Once upon a time, there was a little town called Potterville, population — well, big enough. Potterville had a bookie named Harry. Harry was a happy bookie, taking bets on horse races and football games, and paying off with a smile when he lost.
Harry was also a smart bookie, which is why he always paid off with a smile; he always made sure his bets were covered, and he was making a little extra money to pay his rent and keep him in sharkskin suits, snappy fedoras, and two-tone shoes.
One day George comes to Harry. George is 25 years old and just married, and he’s worried that if he dies, his new bride Mary will be impoverished and unable to bury him. So he wants to make a bet. If George dies, Harry will pay Mary $1000, which will pay for the funeral and leave enough for Mary to pay off the ramshackle old house they just bought on the edge of town.
Harry, as a smart bookie, knows that the odds of George dying in the next year are about 1000 to 1. So he takes the bet, asking George to give him $2 and promising to pay Mary $1000 if it turns out George’s number is up.
Now Harry, being a smart bookie, knows that he should put away $1000 for that year so he can pay off the bet if George should happen to jump off a bridge or something, but he hates to tie up that whole $1000 for a year. So Harry starts talking to other people; a lot of them are also worried what will happen to their families if they are run over by a milk truck or something, so they want to make a similar bet.
Now, Harry thinks this is a pretty cool business, and he has a lot more people who want to protect their families against bad things happening than who want to bet on Soap Factory in the 8th. Bert the cop comes in; he’s a little older, and he’s got a risky job, so Harry charges him $10. Ernie the taxi driver he charges $5. Old Man Potter comes in: he’s, like, 90, in a wheelchair, smokes cigars. Harry figures his odds aren’t great, so he charges Mr Potter $400 — figuring the good die young but Potter is still likely to die soon.
Now, this really is a good business — he’s giving people some sense of security. He changes the name from “Harry’s Betting Parlour” to “Potterville Life Assurance.” Pretty quick, he can build a brick building on Main Street and change from the sharkskin suits to good conservative gray flannel. Still the same business, but “insurance” sounds so much more respectable. And here’s the funny thing: the more people he insures, the less he has to charge. See, the more customers he has, the less likely it is that a run of bad luck is going to use up all his money. And it’s a good thing, because it’s such a good business that Giovanni around the corner has closed his bookie parlour and opened his own insurance company; pretty quick both of them are competing on prices and service. He needs to be able to reduce that price or Giovanni steals his customers.
Uh, clients. That sounds more respectable too.
Then Oscar Barry, candidate for mayor, has this wonderful idea. Sometimes people die who don’t have insurance, and Potterville ends up paying for their funerals; sometimes people end up taking a collection to help the widows and orphans. Wouldn’t it be great if everybody had life insurance?
Of course, everyone thought it would be great. Even Harry and Giovanni thought it’d be great — after all, they made a little bit on every policy; the more policies they sold, the better, right? And Oscar is elected mayor, and he makes it a law that everyone over the age of 25 has to have life insurance.
But then things started to get more complicated. Annie the maid is getting on, and she’s diabetic and has high blood pressure; she is a higher risk. Both Harry and Giovanni independently say she’s got a 1 chance in 10 of dying in the next year, so even though they’ve been able to lower the cost of their insurance, they still need to change Annie $110 for that $1000 policy. (Oh, yeah, policy sounds much more respectable than “bet.”) But Annie can’t really afford to pay $110. And it’s really unfair that Old Man Potter, and all the other 90-year-old cigar smokers, have to pay $400 when George is only paying $2. So the mayor decides there ought to be another law: everyone has to pay the same amount for insurance.
Harry and Giovanni don’t know a lot about laws, but they know how to do division. Taking everyone in the whole of Potterville put together, they realize that when you add in George, and Bert, and Ernie, and Annie, and Old Man Potter, about 10 people out of every 1000 are going to die every year. So, the policies have to cost about $10 per person per year, plus some margin. Call it $15.
That winter, though, someone has a heart attack and dies while shoveling snow. The mayor speaks movingly about the tragedy and says people shouldn’t have to risk death for their snow shovels; there ought to be a law. Harry and Giovanni should have to pay for having the snow blown off everyone’s driveway as part of their life insurance policies.
Now Harry and Giovanni have a problem. It snows every year in Potterville. (Just in time for Christmas, and for a couple of snow days for the kids every February when summer seems years away.) This isn’t like life insurance, they’re going to have to pay every year for every policy. It’s going to cost about $50 per policy per year. There’s no escaping it: they’ll have to charge more. The $50 for the shoveling, plus now they have to pay to track the snowfalls, and hire teenagers with shovels, and write checks. The new price on the policy is going to have to be $70 — $10 for the life insurance bet, and $60 for the cost of shoveling snow.
Just to beat this to death, notice that the snow shoveling isn’t insurance any more; there’s no aspect of betting at all. Unlike the life insurance, Harry and Giovanni know they’re going to lose every year. If they don’t charge as much as it’s going to cost them, they go broke. And in fact they’ve got to charge more than the snow shoveling would cost if people just arranged their own snow shoveling, because now they have to do all the paperwork for what would have been handled by giving the teenagers a $10 bill and a cup of hot chocolate.
And let’s not even mention what happens when the show-shoveler’s union gets involved.
But now, that $70 is getting a little tough for Annie, and George is perfectly happy to shovel his own snow — he and Mary and the kids shovel the snow and make snowmen, and take goofy pictures to embarrass the kids with in 20 years. And hell, that $70 is getting to be a chunk of change for him too. All he wants is the $2 life insurance policy he had before Mayor Barry was elected, but he can’t get that any more.
And then he finds out that instead of paying $70 for the life insurance and snow shoveling policy, he can just pay $5 as the tax on people who don’t have life-insurance-and-snow-shoveling policies. Oh, it still sucks, but it sucks about $65 less than it would have. That $5 goes back to City Hall, where it’s supposed to be used to pay for people who can’t afford life-and-show-shoveling insurance. But first it has to pay for the Life and Snow Shoveling Insurance Office and the Life and Snow Shoveling Insurance Office administrator, and the staff.
Now, what’s the point of this little fable? Basically, this is the story of health insurance. We started off with “major medical,” which was a way to protect yourself against big medical bills that everyone hoped they wouldn’t have; now what we’ve got is that major medical — but we’re also paying for snow-shoveling, er, we’re paying for everyone’s day to day medical care, and we’re paying for it in pretty much the most expensive and complicated possible way: through a federal government agency and insurance companies.
Isn’t that just ever so much better than it was?