If "Socializing Loss" is our new economic motto, is Insurance a form of Tax?

[AZRedhawk44]

Just thinking about the evolution of the concept of insurance.

Insurance didn't exist 234 years ago when the British burned down Concord, and Berrett's militia stood outside town watching their homes burn.  There was no State Farm to call up and get a crew to rebuild the house, and free hotel to stay in while you got on your feet.

You lost everything, and you rebuilt.  But you were free in every sense to get the job done to the best of your ability.  No permits, no inspections, no zoning, no minimum wage laws, no hazmat regulations, etc.  Nothing saying you couldn't live in your barn/smith shop/tannery or other place of employment while you rebuilt.

Thinking about how much insurance costs.  I don't know what my employer pays for my health insurance, but I hear it's something around $300-$400 a person.  Car insurance, home insurance, dental, vision, extended warranties.  Let's not forget medicaid, medicare, social security.  All sorts of other insurance available on the market, too.

How much a month do you pay in "insurance tax?"

And do you think this is a good thing?

I look at the money spent on insurance... and wonder what could be done with it more constructively.  $1000 a month or more.  That's a serious chunk of change.

[Northwoods]

If you work for a large employer their share of your health insurance is probably closer to $1000/month. 

Anyway, insurance should be thought of as basically a way to spread around your risk.  The hope is that you'll never actually need said insurance, but when you do you REALLY need it.  A lot of insurance should be carried for life (e.g. life and disability).  Once you acrue a certain level of wealth you are essentially self-insured and can then drop those coverages.  If you are a multi-millionaire and still drive your Ford Taurus and you don't want to pay for collision coverage on your car insurance you can pretty safely drop that. 

So, for most things at least, becuase most insurance is not legally required and it is possible to develop sufficient wealth to no longer need it, I do not consider it to be a tax. 

All told between health (none covered by employer), disability, car, life, renters, umbrella liability, etc insurance we probably pay $700-800/month. 

[zahc]

I, too have noticed that the concept of "insurance" is being hijacked. First, you have the fact that medical insurance should be more accurately understood as a payment plan to provide distributed medical cost. This is different than the traditional spreading of risk, since everyone exects to cash in on the insurance on such a regular basis. People don't expect their car insurance to pay for their oil changes, but they expect their medical "insurance" to pay for routine checkups.

More nefariously, we have politicians that are calling things "insurance" that aren't insurance at all. Witness the recent tobacco tax package, part of which was earmarked to provide "health insurance" to poor children.

Now, when the government taxes a segment of the population in order to subsidize the medical care of another segment that is definitely not "insurance" in any traditional sense of the word.

[mtnbkr]

If you work for a large employer their share of your health insurance is probably closer to $1000/month. 

I hope not because I can get better insurance (non deductibles, lower copay, etc) on my own for less than $1000/month.  The only benefit to the employer plan is the group coverage factor.

Chris

[Firethorn]

I hope not because I can get better insurance (non deductibles, lower copay, etc) on my own for less than $1000/month.  The only benefit to the employer plan is the group coverage factor.

Chris

And that only really helps the individual if they have a condition that they're almost guarenteed to be costing the coverage company more than what's being paid in.

[Jamisjockey]

Insurance isn't as new as you think.

Just thinking about the evolution of the concept of insurance.

Insurance didn't exist 234 years ago when the British burned down Concord, and Berrett's militia stood outside town watching their homes burn.  There was no State Farm to call up and get a crew to rebuild the house, and free hotel to stay in while you got on your feet.

Insurance is older than you think.

Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practised by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively.[8] Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practised by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen.

http://en.wikipedia.org/wiki/Insurance#History_of_insurance

[AZRedhawk44]

You're right Jamis... for high risk ventures such as high seas shipping insurance has a pretty long and ancient history.

But for us lay schmucks just going about our daily lives it is a fairly recent innovation.

And the increased dominance of insurance in more and more venues is troublesome to me.  Take for example, the sudden increase in recreational motor vehicle insurance radio ads.  4 wheeler, jetski and other similar devices.

The wreck or loss of one of these toys is hardly likely to negatively affect one's life in such a way that insurance should be necessary.  Personal injury would assumedly be covered by one's health insurance, not recreational vehicle insurance.  Why then do we as a society feel a need to pay just a little bit more and then be excused from the fiscal responsibilities resulting from a potential loss?

And what does this do to our national psyche... our ability to cope with failure or loss?

I see this mindset creeping in to too many people, and it bothers me.

[Balog]

Addressing one specific point, re insurance on atv's etc.

So many people who buy those things can't afford them and buy on credit, that wanting to have insurance against their loss is understandably more popular.

[Jamisjockey]

You're right Jamis... for high risk ventures such as high seas shipping insurance has a pretty long and ancient history.

But for us lay schmucks just going about our daily lives it is a fairly recent innovation.

And the increased dominance of insurance in more and more venues is troublesome to me.  Take for example, the sudden increase in recreational motor vehicle insurance radio ads.  4 wheeler, jetski and other similar devices.

The wreck or loss of one of these toys is hardly likely to negatively affect one's life in such a way that insurance should be necessary.  Personal injury would assumedly be covered by one's health insurance, not recreational vehicle insurance.  Why then do we as a society feel a need to pay just a little bit more and then be excused from the fiscal responsibilities resulting from a potential loss?

And what does this do to our national psyche... our ability to cope with failure or loss?

I see this mindset creeping in to too many people, and it bothers me.

Twofold:
Either you owe money on said item, and if you ruin it, you'd be making payments on something that is unusuable.
Or you scrape and save and buy your RV/ATV/Boat with cash, and then wreck it and lose everything.
Has nothing with the ability to cope with failure or loss.  You're just hedging your bets against it.  I make a payment on my boat everymonth.  It would suck to keep making a payment if it found its way to the bottom of the atlantic one day.  My insurance would help equalize that problem.
And then there is liability.  If I hit another boat with my boat, and injure occupants on either vessel, I probably don't have the cash in my pocket to pay for that. 

[JonnyB]

We'd (almost) all be better off with only catastrophic coverage.

Pay your own way for minor medical issues - routine physicals, prescriptions, etc. - and save the insurance for big-ticket expenses. Major medical coverage should be the norm.

The oil change metaphor is pretty good. With many employers paying most, or all, of our health insurance premiums, we've come to expect all-inclusive coverage.

My employer pays about $900 per month for my wife and me. We pick up an additional $350 or so. The insurance company does nothing but manage the policies; the company self-insures its employees. I think the previously-stated $1k per month is about right.

jb