So why aren't the vehicle insurance protection providers writing such protection, either directly or through used vehicle dealers? And given the importance of reliable transportation, why isn't the public demanding such coverage? The answer is that both vehicle insurers and the public know that such insurance protection can't be written for a top quality the insured can afford, while still allowing the insurers to stay solvent and make a profit. As a community, we naturally realize that the costs associated with looking after every mechanical need of an old vehicle, particularly in the absence of regular maintenance, aren't insurable. Yet we don't seem to have these same intuitions with respect to wellness insurance protection coverage.
If we pull the emotions out of wellness insurance protection coverage, which is admittedly hard to do even for this author, and look at wellness insurance protection coverage from the economic perspective, there are several insights from vehicle insurance protection that can illuminate the design, danger selection, and rating of wellness insurance protection coverage.
Auto insurance protection comes in two forms: the traditional insurance protection you buy from your agent or direct from protection plan provider, and guarantees that are purchased from vehicle manufacturers and dealers. Both are danger transfer and sharing devices and I'll generically refer to both as insurance protection. Craig Sewell Because vehicle third-party insurance protection has no equivalent in wellness insurance protection coverage, for traditional vehicle insurance protection, I'll examine only accident and extensive insurance protection -- insurance protection covering the vehicle -- and not third-party insurance protection.
Bumper to Bumper
The following are some commonly accepted concepts from vehicle insurance:
* Bad maintenance voids certain insurance protection. If an vehicle owner never changes the oil, the auto's power train assurance is void. In fact, not only does the oil need to be changed, the change needs to be performed by a certified mechanic and documented. Collision insurance protection doesn't cover cars purposefully driven over a cliff.
* The best insurance protection is provided for new models. Bumper-to-bumper guarantees are provided only on new cars. As they roll off the assembly line, vehicles have a low and relatively consistent danger profile, satisfying the actuarial test for insurance protection pricing. Furthermore, vehicle manufacturers usually wrap at least some protection into the price of the new vehicle in order to encourage an ongoing relationship with the owner.
* Restricted insurance protection is provided for old model cars. Increasingly limited insurance protection is provided for old model cars. The bumper-to-bumper assurance expires, the power train assurance eventually expires, and the amount of accident and extensive insurance protection steadily decreases based in the marketplace value of the vehicle.
* Certain older cars qualify for additional insurance protection. Certain older cars can qualify for additional protection, either in terms of guarantees for used cars or increased accident and extensive insurance protection for vintage cars. But such insurance protection is provided only after a careful inspection of the vehicle itself.
* No insurance protection is provided for normal wear and tear. Wiper blades need replacement, brake pads wear out, and bumpers get dings. These aren't insurable activities. To the extent that a new car dealer will sometimes cover some of these costs, we naturally realize that we're "paying for it" in the cost of the vehicle and that it's "not really" insurance protection. Craig Sewell
* Injuries are the only insurable event for the oldest vehicles. Injuries are generally insurable activities even for the oldest autos; with few exceptions service work isn't.
* Insurance doesn't restore all vehicles to pre-accident condition. Automatic insurance protection coverage is restricted. If the damage to the vehicle at any age exceeds the value of the vehicle, the insurer then pays only the value of the vehicle. With the exception of vintage cars, the value assigned to the vehicle goes down over time. So whereas accidents are insurable at any vehicle age, the amount of the accident insurance protection is increasingly limited.
* Insurance protection is cost to the danger. Insurance protection is cost based on the danger profile of both the vehicle and the driver. The vehicle insurer carefully examines both when setting rates.
* We pay for our own insurance protection. And with few exceptions, vehicle insurance protection isn't tax deductible. As a result, the fear of increasing rates due to traffic violations and/or accidents changes our driving behavior and we sometimes select our vehicles based on their insurability.
Each of the above concepts is supported by solid actuarial theory. Although most Americans can't describe the underlying actuarial theories, most everyone understands the above concepts of vehicle insurance protection at the intuitive level. For sure, as indispensable vehicles are to our lifestyles, there is no loud nationwide movement, accompanied by moral outrage, to change these concepts.
Unsustainable Market
In contrast, similar concepts are routinely violated in wellness insurance protection coverage. To demonstrate this, let's return to the same suburban mother from the opening paragraph. She is busy working, driving to and from work, and driving her kids to school and activities. She ends each day exhausted, sitting on the couch with fast food. She is obese, has a sedentary life, a bad diet, and hasn't taken the time to go to the doctor in years. After a simple injury doesn't heal for weeks, she turns up at the hospital and learns she has type II diabetic issues. Although type II diabetic issues is controllable, changing diet and exercise habits and properly tracking her condition needs time and effort and she's never quite successful in implementing the necessary lifestyle changes.
So the initial hospital visit is only the first of a long list of medical health care related to non-controlled diabetic issues and other problems associated with obesity. Whether she has individual or group insurance protection, her insurance protection pays for each episode of health care, without singling her out for a top quality increase, and without charging her any more cost sharing than is charged to the healthiest and most medically diligent insureds. Her protection continues until she voluntarily changes insurance protection providers and/or employers or becomes eligible for Medicare. If she's covered under group insurance protection she may not even pay any top quality. Her insurance protection continues unabated, even though the disease was caused by neglecting her body and she maintains her poor lifestyle even after the disease becomes known.
This just wouldn't happen in vehicle insurance protection. This scenario is the vehicle insurance protection equivalent of guaranteed access to low-priced vehicle insurance protection that covers every possible repair, including damage already done, until the day the car falls apart so completely it's unsalvageable (death) or reaches 200,000 kilometers (Medicare), regardless of whether she even changes the oil (takes proper good care of herself) in the interim.
As a community, we don't expect this in private-market vehicle insurance protection, but we expect it in private-market wellness insurance protection coverage. Furthermore, there's a chorus of nationwide and state interests, which continuously pushes us further away from the vehicle insurance protection concepts.
The current personal wellness insurance protection coverage industry isn't sustainable. Prices have been consistently increasing faster than inflation for decades. Each year, insureds use more medical health care than ever before and more people have no insurance protection at all. Most actuaries and other people in the personal wellness insurance protection coverage industry don't want nationwide wellness insurance protection coverage with its bureaucracy and one-size-fits-all benefits. Yet, we're trying to sustain a personal insurance protection system, which violates the very concepts we know are necessary for personal insurance protection markets.
Yes, wellness insurance protection coverage involves the sacredness of human life and is therefore different from vehicle insurance protection. But if we're to sustain a private-market solution to wellness insurance protection coverage, actuaries need to explain to the larger community, in terms that community understands, the rationale for the following principles:
* As sacred as medical health care is, it's still an economic transaction that has to be balanced by individuals and societies, against other economic choices. It can't be endless. Sometimes it will be secondary to other choices. On a given day, for example, the mother in our scenario may value her car more than her wellness.
* Expenses should be paid by the individual and tied to controllable risks. This will provide the best incentive for the control of risks.
* Although it's hard to draw the line between abuse, neglect and ignorance, self-abuse shouldn't be insured and we need to draw that line somewhere.
* The personal industry can't provide endless, self-directed wellness insurance protection coverage.
* Routine health care and ongoing treatments of chronic conditions can be pre-funded, can even be sponsored, but they don't constitute "insurable activities."
* Insurance can't be expected to keep every body system in pristine condition. No amount of medical health care will prevent everyone's ultimate death.
* Comprehensive, endless, non-subsidized private-market protection isn't possible for people with severely impaired wellness.
* The personal wellness industry can provide limited non-subsidized wellness insurance protection coverage, such as protection from accidents, to even health-impaired individuals.
* Individuals who can afford to do so and who take proper themselves should be able to "buy up" to better protection. People have the option of buying up for everything else in life.
Discussion of these concepts is lacking from most of the current wellness insurance protection coverage debate. If community can naturally comprehend how similar concepts apply to wellness insurance protection coverage, then they should be able comprehend the concepts in the wellness insurance protection coverage context. We need to initiate the debate.
This commentary is solely the opinion of its author. It does not express the official policy of the American Academy of Actuaries; nor does it necessarily reflect the opinions of the Academy's individual officers, members, or staff
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