RICHMOND, Ky. — No! Never forget that when the government mandates that health insurers provide a new benefit, the government does not pay for the benefit and neither do the health insurance companies. You do!
The government can mandate that insurers provide more benefits, but government does not give money to the health insurers to pay for them.
Where does the insurance company get the money to pay your benefits? Unlike government, a health insurance company can’t just print money when it needs to pay for your medical expenses.
Insurers get the money they use to pay for your medical bills from the premiums paid by you and your employer.
This is called the Insurance Principle. Each insured exchanges a small certain amount to avoid the risk of having to pay a large uncertain amount. More specifically, you pay the smaller health insurance premiums to the insurer so that if you are one of the unlucky few who will get prostate cancer or have a premature baby, the insurance company will pay the larger medical expenses.
Insurance is a very risky business. The incredible thing is that insurers have to calculate your premium before they know how much it will cost to insure you. That is like a car manufacturer being required to decide on the price of the car before they know how much it will cost to build it.
To calculate your premium, insurers estimate what they will have to pay for future medical expenses, plus the cost to run the company, pay taxes and, hopefully, provide a return on the investment of those who have contributed the capital to create the company which provides the jobs to the employees and pays the benefits to the insureds.
Note that these are all guesses. Notice also that whenever benefits are increased, the insurance companies must recalculate how much to charge you to cover those increased costs.
If the insurer underestimates how much it will have to pay in medical expense costs and sets your premium too low, it doesn’t get to retroactively increase your premium. It has assumed that risk.
You must also understand that insurance can only cover fortuitous losses. This means that it should cover only losses that happen by chance. Insurance cannot cover losses that are in the control of the insured.
For example, your homeowners policy covers lots of potential losses but it does not provide benefits if you lose money gambling. This is because if gambling losses were insurable, the risk of loss is transferred from the gambler to the insurance company and the premium to all homeowners would have to be increased to cover the losses of all those folks who think they can beat the odds in Las Vegas, but don’t care if they can’t because the loss is insured.
Similarly, health insurance is intended to cover expenses from unexpected illnesses or accidents. If it covered cosmetic surgery, health club memberships, and vacations to relaxing places — all of which would likely be good for the health of most of us — there would be a lot more people getting those benefits and the health insurance premiums you pay would have to be increased substantially to cover the increased costs.
Using birth control is a choice. For some it has moral implications. But for everyone it is an expense that the user chooses to incur.
• Christensen is professor of insurance law at Eastern Kentucky University and the chief operating officer and general counsel of Concert Health Plan Insurance Co. in Oak Brook, Ill.