 Hi, this is Professor Gerald Friedman, Department of Economics at the University of Massachusetts, and we're here today to talk about social insurance and why private insurance usually won't work, especially not in the healthcare sector. Now first of all, what do we mean by insurance? Insurance is the process where you give up something now, a guaranteed loss now, in order to minimize the really bad things that might happen and might not. We could pay insurance, you could pay life insurance for your entire life, and the day before you die you'll say, God, that was a really bad investment. I spent all this money on premiums and I never died. Well, when you die, your children, your spouse will be happy that you have a life insurance. The same for sickness, health insurance. You go along being healthy and thinking what a bad idea it is for you to continue to carry life, health insurance, until you get sick, and then you'll be glad. Now, the problem with private insurance, as we find in the United States, the only country in the world that relies on private health insurance to provide health coverage for its population, we're the only country. We also note we spend way more on healthcare, including insurance than any other country, and we are significantly less healthy than other countries at our level of income, and way less healthy than other countries at anything like our level of healthcare expenditures. Think about it. Private healthcare, less healthy outcomes, and spend more. It has to be that way. This isn't an accident. Private healthcare, health insurance, is inherently inefficient, and at some of it's on the side of the consumers. There's moral hazard. You don't want health insurance when you're healthy. You don't want to spend the money. Young people think, okay, I'll be healthy forever, I don't need health insurance. Who gets health insurance? People who think they're going to be sick, or even, this is the moral hazard problem, people who know they're sick. So the health insurance companies are constantly monitoring to keep out people who are already sick. That's problem one. With that goes companies waste huge amounts, cherry picking and lemon dropping, cherry picking the possible clients for the people who are not going to need that coverage, and lemon dropping to get rid of people. The problem is that 70% of your expenditures as a health insurance company goes to 10% of your clients. People are healthy. They're cheap for you. You pay for an occasional doctor visit, occasional blood tests, but people get sick and wow, the bills pile up really fast. That's why we want health insurance. We want insurance in case we have an accident and we're in the ICU at $3,000, $4,000, $5,000 a day. We want insurance in case we get cancer and mastectomy, of course $50,000, radiation $1,000, $1,000 more. We want insurance because when we get sick it's really expensive. And what about the company? That's when they want to get rid of you. They only want you when you're healthy. They sit there thinking, God, if only we could get rid of the sick people, we'd make so much money. Think about it. They don't just think about it, they act on it. Companies engage. Private health insurance companies are always out there figuring out ways to cherry pick. Select only the healthy people and lemon drop, get rid of the people who are not healthy. And how do you do this? You do things like you have people, anybody can sign up for health insurance, this was Casey Milwaukee. Companies that anybody can sign up for health insurance with us, they just need to fill out a form. And the form is available at our office, which is on the fourth floor of a walkup with an elevator. Not very many people using wheelchairs. You apply for insurance at that company. You do things like that. You companies profit by selling more shoes. Insurance companies profit by not selling to some people. You know, upper floor offices, paperwork and the hassle factor. You just make it really hard to file claims. Now who's going to care about that? Healthy people don't even know it's hard to file claims, that they have to file in triplicate, that they have to fill out these things, that you have to get your doctors to sign these things and write reports and all this. Healthy people don't even know. It's the sick people who know about those things and they start looking for other companies. They look for other companies. This is wasteful. Then there's just plain recisions, which are banned under the healthcare law passed last year in Congress. But we're very widespread before that and we'll see if the companies figure out a way to do it. California, in 2008, California insurance companies dropped 20,000 sick people. They just canceled the insurance. People showed up with pancreatic cancer, lung cancer. They were hit by cars. Insurance was canceled. I wish they would let me buy insurance after I got sick. They won't let me do that. I don't understand the logic of saying you can cancel insurance. But anyway, think about it from the insurance company's perspective. If they don't do things like that, then they risk going into the hospital. That's spiral. Cheating is necessary to inflate your profits. But cheating is also necessary to protect you. Provide good coverage. What kind of people are you going to get applying for insurance in your company? You have good coverage. You treat people nicely. You're respectful. You don't hassle people. You're going to get sick of clients because the sick of people are the ones who are going to notice that it's going to be important to them. If you're sick of clients, what do you have to do to cover your costs? You have to raise your rates. Raise your rates. Who's going to leave? Who's going to stay with you? The sick people will still stay with you because you have good coverage. You're a nice company. Healthy people. And don't say, I don't know. Those rates are pretty high. And I'm not getting anything out of that nice coverage because I never get sick anyway. So I think I'll just find do without or I'll find a company that has lower rates. Because they drive away the sick people. So you get a group that's ever sicker. And then you have to raise your rates more. And when you raise your rates more, more healthy people leave and you get a clientele that's even sicker. Yeah. That's the insurance company death spiral. And that's why even nice people. And okay. I am willing to admit that it is possible. It is conceivable that there is a decent person in management of an American health insurance company. It's possible. I find it unlikely, but it's possible. It is possible that there's a decent person there. It's possible that there's a decent person in the tobacco industry. It's possible that there's a decent person in the porn industry. It's possible. Even that decent person will get rid of the good coverage. Bad coverage. Nasty forms. Lots of work. Get healthy. Drive away the sick people. We'll get healthy clients. Lower rates. Lower rates will attract healthy people. And then lower rates. Attracting more healthy people and more profits. That's what the insurance companies want to do. And that's why they're evil. Because we don't need insurance for the healthy people. We need insurance for when we get sick. And we don't need all these bureaucratic forms and all this paperwork and all this advertising and all this selection business. We want everybody to be covered. The insurance companies spend a ton of money reducing the number of people covered. It has been estimated that in Massachusetts alone, a state with 2% of the American population, and the state with a relatively efficient healthcare system because of the healthcare law sponsored by former Governor Romney, who's now running for president campaigning against the national version of his law. But that's another story. In Massachusetts alone, abolishing private health insurance and moving to a single payer system sponsored by the state would save about $5 billion in the first year. That is almost $1,000 a person. Now economists have a joke that George Stigler, an economist at the University of Chicago was walking down the street with a graduate student. And the graduate student said, oh, look, there's a $20 bill on the street. I'll go get it. And Stigler said to her, don't bother. Just if it were there, if it were real, somebody else would have picked it up already. We have a $1,000 bill in Massachusetts sitting on the street. You wonder whether people will ever pick it up. Until then, thank you and have a nice day. Bye-bye.