I have talked about he financial motivations of doctors and hospitals, it is time to discuss another major player, the insurance companies.
They are now public enemy number one.
Stories of insurance companies abandoning people with serious diseases, bankrupting families, cheating doctors, denying care that kills patients, and constantly inventing new ways to steal more money, fill the media.
Such bashing obscures the real role they play in the healthcare industry.
What is their real economic role? They are neither the provider, nor the consumer of healthcare, they are a middle man, providing a service that simultaneously connects buyers and sellers.
They amalgamate and spread risks, to insure that obligations are met, for this they take a percentage fee.
In other words, they can be thought of as glorified bookies, whose main goal is to make a market, without losing their shirts.
The key point, which is generally not appreciated, is that the insurance companies, by working on a percentage, have an enormous incentive to increase costs.
Raising costs mean more money for them, just as increased betting activity means more money for the bookie.
As we previously discussed, doctors and hospitals have the same incentives, increasing charges and number of procedures.
Rather than being enemies, over the past 60 years, insurance companies, doctors, and hospitals have colluded, knowingly or not, to increase overall charges for medical care.
The collusion is further abetted by the way we pay for healthcare, most fees are paid though the workplace or by Medicare taxes, which spreads costs over a large number of businesses and taxpayers cushioning the financial impact on the groups that consume the care, removing the economic forces that might restrain spending.
Of course, like all Ponzi schemes, eventually the game ends, and that is where we are now.
The costs have gotten so large, and the impact on business and taxpayers have become so great, that push back has begun.
Insurance companies now have one goal, and one goal alone, to survive.
Economically, their role can easily be replaced by the government, or by non-profit purchasing groups, both concepts were suggested and rejected during the debate on Obamacare.
They are an endangered species, and they will not go without a fight.
They are now public enemy number one.
Stories of insurance companies abandoning people with serious diseases, bankrupting families, cheating doctors, denying care that kills patients, and constantly inventing new ways to steal more money, fill the media.
Such bashing obscures the real role they play in the healthcare industry.
What is their real economic role? They are neither the provider, nor the consumer of healthcare, they are a middle man, providing a service that simultaneously connects buyers and sellers.
They amalgamate and spread risks, to insure that obligations are met, for this they take a percentage fee.
In other words, they can be thought of as glorified bookies, whose main goal is to make a market, without losing their shirts.
The key point, which is generally not appreciated, is that the insurance companies, by working on a percentage, have an enormous incentive to increase costs.
Raising costs mean more money for them, just as increased betting activity means more money for the bookie.
As we previously discussed, doctors and hospitals have the same incentives, increasing charges and number of procedures.
Rather than being enemies, over the past 60 years, insurance companies, doctors, and hospitals have colluded, knowingly or not, to increase overall charges for medical care.
The collusion is further abetted by the way we pay for healthcare, most fees are paid though the workplace or by Medicare taxes, which spreads costs over a large number of businesses and taxpayers cushioning the financial impact on the groups that consume the care, removing the economic forces that might restrain spending.
Of course, like all Ponzi schemes, eventually the game ends, and that is where we are now.
The costs have gotten so large, and the impact on business and taxpayers have become so great, that push back has begun.
Insurance companies now have one goal, and one goal alone, to survive.
Economically, their role can easily be replaced by the government, or by non-profit purchasing groups, both concepts were suggested and rejected during the debate on Obamacare.
They are an endangered species, and they will not go without a fight.
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