"If there’s some tweaking we need to do with the health care bill, I’m ready for some tweaking. But I’m not going to in any way denigrate the great work we did as a country, and saving America from bankruptcy because of the insurance industry bankrupting us."

~ Harry Reid. (3 Nov 2010).  As quoted 3 Nov 2010 from http://www.msnbc.msn.com/id/39973880/

I’m breaking with tradition here and going somewhat political.  However, it involves our finances – both yours and mine.

I’m not sure Harry gets it.  I’m not sure a lot of people get it.  Americans are feeling the pinch for several reasons, and a lot of it is due to the gouging of the consumer by big firms that deal in a lot of money, and that includes insurance companies.

I don’t like insurance companies.  In fact, just the other day, my wife had to deal with the red tape of bureaucracy so asinine that it should be criminal.  She had always gotten her dentures done in her home country because of the cost.  Well, sometimes you get what you pay for, and they cracked.  Her dentist determined they could not be repaired.

I want to stress that the dentures were paid for out of her own pocket.  Her current insurance, Humana, did not pay for it.  Our former insurance did not pay for it.  She did.  Yet, because they were newer than 5 years old, Humana will not pay for it?  Even though it cost them nothing to begin with?

The way I read it, Humana would have paid for new dentures if she had never had any.  Financially, this makes sense, as this would be something new.  However, let’s suppose instead you pay for your dentures yourself the first time around.  It still would be new to Humana, right?  What difference does it make financially to them if you get new dentures for whatever reason?

I understand the logic that you don’t want people insurance hopping every year to try to get new false teeth (assuming anyone would go to that trouble).  However, when you pay for it out of your own pocket, such rules are ludicrous.

It really boils down to this: Insurance as usually thought of today is a scam.  Some financial “experts” keep telling you that insurance is “necessary”, but I totally disagree with their logic in most situations.  We have gotten far away from the idea that insurance should cover significant losses.  Instead, insurance companies have become very specialized financial advisors.  Unfortunately, we have placed the fox over the henhouse to guard it.

Instead of being for disasters and catastrophes, the prevailing theory has become that insurance companies are large enough to negotiate costs down for drugs and medicine, therefore give them the money to pool in order to leverage against the costs.

However, the reality is that insurance companies are so large that they move slowly.  They get bogged down in paperwork and have little incentive to negotiate much of anything.  Sometimes, they might dictate terms to their “network” as far as costs go, but that’s really about it.  Otherwise, it’s just a huge bureaucracy.  They have little incentive to go after the emergency room charging $200 for a couple of aspirin or to investigate why it takes 5 doctors to examine someone.

Worse, they hold huge pools of money that are attractive targets.  What happens when you have a huge supply of money?  Things cost more.  Before WWII, the world got a lesson on what the supply of money does to the inflation rate.  Workers would get paid, cash their checks and run to the store before prices went up.  Germany was trying to print its way out of debt, and the entire country suffered as a result.

Randy at Barefoot Scribbles makes a good argument in the article “Surprise and Demand”.  When governments print up money like Germany did, it is essentially an unlimited amount of money.  Using the law of supply and demand, the more money there is, the less worth it has.  Likewise, insurance companies can be viewed as unlimited supplies of money.  Why do drugs cost so much?  The money is there.  Why do doctors charge so much?  The money is there.

What other industry is run like this?  The closest example I can think of is the mortgage industry, and we know what wonderful shape that it is in today.  In reality, the mortgage industry really did work for a long time and worked reasonably well (not perfect, but good enough).  That is, it worked until the government stepped in and supplied – you guessed it – a virtually unlimited supply of money to back all those bad loans.  The bad loans were “insured” by the likes of Freddie Mac and Fannie Mae.

So, what to do?  Well, for one thing, let’s get back to the concept that you own your own health care.  You are paying money to the insurance companies, and they are paying it out in turn.  When they waste money, it is your money they are wasting.  Instead of going after the waste, they come back to you with jacked up rates each year even when inflation is relatively even.

The remedy, in my opinion, is get back to the concept of a health savings account (HSA).  No matter what, the money belongs to you.  You put it in, you can draw interest on it, and you take it out when and if needed.  Best of all, you cannot lose it by changing jobs.  It is still yours.  At age 65, you can even convert it into an IRA.

Why didn’t they catch on?  Well, for one thing, a lot of companies didn’t even offer them.  In the US, insurance still often comes through your employer.  Do you think the insurance companies don’t lobby for your employer’s business?

In place of HSAs, some companies started offering Health Reimbursement Accounts (HRAs).  They look and act similarly to HSAs, and so people can easily be fooled into confusing them.  The difference is that the HRA reimburses expenses.  It is not a savings account.  You don’t keep the money when you change jobs, the employer keeps the money.

An HSA requires a high deductible health insurance plan to bolster it up.  When you meet the deductible, the insurance kicks in.  In other words, we are getting back to the idea of insurance being a cushion for catastrophic bills from a serious illness instead of trying to be some bureaucratic and inefficient price negotiator.  Let the market decide the price.  When people catch on to the fact that you can shop for medicine like everything else, prices will drop for the more essential medicines and services.

That goes for dental insurance as well, BTW.  I don’t see any reason it should be any different.

What it boils down to is that you are giving insurance companies your money so they can earn the interest off of it and give you back some small percentage of it.  Insurance companies own the tallest buildings in the nation for a reason.  They make money by convincing you to give up yours.

Wouldn’t you rather keep some of it and use it the way you want, when you want and how you want for your necessary care?