Insurance May Be Obstacle to Free Market Pricing

The current downward economic spiral has caused many Americans to adjust their budgets in an effort to save money. Costs are rising on everything from basic necessities to consumer goods while income is stagnating and unemployment rises. One major area that consistently consumes family spending is insurance products.

The principle of cost sharing and risk management has become a necessary evil in light of the high cost associated with unforeseen events and catastrophes but insurance now seems to be accepted as a means to providing a way of life.

The most talked about example is our health care system which causes insurance rates to increase annually by as much as 40%. Obviously, this model cannot continue to outpace wages and inflation and hope to carry on business as usual. Insurance companies are often accused as the cause but there is enough blame to go around. Insurance companies have just as much right to make a profit as any other industry yet medical providers try to pass the buck to insurance companies when they are questioned about exponential increases in their fees.

As a cancer survivor, I know first hand the value of medicine from research and development to diagnostics and treatment but I am also aware of the bloated nature of the industry. One example is the new heart scan technology that when first introduced, most insurance carriers would not cover and the subsequent price was about $300 while 25 year old CT scan technology is commonly negotiated down to about $3,500. The small office where I receive regular CT scans does an average of fifteen scans per day six days a week roughly totaling $2,730,000 a year in gross revenue. Even after operation cost for radiologists, technicians, equipment purchase/service and office overhead, it is still a tremendous profit margin.

The problem has become that the use of insurance has trained us to think that someone else is paying for our use of these services and no forethought is given to how much it is actually going to cost. Rarely if ever do we predetermine what doctor we will consult with or what medicine we take based on the price. This is perpetuated by the medical profession’s mantra “you can’t put a price on your health” but a price can be placed on health if by accepting any cost it would jeopardize ones ability to carry on the rest of their life. The medical industry is simply not market based because the end users are not determining the prices based on their ability to pay. We have allowed fees to be established between two parties that both profit from our lack of involvement in the process.

For far too long, employees of large companies who provided full benefits have taken for granted medical usage but current trends are causing employers to pass their insurance costs directly on to the workers. As these self-funded rates increase so does the awareness of the problem of exploding insurance premiums and their inability to stomach these costs. Small business owners and the self employed have long known of the problem and now represent a growing number of uninsured workers due to unmanageable rate increases.

Insurance policies can also be an attraction to those seeking to profit through frivolous lawsuits. Medical malpractice is clearly a growing cost to health care providers and homeowner’s are often encouraged to purchase umbrella policies for legal occurrences outside the realm of natural disasters. Many professional trades are now required to carry liability policies which cover errors and omissions to offer a method of recourse for damages.

This seismic shift in our view of insurance has ironically caused our utter dependence on it. Insurance is not an anti-capitalistic concept and has historically been a way to protect us from risk, but now appears to be transforming into a perceived entitlement. We are told by politicians that we have a right to health care, a comfortable retirement and an education. Is a college preparedness policy going to be offered so we won’t have to worry about saving for college tuition? Our dependence on insurance appears to be here to stay and will not diminish until we decide how much of our income we are willing to spend on it.