Health Insurance: The Death of a Free Market

Over the years, I have befriended an eclectic variety of people who fall all over the political and social spectrums. In doing so, I have learned there are a few certainties in life: We all pretty much want the same thing, and we all disagree wholeheartedly on how to achieve these goals. In other words, we can’t seem to agree on what means justify the end.

I find this is particularly true regarding health care. According to Newsweek, an in-depth analysis of the health care system by the Commonwealth Fund found that, of the 11 developed countries in the world, America came in last. The study used 72 markers to help them determine the results, including access, efficiency, and cost.

Learn more about RevenueStripe...

But how could this be? For what has long been hailed as the greatest country in the world, you would think our health care would be one to admire, not exonerate. But the reality is we are a sick country crippled by medical debt. And, while many factors have gotten us to this terrible state of affairs, there is a prime culprit for our current healthcare travesty.

Insurance companies.

It is hard to imagine, but for centuries before the birth of healthcare insurance, people rarely went to hospitals. Hospitals were viewed as institutions you went either to give birth or to die – neither of which is great P.R.

Ailments like “the cold” were usually treated at home. Someone would hail a doctor (presumably by frantically riding into the night on a horse, as is depicted in almost any old-timey movie), and the doctor would make a house visit. These visits were billed pretty reasonably. If a doctor’s prices were deemed too steep, a family would find another doctor whose prices were more reasonable. Or, if the cheaper doctor provided less quality service, a family might choose to stick with the better doctor because his price range reflected his services. (Ahhhhhh, the free market. Don’t you just LOVE it?)

Before the 1920’s, hospitals were barely making ends meet. People were heavily utilizing at-home practitioner services. With advances in medicine and education, hospitals had a huge overhead and an inability to pay the bills. They were understaffed and underfunded. Enter Justin Ford Kimball, creator of what we now know as Blue Cross Insurance. Kimball realized that if a small, monthly payment plan was implemented, the average person could afford to go to a hospital. For the low price of 50 cents a month, people were afforded a variety of medical services. Hospitals loved it. Citizens loved it. It was a win-win!

But, over time, the implementation of health insurance proved to be an absolute nightmare. Why? Because their interventions destroyed the natural ebbs-and-flows of a free marketplace. Supply and demand were no longer a direct cause and effect, and anybody that understands economics knows that a marketplace cannot be corrected if there isn’t a linear and direct line between supply and demand.

As Jacques Vorhees describes in his analysis Shooting Old Yeller: Why It’s Time To End Health Insurance, “Price is critical in a functioning marketplace because it constantly sends signals (messages) to consumers and producers. It’s what keeps supply and demand balanced. And most importantly, it’s what enables competition, which keeps prices low. If price is removed from the marketplace, all hell breaks loose.”

What insurance companies did was create a middle-man to intercept negotiations and prices. Disguised as a way to help keep costs low (which, in all fairness, was probably what Kimball intended when he came up with the brainchild), the implementation instead allowed doctors and hospitals to increase their prices by exorbitant amounts.

Think about it: if you owned a clothing store and sold a pair of shorts directly to a customer, you probably would decide on a price range that factored in wholesale cost, rent for retail space, employment overhead, and competitors. However, the key deciding factor for the price point would be largely determined by what the customer could afford. If the customer could go down the street to another clothing store and find similar shorts for the same price, you probably wouldn’t make a sale. Thus, you have to maintain a competitive price point. Otherwise, your store won’t stay in business.

But what if you didn’t have to bill the customer directly? What if there was a third party that had nauseating amounts of disposable income? You could bill the third party and charge whatever you wanted because you knew they would pay it.

The same concept is what has created such a problem with American healthcare. In the old days, the doctor would come to your house and charge a fee. If the fee were too high, you would find another provider, which incentivized doctors to charge fair and realistic prices. Such is the natural cause-and-effect of capitalism that doesn’t have a third party to mess with the mechanism.

Once the market switched to one in which people felt pressure to buy insurance, doctors, health practitioners, and hospitals were suddenly able to charge whatever they wanted. This, in turn, created stricter prerequisites for insurance companies to agree to pay (i.e., not covering pre-existing health conditions). While morally reprehensible, it makes perfect sense from a business stance.

Suddenly, health insurance companies started enforcing higher premiums, deductibles, and copays (along with a long list of restrictions) to justify insuring a huge portion of the American population. As a result, Americans stopped paying for health insurance and, subsequently, going to doctors. This has resulted in a lot more emergency visits and high-risk procedures due to untreated conditions that might have been prevented had people scheduled yearly exams, physicals, and tests. (Really, we’re not much different than a car. When you don’t keep up on maintenance, worse and more expensive problems come up in the long run).

To make up for the rising gap in medical bills that go unpaid by uninsured, poor, and/or illegal patients, health practitioners and institutions continue to raise their prices, and the cycle of chasing money among the three subgroups continues to manifest with no end in sight.

I certainly don’t have a solution. Health care is never easy, and there will always be “winners” and “losers.” What I am fairly certain of is that the extinction of health insurers would certainly create a checks-and-balance system that would force doctors to drop rates to competitive prices because there would be no “financial cushion.” Good doctors offering fair rates would continue to see patients. Bad doctors with unfair prices would meet the fate they deserve under the free market. The American people would stop going broke for basic health care, and you would see a healthier, happier, more productive society. You would also see a boost in the economy because more money would suddenly be available for spending.

And that is why a truly free market almost always benefits all parties involved.

Now, how do we get rid of insurance companies?

Leave a Reply

Your email address will not be published. Required fields are marked *

Copyright Stella Management 2018, all rights reserved