The Cost of Health Insurance

Here’s a question: do you think if health insurance hadn’t become so prevalent health care would be so expensive? Think about that for a few minutes. Now here’s two more: how would the health care system function if insurance didn’t exist? If we actually had to pay the true cost, would we run to the doctor with every sniffle?

I pose these questions, because health care is one of the topics at the center of the UAW’s nationwide strike of GM plants (in 2005, GM spent $5.2 billion on health care). This post isn’t about the validity of unions, corporate greed, employer health care, or even universal health care. Instead, I’m focused on the validity of health insurance in general.

What’s mildly entertaining is that GM was the creator of its own mess. Back during World War II, the government capped wages. To compete in the war-time employee market, companies offered health insurance, which wasn’t classified as an increased wage. After the war and lift of wage caps, employers continued to offer insurance as part of the benefit package. GM, however, didn’t just settle for offering health insurance:

In 1950, GM President Charles Wilson offered to pay 50 percent of the health care costs of his employees. Walter Reuther, national president of the United Auto Workers, initially resisted, believing the cost should be spread across many companies or across the nation, according to a biography of the union organizer.

Reuther gave in, and GM entered the health care business.

In 1961, retirees were included. Three years later, the company began paying 100 percent of health care bills for workers and retirees. (link)

And that’s how you rack up billions in health care. Now, as part of the negotiations between the company and the union:

GM had been pushing hard for the health care trust known as a Voluntary Employees Beneficiary Association, or VEBA so it could move $51 billion in unfunded retiree health costs off its books. GM has nearly 339,000 retirees and surviving spouses. (link)

GM’s issues aside, the mistake people make with insurance is assuming that things will get better and/or cheaper if everyone has it. My aggravation with insurance is that it blinds the buyer to the true cost. For instance, you aren’t likely to you buy food, a car, or a house without knowing the price. But we scream about insurance premiums, deductibles, etc., without knowing what our health care really costs.

Maybe the insurance companies are cheating us, but how can we know that if we don’t understand the real cost of health care? One of the more recent issues of interest is the rising cost of prescription drugs. What if we didn’t request the drugs we see advertised on television and choose a generic version instead? Do you think that would make a difference?

There’s one caveat to my argument that requires acknowledgment. In the case of catastrophic events, like cancer or car accidents, insurance helps balance the risk of life. You can’t exactly weigh your cost options for emergency extrication from a smashed car or chemotherapy and radiation.

As I’ve thought through this issue, I go back and forth (which isn’t a good way to make one’s case). I don’t necessarily have answers to any of the questions I posed earlier. However, the one thing that holds true is the reality that too few people know the real cost of their health care. We lack knowledge when it comes to health care. Perhaps I’m wrong. If so, do you actually know how much your doctor charges (not your co-pay) for an office visit? Next time, ask. You might be surprised. I suspect asking questions is the first step to figuring out the value of insurance and its impact on health care.

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