts as such policies fall underthe Employers Retirement Income Securities Act(ERISA).

The ACA was supposed to be tied to the federally mandatedMedicaid program, which would assist state pools in providinginsurance for those who couldn't buy health insurance in themarket. Many states refused federal funds to accept this support,and the whole concept fell apart. While nobody is still talkingabout “death squads” that would select who got life-saving care andwho didn't, the complaints were about high premiums and the“mandatory” coverage requirement.

Will Congress do 'something'?

It is doubtful that any new health insurance legislation will beproduced by Congress this fall. What is the holdup? Basically,Congress can't seem to understand one of the basic tenets ofinsurance, that to make a risk insurable, there must be a largenumber of homogeneous exposure units.

For a national health insurance program to work, it must includethe healthy and wealthy as well as the sick and poor. Most elderly(perhaps the most expensive exposure units) are already excludedfrom the pool by Medicare, so that leaves only the vast multitudeunder 65 as exposure units. As the original ACA allowed youngpeople up to age 26 to remain on their parents' policies (if theywere residents in their parents' home) that further reduced thesize of the eligible pool.

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In order for the ACA to work, everyone needs to participatein the healthcare system to spread the risk. (Photo:Shutterstock)

'Mandatory' participation is necessary

One of the biggest complaints against the ACA is the mandatorycoverage requirement; it imposes a fine on those who fail toparticipate by either purchasing their own health insurance, havingtheir employer purchase it for them, or joining the ACA program,selecting coverage from a pool of insurers. Many, some suggestprimarily young adults who think they're too healthy to needinsurance, opt out and elect to pay the “fine.” But the fine was sosmall it didn't affect these persons' wallets in any significantway.

What happens when one of these “uninsured” optimists gets sickor is injured in an accident? With no insurance, their medical andsurgical costs are passed on to those who do have insurance in theform of higher premiums; these same responsible citizens whopurchased insurance also pay taxes to fund local hospitals andemergency rooms. As medical costs rise, many hospitals are goingbroke, leaving large areas of the nation without any medical care.Is it not these “uninsureds” who are just as likely to be injuredin an accident or need care for child birth or other medicalproblems? It's not the elderly who are having babies!

Most auto insurers sell Uninsured Motorist Coverage along withother coverages because irresponsible drivers cause accidents andhave no insurance to pay the damages. Insured drivers have to payfor these irresponsible people, even in states with “mandatory autoinsurance” laws.

Rather than a small fine, whatever program Congress designsneeds to include the mandatory coverage requirement, but the fineshould be set at a minimum of twice the amount health insurancewould have cost these individuals had they followed the law andpurchased insurance.

If Congress thinks that's too burdensome on their constituents,they can set up a funding mechanism, in part paid by the fines, tohelp the poor buy coverage and make the program work. Unless allthe “homogeneous exposure units” participate, no healthcare planwill function, and the current chaos will continue.

Ken Brownlee, CPCU, is a former adjuster and risk managerbased in Atlanta, Ga. He now authors and edits claims-adjustingtextbooks. Opinions expressed are the author's own.

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