March 6, 2009

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.


  1. Well put! This really nails it! The only difference from real life is that the amounts involved are way more. And my co-pay is $30 (major sucker!)

  2. Yes, the amounts are now MUCH higher, but the concept hasn't changed.

    Thanks for reading!

  3. This reminds me of the Federal Reserve and the Income Tax in some ways.

  4. I was doing some figuring for dental insurance from a quote on an insurance site, and as I need 3 crowns at about $1000 each, I'm better off paying out of pocket and having no waiting period/deductible/monthly payment than going with one of the health insurance companies who would charge $117 a month, $50 deductible, have a 12 month waiting period on crowns AND have a max benefit per year of $1000. I'd save at least $500 and a year of waiting by paying out of pocket, which is what I do since my 2 jobs don't offer insurance.

  5. Interesting. No talk about what non-government, business, value added and/or innovation health insurance companies offer. It's zero. They don't improve health care techniques, meds, research, devices, education, etc. etc. It's impossible to compare plans even if one has several to pick from. So "competition" is non existent. Problem is, politically can't fix health care because can't get rid of the insurance lobby and industry (lots of workers there). Answer is to somehow phase out private insurance over some years. Haaaa!


  6. "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"

    I didn't understand this part. If you are not insured why would the doctor's contract be relevant?

  7. I didn't understand this part. If you are not insured why would the doctor's contract be relevant?

    Because whatever he bills the insurance company, he has to bill you 60% more, or he's violated his contract. Since every insurance company arranges a discount, he can't base his rates on that, so he has to base it on what he charges uninsured patients. And since he still has to have a profit in there (since the majority of his patients are insured), he has to first set what he's charging the insurance companies, and then build up from their to create the "base rate."

    You've fallen into the same trap that everyone falls into: in every other business, you discount SMALL groups to lure ADDITIONAL patronage. You don't discount the majority of your patronage, because you don't need to. But the insurance lobby has turned that topsy-turvy, and the present health care crisis is the result.

  8. Great article. I would consider going without health insurance and just have a good life insurance policy. Eat well, get good exercise, and see a doctor in just emergency cases. Don't forget the drug industry feeds the doctors with new drugs to prescribe that gets people hooked on 1 to x drugs on a MONTHLY basis with regularly scheduled follow-ups. Once again, don't let insurance, doctors, and big pharma run our lives. It's better to be dead with a family collecting on a big insurance policy than to support welfare for these greedy industries.

    Sick and Feed-Up of Healthcare

  9. I am very angry, please excuse my language, but we really need to overthrow our government. because it is to corrupt and it does not matter what party you choose its all the same. I was supposed to have good medical from the company i work for. I have to pay the hospital over four hundred dollars. for visits that i shouldn't have to pay for and that's through blue cross. what a joke. If i could i would kill them.

  10. Well stated! Insurance Cos. are a scam! An unnecessary middle agent taking it's "paper-pushing" cut out of doctor's pockets. We all need to stop paying them... easy to conceptualize, hard to actualize due to fear. Being capitalists we should know not to give our money to InsrnCons... No money, No power!

  11. This is so true.

    If you wanted a grasp of what the true cost of a proceedure ask a veteranarian what the cost of the same proceedure on an large animal would be.

    Hint a 10 CC vial of injectable cocain for my horse 15 years ago was $19.00

    We have allowed the system to become so corrupt that we can afford to give our pets treatments that we ourselves cannot afford.

  12. True.... i am almost certain though that we all have some form of insurance. The government is corrupt... find me one on the globe that isn't. This is what the world has come to. I did not have private health insurance until the birth of my son. Quite honestly i would feel useless as a mother if the doctors could not help him because his mother did not take out any cover for him. Insurance is an intangible product and the money we pay is hard to part with for that reason. Whether its health, ambulance, motor... home... the world is a nasty place. No money no care in the case of health insurance or ambulance cover. As for motor.... i won't even get into that but what happens if i hit a $300 000 Ferrari? And my home, all the things i have been working hard for all my life... I don't believe this is about the government. Its what the world has come to. We accept the system it comes with its perks and pricks...

    1. The government is corrupt? In part, yes. But sounds like the health insurance business is also very corrupt.

  13. Im already ticked about insurance lies. This article, informative indeed, just jump-started that fury again, but are there any real answers or alternatives to paying rich thieves? I need some hope.

  14. This is a great read. I am currently in an Health Insurance battle with the small roofing company i work for. The Insurance cost have skyrocketed. I make $15 dollars an hour and i have this company insurance dealer telling me that i have to pay $273.00 a WEEK for a family plan. Scence my now wife and step daughter have been taken off of medicaide because we now make too much combined money. they tried to rush me into this plan. so i cancelled it all. i am now takin $150 a week and saving for a few months and plan on investing. i will then take this money and put it into an account along with any gains from the investment. you see in 3 years i have been to the doc aprx 4 times and have paind the health insurance company close to $12,000 dollars in that time. where is the rest of my money? at least this way i can see my hard earned money work for me. at least for now. oh yea by the way the company insurance agent lives in this huge million dollar home.


    Health insurance companies, in an effort to contain costs, may decide to drop coverage for an insured patient whose care is more expensive than they want to pay. That is called health insurance policy rescission.

    Once the patient becomes sick, the insurer will carefully review his or her original application for coverage, find (what they consider to be) a discrepancy, then will claim the insured patient lied on his or her application. That gives the insurer legal permission to drop the claim.

    Problems develop for patients who have not intentionally lied on their applications, and for whom the insurer finds discrepancies that don't relate. For example, in a case in Texas, a woman's coverage was dropped after she developed breast cancer. The insurer rescinded her coverage by claiming she failed to disclose a visit to a dermatologist for acne - clearly unrelated.

    Further problems develop for patients who have paid premiums for a period time, but then have their coverage dropped after they get sick. The insurer doesn't bother reviewing the policy until after the person has been paying into the system. They are collecting money, but then not providing their promised services.

    I am having a problem with Emblem Health Care and the calendar they use. It seems they are using a calendar that goes back in time. Unfortunately my calendar only goes forward or else I would be at OTB every day betting on yesterday’s races.

    HIP canceled my health insurance policy and did so retroactively. They sent me a form letter dated May 30 2011 telling me my health insurance is canceled as of May 1. Yet they billed me and I made payments for the months of May and June.

    To complicate matters I was on the cholesterol lowering drug vytorin for years with no problems. Then in March 2011 HIP stopped covering vytorin until I tried other cheaper drugs first. I have been having problems with these new drugs and failed my last blood test.

    I have enclosed a copy of the prior approval I was granted to go to my primary care physician to discuss my blood test and have a routine exam. Note its’ Dated May 13 2011 a Friday and my Doctors appointment was Monday May 16 2011.

    Also enclosed is a copy of HIPs notice it is canceling my insurance as of May 1 dated May 30. I received it June 3 2011. Please note May 30 2011 was Memorial Day. Finally I have enclosed copies of HIPs refusal to pay and my Doctors Demand for Payment.

  16. I refuse to have medical insurance. I haven't for 10 years. I am married and have 5 kids and we have come out ahead every year. Most people are very uneducated about this issue. People need to take a stand against this, keep their money in their pockets and stop feeding this monster. Fairer systems will emerge!

  17. Finally an "insider" who takes off the gloves! Who is responsible for the $50 cotton swab? - insurance companies! You also forgot to mention the drastic amount of the doctor's income that they collect in malpractice insurance! The medical community is as varried as the patients! A family doctor is middle class, while some specialists retire as multi-millionaires after 10-15 years of practice! 100 years ago they were working for chickens or for room and board!

  18. It makes more sense to just calculate what you would ordinarily pay for your premium and just put that amount into a separate savings account so it will be there when you need. You pay more as you go along each month than you would going for a routine check up and paying out of pocket. We don't even have real healthcare in this country; we have sick care. Even if a company pays for--say a heart attack--they will then jack your payments up so high, that you are going to pay for it one way or the other or go broke trying. It would've. Made more sense to save that money that you payed them for years and have it accruing interest so it'll be there on the chance that you need it. It's a gamble, but so is being insured. Being insured you pay all this money to the company every month, but only use it maybe once year. Then years down the road, when something big does happen (heart attack or stroke), it's a gamble whether or not the company will pay everything. If they do, it's a gamble that there that they jack your payments way up and make you go broke. Meanwhile that money that you payed them for years could have been saved and accruing interest just for you, and you may never even have anything happen to you.