The High Cost of Health Insurance – Explained

The High Cost of Health Insurance – Explained

One of the frequent debates I run across with people when discussing healthcare reform is the common misconception that Free Markets (profit) caused health insurance, and thus healthcare, to become expensive beyond reach for most Americans.

On the contrary, it wasn’t free markets at all, but rather government meddling, that caused America’s Healthcare cost woes.  But to understand this, one must delve into the history of health insurance in America. 

My friend, Dr. Paul Hsieh, does a phonemenol job of documenting this history, in his white paper, Moral Healthcare vs. “Universal HealthCare”.

This document provides an incredibly detailed picture of the historical events dating all the way back to the Great Depression, that led us to rampant healthcare cost inflation. Very few Americans and non-Americans have a clear understanding or picture of these historical events and thus, naturally conclude that free markets are evil, uncaring entities that leave fellow citizens to “die in the streets”.

A brief excerpt from Dr. Paul Hsieh’s writing creates an analogy to describe the common sense outcome of what would happen to homeowner’s insurance, if we used it in the same way that we use health insurance :

“To understand this, consider that homeowners generally pay for their own house maintenance such as lawn work, painting, and remodeling. Routine maintenance is not covered by homeowners insurance; only damages resulting from a tornado, fire, vandals, or some other catastrophic event are covered. But suppose the government suddenly decreed that it would exempt from income taxes any money spent on homeowners insurance. This would reduce taxes for insurance-paid repairs. Accordingly, people would seek insurance policies that cover routine home maintenance, such as painting, carpet replacement, and fence and deck maintenance—and insurers would provide them. Although these new policies would cost more, they would seem on the surface to be a bargain because homeowners would be spending untaxed dollars. Demand for home repairs would skyrocket. More money would be spent on home maintenance, and the cost of home insurance would quickly outpace that of other goods and services. To remain in business, home insurers would limit coverage for more expensive repairs. Simultaneously, to curry favor with their constituents, politicians would seek mandates to expand coverage, and, of course, they would demand further regulations to make sure that poor homeowners had “access” to homeowners insurance. This is precisely what has happened with health insurance.”

Believe it or not, routine healthcare and chronic healthcare is incredibly affordable when it’s not insured, and when it is provided in the free market (meaning that the actual consumer of the care pays for the care – not an insurance plan or the government).  And when insurance plans can mitigate the risk of pre-existing conditions and not have to pay super-inflated prices for routine healthcare, like lab, chemistry, or a physical, they suddenly become very affordable too, providing peace of mind for the statistically unlikely catastrophic medical event.

Compare the charges pictured below from a hospital to an insured patient vs. the cost of the same services, provided from a direct primary care (DPC) doctor, Epiphany Health, that takes direct payment from the consumer.  Imagine what the total annual spend per person in America would be if everyone used direct primary care instead of insurance to pay for routine healthcare. I don’t think even Canadians would be able to boast such low costs. Is it really morally superior to impose a $10,000 tax on your neighbors (Canadians consistently remind me their care costs about half what we pay for our hospital charges) than pay out of your own pocket in the free market for something that would really only cost about $280?

Hospital Cost billed to 3rd party payer vs. Free Market Cost for same procedures

I’ve often been told by Americans and non-Americans alike that free market healthcare is immoral, and that we should do what every other “developed country” does and adopt a single-payer healthcare system, where the government pays for, and thus controls the healthcare system, providing “equal and excellent” quality care to all fellow citizens.  But is the quality really “excellent ”? Read some of these stories on Twitter, #Canadawaits.  (If you’re Canadian, you will presumably tell me that these cases are ‘anecdotal’ and not representative of your system. You’ll tell me I need to so some research, which you’ll assume I have not done).  I suppose universal healthcare is perceived to be “excellent care”, when you’ve never been exposed to free market healthcare before.

Canadian Healthcare 

“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” — Winston Churchill

Direct Primary Care (Free Market Healthcare)

But once you’ve had a taste of what free market healthcare is like (especially if you’ve been on a wait list), then, like me, you’ll just want to share it with everyone, and you’ll want to find ways to expand it.  After all, a rising tide raises all boats, like a booming economy raises people from poverty, like affordable, high-quality healthcare becomes accessible to nearly everyone, while freeing taxpayers to use their money for other worthy causes, such as providing charity to family or those in need (ideally a very, very small segment of society in a free country).  Oops, did just I say “nearly” everyone?  (oh, the hypocrisy)! Yep, that’s right, I said, “nearly” everyone.  In a free economy, there is  some inequity, but, free market healthcare would be accessible to the masses, without the negative consequences of taxation or the need for health insurance for routine medical expenses.  Catastrophes would be covered by affordable “True” health insurance, without the requirement of extorting hard-earned income from your neighbor.  For the very small number of poverty stricken households, charity and safety net programs will provide equally good care, without the worry of waiting or government restrictions.

How Healthcare Should Be

We do not have free markets for healthcare right now, in America.  Wait!  What?? There are small pockets of free market healthcare popping up here and there, but what an amazing thing it would be if free markets in healthcare were the norm.

A lot of changes would need to be made in America to achieve the goal of free market healthcare.  The necessary changes are discussed in this Kindle book, written by Dr. James Brook.  It’s no simple matter, but it can be done, if enough people are willing to take the time and learn about the things that got us into our healthcare cost predicament in the first place.

If you want to learn about single payer healthcare, whether or not you should vote for it, or if you want to learn about American Healthcare history, I implore you to take the time to read the recommended books and white papers provided to you for free on this blog.  You’re a voter.  Learn before you vote!

Mandatory Coverages and The Cost of Your Health Insurance

A common theme we run across in our health insurance agency is the lamentation of days gone by, when premiums were low, deductibles were only $250, prescription co-payments were no more than $2 and office visit co-payments were no more than $5.  Clients remember the good old days, and really cannot comprehend how health insurance premiums haven risen so dramatically over the past 20 years.  My husband, Scott, who is also the President of our health insurance agency has a great way of explaining this to our clients, and I’d like to share it with you.  He always draws these great umbrella pictures to give our clients a visual of what has happened.   Below is my attempt at replicating his lovely artwork.  I hope you can see it well enough:

My drawing is quite simple, and there’s really a lot more to this, but as you can see, there are a lot more services being covered under today’s plans when compared to the “old days”.  If today’s deductibles were only $250, insurance premiums would be out of reach for most people.  But, we as consumers demanded it.  We wanted the latest and the greatest technology to be covered by our insurance, and with that comes a cost.  It’s not just technology that has changed and added to the cost of coverage, it’s the mandatory “benefits” we must purchase, whether we want them or not.  Our heavily regulated health insurance industry dictates “mandatory benefits” both at the State and Federal level….benefits we cannot opt out of, even if we don’t want or need them. Some of these include:

  • Maternity Coverage
  • Pediatric Dental and Vision Coverage
  • Gastric Bypass Surgery
  • Infertility Coverage
  • Mental Health Coverage
  • Drug Addiction and Abuse Coverage
  • Preventive Care at 100%
  • Contraception at 100%
  • Chiropractic Services
  • Coverage for Autism
  • ….the list goes on and on……

Back in the “old days”, consumers could choose not to have maternity or mental health coverage, and pay less for their plan, for if they didn’t feel they were at risk for mental health disease and wanted to risk going without mental health coverage, they could!  This is not an option anymore; and with the passage of the Affordable Care Act, the list of mandatory coverages has grown!  You might wonder why this is happening. Well, now that we have a healthcare system where everyone is required to have health insurance, and pre-existing conditions cannot be excluded from coverage, the government must step in to determine the minimum level of coverage that everyone must have.  Of course, it wouldn’t be fair if I was sicker than you, and had to buy a more expensive plan to cover my needs, so everyone in the pool must now have the same benefits.  This is called “minimum essential coverage (MEC)”. When the government is in charge of the definition of MEC, of course, lobbying groups from every type of health care sector want their product/service to be part of the mandatory MEC, and they are often successful.

The best article I’ve ever seen on this subject was written by my friend, Dr. Paul Hsieh.  I really encourage you to read it:

Mandatory Health Insurance: Wrong for Massachusetts, Wrong for America

Every state in the union is required to have a “Benchmark” Plan, and that plan defines the minimum level of coverage that must be included in all plans sold in your state.  Here is a link so you can view the benchmark plan for your state.  Believe me, it’s eye opening, and explains a lot as to why our insurance is so expensive these days.

Benchmark Plans – All States

I wrote this entry in an effort to communicate with the average Joe about why health insurance is so expensive.  Knowing why is step 1 towards finding a solution.  If you take away from this something you didn’t know before, then I have done my job!

What can you do to be a part of the solution?  If after reading this, you have something to say to your local representatives, please let them know your thoughts and ideas.

Contact Your Representatives

The following webpage goes into great detail on current legislative issues revolving around healthcare, and within the links, there are forms to find your elected officials.  Visit the following link to stay abreast of Health Care Reform and the legislative issues surrounding Health Care Reform:

Legislative Issues and Health Care Reform