Entries from February 2010 ↓

The world of politics is never supposed to make any real sense. After all, once you pit people’s cherished beliefs against each other, passions are roused and the arguments soon become bitter. It would be better if everyone was just allowed to do what they wanted. But, when it comes to organising medical care for the population, it takes a government to put the right kind of infrastructure in place. People have to be trained as care givers. This takes years and costs a small fortune. Hospitals and clinics have to be built. And then we come to all the support staff who drive the ambulances, keep the places clean and keep the accounts. Ah, yes, the money. All of this work over years has to be paid for. So the $64,000 question is who should foot the bill? It’s at this point that emotions get in the way of common sense.

Talk to one side of the argument and they will tell you people who want access to medical care should carry private insurance. Talk to the other side and they will tell you the state should pay for the service out of the tax revenue. It’s never really clear why people disagree. Only people who are in work pay tax. Only people who earn can afford to pay the premiums on insurance. It’s the same money. The only difference is the way it’s collected – one as tax and the other as premiums paid to an insurance company. But wait! There is a difference! If the state collects in the money, it can use it more efficiently because, unlike the insurance industry, it does not intend to make a profit. So the only reason to support the current system is to allow the insurance industry to continue making an ever larger profit.

As the Senate is currently set up, forty-one senators can stop any reform. That’s forty Republicans plus one other. Yet when you look at the number of people these Republican senators represent, it’s only 36% of the US population. This is somewhat unfair. The party with the majority of representatives was voted in by 64% of the population. The Democratic platform could not have been more clear. It was to be reform of healthcare provision. Yet when you look at the media (which is controlled by big business), all you see reported is the opposition to reform. The “tea party” movement captures all the headlines. But in all this, there is one really big irony that gets very little coverage. Continue reading →

Lets start off with a simple explanation of how insurance works. In the good old days before those kind men got together in the Lloyds coffee shop, people were responsible for their own losses. If the horse pulled their cart into a ditch and this broke the wheel, the owner had to put his hands into his pock’ets (which fortunately had already been invented) and pay someone to repair the wheel. But once people could share the risks, life was suddenly better. If you gather together a big enough group of cart owners, each will only have to pay a small amount into the central fund to cover the losses of the few who have accidents. Those men at Lloyds were on to a winning business formula. Moving into modern times, the idea of spreading the risk is the same and, with thousands of people in each group, the cost of loss is divided into small premiums. But, with profits under pressure, the insurance companies came up with a new variation on the old theme. Suppose they could persuade their customers to accept the risk of some of their losses. This would then become self-insurance for part of the risk. The rest would be paid by the insurance companies. So the deductible was born. You agree to pay the first portion of any loss. In the case of traffic accidents, most of the fender benders are minor and don’t cost much to repair. That means you pay for most of the repairs yourself and the insurance companies get richer. Ironically, if no-one opted for the deductible, the increase in the premium for everyone in the group would be trivial.

So let’s get to an actual example to see how it works. If you agree to accept a deductible of $1,000, you will be given a discount on the premium. Say you save 10% over the year. Now that’s a good saving if you manage to get through the year without having an accident. But suppose your luck is not good and you have an accident. The bill for repairs is $900. You put your hand in your pocket (pockets are such useful things – always seeming to have money in them) and pull out the dollars. Was your 10% saving over the year more than $900? If not, you are making a loss, not just on the insurance policy but, if you had to use your credit card, on the interest added to the $900 until it is paid off. What would happen if your run of bad luck continued and you had a second accident in the year? Do you have another $1,000 as savings or available to borrow? Perhaps we should not be so pessimistic. Worst case scenarios are always better applied to other people and never to you. Continue reading →

It’s always better to start article with good news. This sets a positive tone to the piece and keeps people reading. So, let’s start with good news. The premiums for life insurance have been dropping! Yes, you can believe your eyes. It may not feel like it, but there has never been a cheaper time to buy a life policy. How come? Well, unlike other forms of insurance, the policy only pays out in the future when the life insured ends. If you go back to 1980, men lived to an average of 70 years, women to 77 years. In the latest figures released by the Center for Communicable Diseases, men now live to an average of 75.6, with women now into the 80s at 80.8 years. As an aside, the poor quality of the US healthcare service is highlighted by the life expectancy figures. The US ranks only 38th in the world. That said, since the obligation of having to pay out on a life policy is disappearing into the future, the cost of the benefits payable can be collected over more years. This makes premiums fall.

You will have noticed that women usually live longer than men. There are a number of explanations for this, but the reality is simple. Women have always had stronger levels of immunity to almost all diseases that strike down men. They are also more careful and less likely to die in any kind of accidents or while indulging in dangerous sports. This reflects the gender roles with women acting protectively over their children and, in later years, acting as the primary caregivers to older family members and relatives. This throws up the first major decision. If a woman is going to leave dependents behind her, there will be a need to leave a more substantial lump sum behind. Women multitask and buying in professional help to do all the work is expensive. Whereas it’s estimated that men should leave an average of seven times their average pay, women with dependents should aim for a multiple of not less than ten. The plan should be to provide a substantial lump sum that can be invested and generate an income to supplement the capital for those who remain. Continue reading →