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By C. Jake Williams. March 18, 2008
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Chris Rock is wrong.
I don't think it was a recent standup routine, but the one I saw last week on cable had just the briefest mention of medical insurance. Chris Rock suggested we change its name from insurance to 'In Case Shit', as in In Case Shit happens. He received an ovation after further suggesting that we get the money we send insurance companies back if Shit doesn't happen.
That's a great idea, save the fact that it completely violates the insurance company business model:
Insurance companies are the biggest gamblers on the planet. Gambling is a terrific real-world way to visualize how they do business.
The first part of what Chris Rock said is spot on: The money you send your insurance provider is a monthly investment In Case Shit. Because every person insured sends the provider this investment, the company has a lake of funds with which to cover those who experience Shit. If your monthly investment is $100 and you suddenly need surgery costing $20,000, the provider would need almost 17 years of monthly payments to cover that surgery. Or 199 other investors not needing medical coverage.
So the business model of the insurer means taking small (small?) amounts from each person to save up In Case Shit. Until Shit happens, they'll invest in stocks, bonds, etc and possibly earn extra through those investments, but for the most part they are taking the risk that the vast majority of those covered will Not require medical attention.
It's a big risk to take, but through mathematical predictions and a rather uninformed public, insurers are able to enjoy profits through our little investments.
The money you send is an In Case Shit investment, but that Shit can happen to someone else and you'll still have to pay for it. This is the reason you'll never get that money back. Eventually, someone will tell Chris Rock.
You were there.