“People Don’t Know What Insurance Is!”

Deal W. Hudson

Published August 24, 2009

“It’s a myth to say our health care system is broken – it is the best in the world.” That politically incorrect assertion comes from a man with more than 25 years of experience working for one of the nation’s largest health insurance companies. “When the wealthy and powerful from all over the world choose to come to the U.S. for medical procedures and treatment, the message is clear.”

Jack Whelan, a well-known Catholic philanthropist from Indianapolis, is an active Legatus member and has been chairman of the board of the Culture of Life Foundation for 10 years. But for 25 years, Whelan worked for Golden Rule Insurance, eventually becoming COO, president, and CEO. Golden Rule, now a United Healthcare Company, has been offering health insurance for more than 60 years.

Golden Rule, and Whelan himself, was deeply involved in the lobbying that led to legislation creating health savings accounts (HSA).

“The biggest problem with the present health-care debate is that people don’t know what insurance is,” Whelan told me in a recent phone interview. “Insurance,” he explained, “is not pre-payment of service, it is the transfer of risk of the financial impact of a potential event from yourself to a company.”

Whelan used the example of homeowners’ insurance. Your homeowners’ insurance does not cover replacing your roof after years of normal wear and tear. But it does cover damage to your house caused by an unlikely event, such as high wind or a tree falling on it. “When you buy homeowners’ insurance you are transferring the potential expense of events like these,” he explained. You are not pre-paying to replace the roof; you are paying for the company to take the risk of a catastrophic event.

“Health insurance,” Whelan went on, “has evolved into something different. In addition to being the transfer of an economic risk, health insurance now includes some pre-payment for medical services.”

Since the majority of health insurance is provided by employers and the government through Medicare, Medicaid, and Veterans Affairs, and consumers pay only a modest portion of the insurance premium, there is no consumer motivation to control consumption. Going to the doctor has, as Whelan put it, become “like going to the grocery store without having to pay.”

Whelan asked me to imagine two scenarios:

In the first, you are given permission to go shopping at your favorite grocery store without having to pay for the items filling your basket. What would you pick off the shelves? Premium steaks and the finest wine? Of course! Compare that with the second scenario: the way you normally shop for groceries. The steaks and the wine go back on the shelves, because you are paying. As Whelan pointed out, “Assuming the cost directly impacts the kind of decisions we make about consumption and how we behave when we spend our money.”

The key to a “workable alternative to government-run health care” is lowering the cost of health care by bringing consumer choice back into the health-care equation. Giving control of health care to the government is exactly the opposite of what will bring costs down, one of the four goals sought by the Catholic bishops.

Only a portion of health care – but an expensive part – remains a transfer of risk. Treatment of cancer, for example, is not a financial event that everyone will face one day. The health insurance company assumes that risk.

But – and this is crucial – insurance companies have to set their pricing for medical coverage to cover the behavior of consumers who are not controlling their personal consumption of day-to-day medical services for things like colds, flu, cuts, bruises, sprains, skin rashes, and various physiological and psychological services now offered under insurance plans. For example, how many massages and visits to the psychologist would you pay for if they were coming out of your own pocket?

Whelan’s point is simple:

When we spend our own money, we control our consumption – that is the factor missing in our health-care coverage which, for the most part, is paid for by employers or the government.
Consideration of price needs to be put back into the health insurance equation. This will immediately change the dynamics of consumption and the cost. If everyone purchased his or her own high-deductible health insurance and combined it with a health savings account (HSA), health insurance would once again become what it should be: the transfer of risk, not prepayment for predictable medical needs.

Under such a plan, everyone would pay out-of-pocket from their HSA for normal medical needs, and the insurance company would assume the risk for high-dollar medical costs. Once the consumer starts considering the costs of medical care, consumption will go down, and so will the cost of health insurance, without diminishing the quality of this nation’s medical services.

By Deal Hudson

Deal W. Hudson was born November 20, 1949 in Denver, CO, to Emmie and Jack Hudson, both native Texans. Dr. Hudson had an older sister Ruth, and eventually, a younger sister, Elizabeth. Emmie Hudson, Ruth Hudson and Elizabeth Hudson now live in Houston, TX; Jack Hudson passed away some years ago. The late Jack Hudson was a captain for Braniff Airlines in Denver at the time of Dr. Hudson’s birth. Later the family moved to Kansas City when his father joined the Federal Aviation Agency. From Kansas City, the Hudson family moved to Minneapolis, then to Massapequa, NY, and finally to Alexandria, VA, where they first occupied a home overlooking the Potomac River adjacent to the Mount Vernon estate. After a year, the family moved to a home on Tarpon Lane a few houses up the street from the Yacht Haven boat docks. Dr. Hudson attended Mt. Vernon Elementary School from grades 4 to 6 and has a special gratitude for the teaching of Mr. Hoppe who first told him was a ‘smart lad.’ Having moved with his family to Fort Worth, TX in 1960, Dr. Hudson attended William Monnig Junior High and Arlington Heights HS. In high school, Dr. Hudson was captain of the golf team, editor of the literary magazine (Guerdon), and performed the role of Peter in the ‘The Diary of Anne Frank’ during his senior year. Dr. Hudson graduated cum laude with a major in philosophy from the University of Texas-Austin in 1971 where his undergraduate advisor was Prof. John Silber. His teachers at the University of Texas included Prof. Louis Mackey and Prof. Larry Caroline. Dr. Hudson minored in both classics and English literature. Dr. Hudson lived in Atlanta from 1974-1989, where he attended Emory University, receiving a Phd from the Graduate Institute for the LIberal Arts. He also taught philosophy at Mercer University in Atlanta from 1980-89. In 1989 Dr. Hudson and his family left Atlanta when he was hired to teach philosophy at Fordham University in the Bronx. Dr. Hudson taught at Fordham, and also part-time at New York University, from 1989 to 1994. Dr. Hudson first came to Atlanta in after graduation from Princeton Theological Seminary (PTS) with an M.Div. While at PTS, Dr. Hudson managed the Baptist Student Union at Princeton University and became its first director. Dr. Hudson also was licensed at a minister in the Southern Baptist Convention at Madison Baptist Church in Madison, NJ. Dr. Hudson’s primary area of study at PTS was the history of Christian doctrine which he pursued with Dr. Karlfried Froelich. In 1984 Dr. Hudson was received in the Catholic Church by Msgr. Richard Lopez, with the special permission of Archbishop Thomas A. Donnellan, at the chapel of Our Lady of Perpetual Help Cancer Home in Atlanta. Dr. Hudson has been married twenty-five years to Theresa Carver Hudson and they have two children, Hannah Clare, 23, and Cyprian Joseph (Chip), 15, adopted from Romania when he was three years old. The Hudson family has lived in Fairfax, VA for more than fifteen years, after having lived five years in Bronxville, NY and a year in Atlanta, GA, where Theresa and Deal were married.

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