What if …
Imagine that fire insurance worked like health insurance
Fox News is concerned about the Affordable Care Act. Some people who did not have to pay for health insurance will have to under the new system. The cost estimates sound scary, until you realize that Fox conveniently forgot the government subsidies that will help make insurance affordable for young and low-income people.
This made me wonder why we think about health insurance so differently from other types of insurance. Imagine, if you will, how it would be if fire insurance worked like old-fashioned health insurance.
A young couple, the Joneses, buy a home and purchases fire insurance from the Conditional Insurance Company for $1,000 a year. They feel lucky, because other companies wanted to charge them $2,500.
Unfortunately, soon afterward, a fire destroys their house. The couple calls the insurance company to report the fire. The friendly, sympathetic agent is relieved that no one was hurt. The replacement cost for their home will be around $200,000. The agent says he will start processing the paperwork as soon as the couple sends in the 20-percent copay: $40,000.
Freaking out, Mrs. Jones cries, “A $40,000 copay?!”
The friendly agent replies, “Oh, yes. It is explained very clearly on page 47, paragraph three, in your insurance policy. I’m sure you read all 98 pages before you signed them. Here’s where you send the check.”
So Mr. and Mrs. Jones borrow money from their parents. They each get an advance at work. Their friends have a bake sale. They finally come up with the $40,000.
Mrs. Jones calls the insurance agent with the good news. Her agent says, “Great! We will start processing your claim right away, as soon as we receive your monthly insurance payment. By the way, it just went up to $12,000 a year.”
“We can’t afford that,” says Mrs. Jones.
“I know, it is a hefty increase. But you have to remember, we gave you such low rates because you never had a fire. We adjust your rates based upon your experience. Since you had a fire, you need to pay more. As soon as we get your payment, we will begin processing your claim,” says the friendly agent.
Mrs. Jones is, by now, quite aggravated. “This is ridiculous. I will switch to another company.”
The friendly agent sighs. “That will be quite difficult. You have a pre-existing condition.”
“What pre-existing condition?” asks Mrs. Jones.
“The burned house,” replies her friendly agent.
Next time you hear Fox News railing against the new Affordable Care Act, remember: Sometimes you have to spend some money up front to make sure you have security and peace of mind in the event of a catastrophe. Sometimes you have to think about the long-term well-being of the group instead of the short-term benefit of a few. And you definitely don’t want to be in the situation where your neighbor’s house burns down, and everyone on the block has to pay to rebuild it.