Americans are really stirred up about medical insurance and healthcare.

America began with a charity model of health care. I do not know the history of how it changed, but the charity model turned into an insurance model. All that remains of the charity model is a few hospital names pointing back to a more generous past.

Some Americans are now arguing for a single-payer system.

To understand the problems with the insurance model, we need to understand the nature of risk.

Pooling Risk

Understanding and managing risk has become a bit of science. Risk has two parts.
  1. Likelihood
  2. Impact

Likelihood tells us the probability of an event happening. Impact tells us how much harm the event will do. The two factors are combined for an assessment of risk. An event that is highly likely is not a problem if it has no impact.

Insurance is a method of pooling risk to minimise the cost of rare events to any one person.

Insurance works well for situations where the risk has a low likelihood, but high impact. For example, the likelihood of a person’s house burning down is quite low. However, the impact is enormous, if it does happen. House insurance is a method for pooling the risk and the costs.

In a city with a thousand homes, only one homeowner might experience a catastrophic fire in their house in any year. If everyone who lives in the city pays into an insurance fund, each homeowner will only have to pay one-thousandth of the cost of rebuilding a home to give the insurance fund enough money to pay for the cost of replacing the one house that is burnt down. Homeowners have several good reasons for paying into an insurance fund.

Insurance deals effectively with a risk like a house fire, because it is relatively rare. The insurance company is able to estimate the probability of fires occurring and calculate an appropriate level for premiums. Everyone benefits from sharing the costs of the fire, because they know that next time they could be the one facing a tragedy.

When the cost of a claim is extremely high, but relatively rare, and there is significant uncertainty about when and where the risk will strike, it makes sense to spread the risk. Insurance is a method for pooling risk.

Insurance works well for house fires, because the likelihood of a house going on fire is the same for everyone. Therefore, pooling the risk makes sense provided your insurance company does not cover too many people who smoke in bed or keep a can of gasoline in their cupboard for huffing.

Insurance Model

Insurance is very effective for risks with low likelihood and high impact, but it stops working if the risk changes from being low likelihood to extremely widespread. That is why insurance companies have exemptions for extreme events like war and so-called acts of God. If the city is bombed during a war, nearly every house might be burned down. In that situation, sharing the cost does not help. Paying for a thousandth of the cost of rebuilding all the houses is no cheaper than the cost of rebuilding your own house.

Pooling the risk of an event that will affect everyone similarly makes no sense. Insurance cannot deal with a widespread risk because there is no benefit in pooling the costs.

An insurance model does not work for healthcare, because the conditions necessary for pooling risk do not apply. Health claims are not rare, because almost everyone makes claims against their health insurance. If everyone is making regular claims, the insurance model is inefficient, because the bureaucratic costs of handling claims are high, and costs are not really shared. Insurance companies tend to “gold plate” treatments, because that allows them to increase their margins.

With health care, there is very little uncertainty about where the risk will strike. Most expenses will be incurred by the elderly and by people with existing health issues. The probability of a claim is skewed towards these groups.

Forced Sharing of Risk

The problem with medical insurance is that young people have a very low probability of making a claim, while those who are older or unhealthy have a higher likelihood of making a claim. If they pool the risk, younger people will end up subsidizing the old and sick. That makes no sense, so young people would usually be better off not having health insurance.

If only sick or elderly people were insured, they would not be pooling risk, because everyone would be just making claims from each other.

If everyone is likely to make a claim, that is a situation of high likelihood and medium impact. This kind of risk is hard to pool, so there is not much point in having insurance. It just adds a costly administrative layer that transfers money between people. They would just be paying administrators to manage expenses they could manage themselves.

To be effective, health insurance needs young and healthy people to subsidise the old and the infirm. People were willing to do that once, but now they have woken up and are opting out. Consequently, free-market medical insurance does not work very well.

Obamacare gets around this problem by making insurance compulsory and preventing insurance companies from refusing to insure the elderly and people with pre-existing conditions. This forces the young and healthy to subsidize the old and sick. This is fine if voters accept that this is what is happening, but they usually do not.

A single-payer system has the same effect. Everyone pays tax at the same rate (more or less) and everyone gets the health care that they need. Again, this means that the young and healthy subsidize the healthcare of the old and infirm.

Single-payer is a misnomer. There is not a single-payer, as everyone pays through their income taxes. Universal payer would be a more accurate name.

The disadvantage of a single payer is that people lose control over how much health care they will receive. Governments rarely budget enough money, so there is never sufficient health services for everyone (Of course, when services are free, the demands expand significantly). Bureaucratic processes have to be put in place to ration scarce health care resources. People who are sick often struggle to persuade bureaucratic gatekeepers that they are sick enough to need care.

The situation is made worse by technology. The range of practical surgical interventions has grown immensely. People are living longer, so everyone needs their knees and hips replaced and their shoulders reconstructed. Some need these several times during their lifetime.

New drugs for cancer and other diseases are extremely expensive. A treatment can sometimes cost several hundred thousand dollars a year, for uncertain outcomes and marginal benefits. This places enormous stress on single-payer systems, because decisions about treatment often become political.

Politicians often get involved in deciding on the value of a life, sometimes on an extra three months of life. In an insurance model, the pressure of technology falls on premiums. In a single payer system, it falls on politicians.

Longitudinal Dimension

People tend to assume they are taking our insurance over their lifetime. They assume their no-claim years when they are young entitle them to make big claims when they are older. However, insurance companies work on an annual basis. They use the premiums from the no-claim people in any year, to pay for the high-claim people in that year. They do not hold reserves to meet the needs of no-claims people in their later years.

People view their insurance longitudinally, but insurance companies manage risk year by year. That creates confusion about entitlement. The person who says, “I have paid premiums all my life, so I am entitled to something back now I am old” does not understand the way insurance companies do their accounting.

Followers of Jesus

The insurance model does not work, because medical risk is hard to share. The single-payer model is compulsory sharing, which is hard to justify. Jesus model was voluntary sharing in a community united by love.

The members of Kingdom Community could commit to paying for the healthcare of everyone living within their neighbourhood, regardless of whether they are following Jesus or not. Everyone in the community should commit to paying for the healthcare of others living within it, according to their need and means. That would be loving one another, as Jesus loved us.

The Good Samaritan showed how it could be done. He rescued the wounded man from where he lay on the side of the road. He took him to an inn and paid for him to be cared for until he was well.

Christians should be seeking creative ways to pay for the healthcare of people living in their neighbourhoods.

The inter-generational sharing needed for healthcare should take place within families, because they have the commitment and loyalty needed to manage costs across time. This sharing is better done within a wider family, as a nuclear family will not have sufficient resources.

Most health care expenses occur towards the end of life. The best place for managing risk across time is within a wider family. Children have significant expenses for education. When they are first married, a couple has significant expenses for setting up their home and raising their family. Late middle age is a time when earning power is greatest and expenses have reduced because children have left home. Old age is a period of significant expenses for health care. Families can manage expenses across time, by caring for elderly parents when they are at the stage of peak earning.

Holding back the Curse

The key problem with every system of health care is that sickness is a curse resulting from sin. We cannot turn back this curse by putting more money into professional health care.

As medical professionals deal with one problem, the curse pops out in another sickness that is worse. Modern medicine has solved diseases like tuberculosis and smallpox, but they now face more serious diseases like dementia and cancer.

People who are following Jesus should cut out the middlemen by praying for the sick to be healed. If the Spirit is moving, the need for funded health care should rapidly diminish. We have the authority to break this curse.