Thursday, February 27, 2020

What If Your Home Insurance was like Health Care Insurance?

One of the reasons that health care, here in the U.S., is complex is because health insurance has mutated into something which doesn't resemble traditional insurance.

For example, let's look at house insurance.  It's relatively simple.  If your house is destroyed or damaged by fire, etc. the insurance will reimburse you, minus any deductible.

When it comes to care and maintenance for your house, it does not involve your house insurance.  If you need a plumber, or your AC repaired, you find someone, they fix it, and you pay them.

But, what if home insurance morphed into the form of health insurance?

Now, all maintenance and repairs would come under home insurance.  Insurance plans would become more complicated and vary, depending on what you wanted covered.

The biggest change would be to your relationships with service providers.  Now, when you want to contact a plumber, or handy man, you would have to see if they are "in network", and take your insurance.  Depending on the size and complexity of the job, you might need to get pre-approval from your insurance company, which employs it's own plumbers and handymen.

You would no longer pay the plumber directly.  He would bill your insurance.  Depending on his contract with your insurance company, he would bill a certain amount.  To get paid, he would have to make sure that all labor and parts are coded properly.

All this means that you are now price-insensitive to plumbers and, because of all the admin / paperwork, "mom and pop" plumbers will end up closing shop and consolidating—working as employees in a "practice".  All of this will increase costs.

Value of This Thought Experiment

Now, we certainly wouldn't want home insurance to change like this.  But, the value of this thought experiment is that we can see what an odd-ball health insurance has become.  I think the secret to improving health care i the U.S. is to apply Strategic Simplicity®, and separate catastrophic care from the rest.  Then, catastrophic health insurance will be like house insurance—simple and affordable.

In fact, if the deductible was set properly, simple plain-vanilla catastrophic health insurance that covered 100% of citizens is something that the government could offer.  The deductible would have to be set high enough that 80-90% of people would never qualify for claims (keeping costs down), while still provide a low enough ceiling to keep costs for the private health insurance, which would cover the rest, affordable—without government intervention.

© 2020 Praveen Puri