How I Got Mugged by the Insurance Company

Well, actually, it might be more accurate to call it the insurance office and you will see what I mean by that during the course of reading this. Anyhow, I want to share a story that happened to me a few days ago. Facing the situation of having to arrange my health insurance by myself for the first time, I went to the Health Insurance Bureau to get the papers quickly and get on with my life. Little did I know at the time it would become the nightmare that it turned out to be...

You see, we have a system in this country whereby you are mandated to buy basic heath insurance (which doesn't really cover much), whether you want it or not, need it or not, no questions asked. And to make things worse, there is only one institution where you can do this (in other words, a monopoly) and it is run by the government (you've guessed) – the aforementioned Health Insurance Bureau. 

So I walked into the building and was kindly escorted to the window, where I described what I was there for. The clerk then asked me on what basis I would like to establish my insurance. Not knowing what on earth she was talking about, I tried to look perplexed enough to entertain a follow up question. Sure enough, she went on to ask me if I was employed, if I owned a business, if I wanted to insure myself as a citizen and so forth. Now that was a question I could answer! So I said »Yes, I do own a business« (wondering about the relevance of the fact), feeling quite proud, though the feeling was rather short lived as the next sentence she uttered was »well in that case you can only insure yourself as a business owner«. Sensing this didn't mean I get a lollipop at the end of the procedure, I tried to find out what this meant for me (here comes the tricky part). Knowing that the health insurance premium for citizens is 14,70 EUR, I was rather surprised to hear her say it was 40 for me as a business owner. »Forty what?«, I replied. »Forty, zero forty«, she said. »Forty Euros?« »No, the code of insurance is 040«, I was informed. Another indispensable piece of data, no doubt. As you can imagine, I was starting to get a wee bit frustrated at this point, so I proposed »why don't you rather tell me what premiums I will have to pay.« Much to my further surprise, she replied »a bit higher, I think, but I don't actually know that, I'm just filling out these forms. Ask your accountant.« Facing no other choice, I signed the papers, only to find out later that the difference was way beyond anything remotely reasonable, as you will see. 

Now let's imagine for a second you got this kind of treatment from a privately owned organization operating on the market. Say you went to Mercator (local supermarket chain), filled up your cart and the first thing the sales clerk asked you at the register was »are you employed, do you own a business, sir? Ah, in that case it's 040 for you, you have to pay higher prices for your food but we don't actually know how much. If you'd be kind enough to sign here, you can ask your accountant about our prices later. Oh and you can't buy food anywhere else and in fact you have to show up and buy food here every month, or else we put a gun in your face and throw you in prison.« If the private sector did this to us, we would scream endlessly about the injustice, burn down their headquarters and demand someone be put in jail. And quite rightly so! Yet when the government does the exact same thing, we automatically think this is the way things are supposed to work, this is the only way things can work and to suggest otherwise would be just ludicrous. When the government forces us to pay higher prices, when it prevents competition and arbitrarily discriminates against us, most people find nothing in particular wrong with it and will even got to great lengths to defend it. I have a hunch why this is the case but perhaps that is a topic for another discussion. 

Let me rather describe how insurance is supposed to work on a free market. Insurance companies insure people against low probability, high-cost disasters, such as natural, health-related, and other disasters. They collect premiums from consenting customers and pay out compensation when disaster indeed strikes. One thing insurance companies also do is discriminate, but in a very different way than was described above - in the right kind of way. They encourage and provide incentives to their customers to engage in less risky behavior, primarily in the form of discounts on their premiums. For instance, safe drivers get lower premiums, people with security alarms get a discount on their burglary insurance, a house with a fire sprinkler system will be awarded with a lower fire insurance premium. Insurance companies do this because if their customers engage in less risky behavior, they need to pay out less compensation. If they pay out less in compensation, they have lower costs of doing business. If they have lower costs of doing business and there is competition on the market, they pass these lower costs out in the form of lower premiums to attract additional customers and keep the existing ones so they can earn higher profits. Everybody wins. There is no real magic in it, it's the way free markets work and it's a beautiful self-correcting, perpetually-improving system. This is why proponents of capitalism always say that greed is good in a free market. The greed for higher profits pushes businesses to create new and better products at lower prices to earn our money. 

Now compare this to my situation. I have to pay higher premiums just because I own a business. I could be very poor, and it makes not difference. I could live a very healthy life, greatly diminishing the probability of the need for high-cost medical care and it makes not difference. Someone else might have a hobby to jump in open fires day in and day out and pay less than me. Someone who engages in mountain climbing could have lower premiums. Someone who smokes 3 packs of cigarettes and drinks a bottle of vodka a day could have lower premium payments than me. In fact, someone who regularly drinks vodka and smokes cigarettes while climbing a mountain above an open fire could enjoy lower health insurance premiums than me, just because he/she doesn't own a business. Indeed, if an insurance company operated like that in a free market it would go out of business immediately. 

Another thing I want to mention are the incentives involved. In a free market health insurance system, as we have seen, people are encouraged to lead healthy lives to minimize their expenses. We wouldn't need all those horrible pictures and dire warnings on cigarette packs to discourage smoking, people would just naturally tend to smoke lease because they would have much lower health insurance. There would be less negative externalities, if you will. In the socialist health care system we have today, non-smokers have to pay for the health expenses of smokers, hardly a just and deserving penalty for not being a smoker. Moreover, what kind of incentive is it to penalize people just because they own capital. If they checked my income and/or net worth and decided I can afford higher payments, it would still be wrong and flawed, but at least I could partially understand the logic behind it. But in a case like mine, there is no welfare system logic behind it, it is pure ideology. Because of the fact that I own capital, I have to pay more for health insurance. It is socialism 101 – make the capitalist pay! I want to especially stress this fact several times to show just exactly how corrupt the government is. The fable about creating justice and equality is a farse, it just doesn't work that way. The government is rather in the business of expropriation and repression and even though they claim to be of benefit to society, we should know better. A rat might learn how to bark and it will still be the same rotten old rat.

Oh, and by the way, my premium is 325 Euros. Trure, they are selling me other things, such as unemployment inurance and pension insurance, but I don't need that, nor do I want it. Why don't I have the freedom to chose what services I want to buy? I just want health insurance and if I don't want all the other things in the offered package deal, effectively my health insurance cost is 325 EUR. Imagine a chicken farmer going out to buy bread, only to find out that the store only sells bread in a package deal with 5 chickens at 150 EUR. And for the sake of argument let's say that he can't sell the chickens. For him, the price of that bread is 150 EUR.

Profit Is Not Money

When profits are made on the market as a consequence of voluntary exchanges, it means both parties to the exchange make a profit (or else expect to make it), otherwise the exchange obviously would not take place. There are two parties making a profit because they both perceive what they are giving up (their costs) to be of lesser value than what they are acquiring in exchange. This is a key thing to understand about free markets. In every voluntary exchange there are two parties profiting. So whenever you make a purchase of something you like, you're making a profit. You are letting go of your money because you obviously perceive the thing you are obtaining to be of greater value. And the difference between all the enjoyment that this something is capable of delivering and the money you have paid is your profit. It is impossible to measure it, but this does not make it any less of a profit.

In any case, all profits are impossible to measure. This concept might be a bit difficult to grasp at first because you have been taught all your life to view profits as a figure businesses report at the end of their fiscal year. But of course money has no value in and of itself. You can't eat or drink it and it will not give you a lap dance, no matter how hard you try. What gives money its utility is the services it provides, its purchasing power. It is the same with profits. People do not seek to make a profit to create a heap of paper money in their back yard, they want stuff and services and all the rest of it. So when corporations report their earnings, it doesn't really have much in-depth meaning. They are just abstract numbers. Not that money is not important, it's the foundation of modern civilization, but it does not tell us much about the nature of profits.

If capitalists were to report their real profits, they would send in the following report: »kitchen table, new manufacturing tool, microwave, 2 week vacation with family, roof tiles, garden hose, new Xerox for office, 7 whisky shots, taxi home, flowers for wife« and so forth. In other words, all the things that they have bought with the money. These are the real profits and they are impossible to measure because you cannot measure utility. 

And here is another example. When I go after a girl, I work pretty damn hard to get her (OK maybe not every time but that's beside the point). I try to entertain her, push all the competitors away and if I can make her laugh AND make sure she doesn't notice that other guy who is trying to flirt with her and is actually a bit better looking than me (though not much!), I get my reward. My »costs« are all of the above (hard work, right) and the benefits, i.e. my »profit« is I get to enjoy a few kisses here and there and a few other benefits of an exclusive kind. Yes, I do make a profit, and through a voluntary exchange too!

So now the obvious question is why should any third party be entitled to a part of my profit. Why should any third person or group of people be entitled to a part of the benefits me and you make by making a voluntary exchange. If the government was consistent in extracting taxes from our profits, you should give them 20% of all the enjoyment you get above the costs that you gave up in every single voluntary exchange.

So next time, before you argue in favor of taxation of profits, think again. And beware, the government might just break into your home and demand to be a part of all the exchanges you are making with your girlfriend. And why? Why of course, because you are both profiting, you capitalist swines!