Real Health Insurance
What if there were such a thing?
Late in the 17th century, the seas around Britain were thick with ships heavy-laden with jewels, embroidered cloth, spices from the East and actual coin minted from gold and silver. Because of the tremendous value in any single ship, piracy was a lucrative vocation. Because a fool and his money are easily parted, the naïve barons of burgeoning trade were packing substandard ships to the upper decks in order to maximize each transaction. Because of all that, shipping was a very risky business.
In response, a group of entrepreneurs began to exploit an innovative new concept, a concept that would reduce the risk of shipping and reap a tidy profit from the ongoing chaos. These businessmen took to selling their services to merchants and ship owners by hanging out in Edward Lloyd’s coffee shop where those potential customers tended to gather. The businessmen would soon be known as underwriters. They were offering to share the risks of the high seas with the merchants and owners of the cargo ships. The deal was basically this:
I’ll inspect your ship and review your route. If the ship is sound and the route is relatively pirate-free, you pay me my fee and I will pay the majority of losses if your endeavor fails.
Late in 1691, these underwriters moved to a building on Lombard Street but they continued to call themselves The Society of Lloyd’s, later known as Lloyd’s of London.
There were important side-effects to this new concept of underwriting. First of all, these underwriters had to gather data and keep current with ship-building technologies and ship structure. They had to compile reports regarding pirate activity: where, when and how many. They had to understand the economics of shipping and be able to associate the ship, the route and the cargo into a final estimation of true risk. It was this expertise that allowed the skilled underwriter to share as little risk as possible while still earning a satisfactory profit.
A pristine vessel holding a moderate amount of cargo and traveling a safe route could get insured for a minimal fee. A ramshackle ship overloaded with pirate-tempting goods would have to choose: ship out without insurance or pay a sizable chunk of the possible profits to the underwriter. It was the underwriters who encouraged smaller, more maneuverable ships. They encouraged breaking up large cargoes across numerous vessels in order to increase the likelihood that the majority of the bounty would reach its buyer. They also assured that ships were well-maintained and sea-worthy. This happened over time because if the Lloyd’s underwriter didn’t like your ship or your plan, you had to bear all of the risk of your voyage. It became obvious that all shipping had to be guided by the instincts of the underwriter and all of shipping would reap the reward of this rational and pragmatic approach.
Health Insurance
The Society of Lloyd’s moved shipping into the modern era of logistics by insuring only those ships that met their exacting standards. As the ship aged and the hull began to rot, the insurance fees increased until the only reasonable choice was to scrap that ship and buy another. Imagine if health insurance worked like that.
If there were such a thing as health insurance, it would assure that old decrepit people were removed from the insurance roles. If you were careless enough to get cancer, you would be promptly dropped. The underwriter would see no reason at all to insure you and you, like a rotted scow, would promptly expire. As a result, the entire populace would be healthier. The statistics would not lie. A greater percentage of people would be healthy because the rest would be dead.
That is the actual job of insurance: to assure that underwritten items are healthy, well-maintained and unlikely to fail. Heart disease has “uninsurable” written all over it. Modern actuarial tables are not unlike the formulae used by those early underwriters to decide who to insure and how much to charge. This is why an individual health insurance policy that doesn’t cost too much is often canceled after the first significant pay-out: they don’t insure rotted scows.
This is why employer insurance (guaranteed coverage in order to keep a workforce beholden to the company) is so expensive. That underwriter cannot drop an insured employee so they have to charge enough to insure even those whom they do not wish to insure. This is why no one anywhere wants health insurance.
Health Economics
People are born; they get old; they die. A health service is present for the purpose of assuring that that process is as uneventful as possible. The concept of insurance has nothing to do with that. What is needed is a support infrastructure for the routine maintenance of the human populace. We maintain our roads and bridges and we do that from the tax base so that the entire country may prosper. We maintain our air traffic control system so that all may prosper. Why wouldn’t we maintain our populace so that we all may prosper?
In Great Britain, Canada and France, the human infrastructure is maintained exactly as they do all infrastructure. This makes sense because the human infrastructure actually has greater value than all other infrastructure. Before highways, humans brought value to society. Without humans, highways would be worthless. Everything hinges on humans. Humans should be recognized and maintained so that their value may be recognized, preserved and maintained for the use of all society.
Julian S. Taylor is the author of Famine in the Bullpen a book about bringing innovation back to software engineering.
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This work represents the opinion of the author only.
