The Health Insurance Scam

No one in either party has the guts to do what needs to be done to fix health care: remove the middleman. Get rid of "health insurance" and "health maintenance organizations." Eliminate everything but catastrophic care coverage.

I know: I'm a maniac. I'm insane. How can I possibly say that?

I can say that because, once upon a time, I worked as a patient accounts administrator at a major hospital. No, I'm not proud of it, but I was young, and I needed a steady job. My job was to collect money from insurance companies that had already agreed to pay. To do that, I had to know how each and every plan worked.

The thing about using insurance companies to manage our health care system is that the concept is stupid.

in·sur·ance: coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril

Insurance is supposed to be a hedge against possible loss; for example, your home. The insurer is betting that your home won't be damaged. They collect fees from a lot of different people, but only a small number will ever need to collect. That's called "spreading the risk." More money comes in as premiums than goes out as claims.Not everyone will need to collect, so premiums stay low.

Originally, the only health insurance was basically catastrophic care coverage. Not everyone will need catastrophic care; not everyone will have a health crisis of such proportions that they will need a prolonged hospital stay. It's a sensible risk to insure against this kind of health care need.

But everyone gets sick at some point; a cold, or the flu. A cat bite. And virtually everyone will need to see the doctor on some sort of regular basis; for exams, or minor injuries such as cuts, sprains, and even broken bones. For this kind of need, the risk can't be spread, because everyone is going to file claims. So they have to get the all money to cover the individual from the individual.

Look at it this way: once upon a time, an exam cost you $50. You chose the doctor, he collected the fee. 2 people, no middleman. You got $50 of value, and the doctor earned $50 for that amount of service. Everyone is happy.

Then insurance companies got in the game; they collect the money that would otherwise be used for your medical care through the year from you (or your employer, or both of you), and they pay for the care for you. For them to make money, they have to pay out less money than they collect from you.

If they take your fifty and pass it to the doctor, there's no profit. So they start with the doctor: 'let us keep $5 of the 50, and we'll send you 20 additional patients; you'll make more money." Well, that seems OK. More business at a smaller profit, you make money on volume.

Then they turn to the patient and say, "Hey, we're covering most of the cost, so you should kick in $5. That's fair, isn't it?

The insurance company is now collecting $10 on each exam, your doctor making $5 less per exam and works more to make it you, and you're paying an extra 10%. Oh, did you miss that part? Remember, once upon a time, that $50 was yours; but now it goes to the insurance company first. Still your fifty bucks, only now you're "co-paying" another 5 bucks. Sucker.

Next year, the insurance company claims the cost of the exam is now $60, your "co-pay" is only $6, and they pay the doctor $43 dollars, but send him another 10 patients.

This is were it gets good:
Your doctor is now seeing a lot more patients; and you suddenly are waiting a long time to see him, because he's running behind. He's mildly apologetic, but look, here's all these patients!

Since you can't get satisfaction from the doctor, you complain to the insurance company: you're paying all these premiums, and you're waiting around for care. So the insurance company goes to the doctor and tells him that he must meet Quality Assurance guarantees: if a patient waits more than a half hour for the exam, they'll deduct 10% from his fee. And to help him maintain Quality Assurance, he'll need to hire a Quality Assurance Nurse at his cost. But to make up for it, they will guarantee to send him at least 200 patients a week for exams, and make him a Preferred Provider physician. Of course, to do this, the doctor must spend much less time with each patient, and must get patients in and out much more quickly. He hires a couple of medical technicians to measure blood pressure, respiration, and so on.

The insurance company creates a new level of service; for a mere 15% increase in premiums, you'll have access to the doctors on the Preferred Provider system, with guaranteed shorter waits.

That $50 exam used to include everything; but now that the doctor is only collecting $35 (he's paying a QA nurse and 2 medtechs now), he's charging additional fees for urine tests and bloodwork. Your insurance company raises your premiums 3% to cover that. That's 3% for the entire package, by the way, not on the cost of the visit. And they add a buck to the "co-pay."

But that's for people with insurance: what happens to those without?

Well, we start from the $50. Add $15 for the additional staff. Add $20 for the lab fees. that's $85. Oh wait, the last contract he signed iwth the insurance company states that the billed rate to the insurance company will be 40% of his usual rate, so the new rate for people without insurance will have to be $107, so he can meet the terms of the contract.

And that's why health care costs are so damn much.

What? Oh of COURSE this is waaaaaaaaay over-simplified. It's an example. There are many other factors, too: new techniques and technologies. But all of them have become inflated in a manner consistent with this example.