Feb 1st, 2006, 11:09 PM
Ok, so the question was "Why do healthcare costs keep rising?"
I couldn't possibly explain that completely, but I can at least attempt to make a half-assed pass at it. Insurance companies, in general, have established a pretty bad habit of selling themselves into various holes for various reasons on a regular basis. The insurance market operates in hot and cold cycles. Currently, one of these cycles takes about seven years, and we're in the profitable part of this cycle.
During the hard market portion of each cycle, the less profitable part, the total cost of claims paid by the companies rises. This is linked to downturns in the larger economy, which raises the somewhat sad prospect that people generally make more insurance claims when money is tight. I say that's sad because of the more plausible of the two explanations for this non-coincedence: either when people are fat with cash they don't worry so much about turning in valid claims... not likely... or people find it easier to commit fraud when the chips are down. That's sad.
Anyhoo, we're not talking about tragically flawed people so much here as we are insurance companies. When claim costs go up, prices follow. The competition is fierce, so we are talking about delicate adjustments here that make or break companies that have been around forever. Generally speaking, the peak of the claim/price upturn includes at least a little bit of time where the companies lose money. Right after the peak, however, claims go down and everybody breathes out with relief, wiping the sweat from their brows.
What happens next is what screws the whole thing up. There is a period of time when claim costs have fallen and the companies recoup and reload. Advertising budgets are recharged, and new marketing ploys come out of the woodwork...
Let me back up a minute. Let's talk about the basics of insurance. The soft chewy center of insurance is the concept of indemnity: Since insurance is all about unexpected accidents, one should never expect to be made more than whole, financially, by whatever financial catastrophy has been experienced. If I wreck my $2k car, I should not be paid a penny more than $2k for my loss, right? That's an over-simplification (and not that good of an example,) but the principle is a very important thing to understand, as the violation of it is what has really done the bulk of the work behind our "Health Care Crisis."
At least as I'm gonna tell it to you, anyways. A lot of folks might explain the whole thing as something the government caused by legislating mandates on policies, such as the ever popular "My insurance policy covers me for pregnancy even though I'm a single guy because those idiots in my state legislature stuck their noses where they didn't belong!" There's some truth to that, but being a person that has already been caught railing against the inherent and incredible inefficiency of government, I couldn't very well sit here and say government somehow became good at something, even if it was wrecking a private industry, could I?
While there is a lot of culpability for government interference, even a bit of conspiratorial jibber-jabber to be mumble-mouthed, let's look at what the industry big-wigs... the fat-cats... did to make their own beds...
We were right where the money faucet turned itself back on in any given insurance profit cycle. The war-drums of competition reaches a feverish pitch as the roller coaster car edges up to the upcoming fall in prices. Got that? Prices fall, but more and more profit is made by those that cut their prices at exactly the right moments. Remember all this the next time you hear an insurance company claim they ALWAYS have the lowest prices. It's much more likely that somebody somewhere is always cheaper.
The problem arises out of the marketing department. Some jerk unfailingly pushes through some stupid new "feature" for a perfectly good policy that violates the principle of indemnity. Some of you that have recently been involved in the repair of a car covered under "full-coverage" insurance might have heard somewhere in this process of a new thing called "Diminished Value" or something like that. This is the little extra the company pays you for the decrease in price your fully repaired vehicle will fetch were you to sell it. That's not the kind of thing I'm talking about. Diminished Value squares pretty well with indemnity, as you get paid for something you actually lost.
Think about your own health insurance policy if you have one. It is, just like the more familiar policy I keep using as an example, based in the principle of indemnity. You should never get paid back for more than you lost in a financial accident. Right off, I bet you can see how these two policies, that for your car and that for your health, don't seem very similar at all with respect to indemnity. In reality, they are twigs off the same branch of the larger tree... They both cover high frequency claims that we all know are gonna happen. Your house may never burn down and you might never get robbed, but you will get sick and chances are you will someday experience a car accident.
If you made it this far, you might be wondering how all this meandering and tangential insurance talk might somehow be explaining rising healthcare costs. Generally speaking, how do you figure the vast majority of healthcare costs are paid? Health insurance claims, right? We have been conditioned to believe that paying a $20 copay for a check up is something entirely different than a car wreck, but it really isn't.
See, I'm really trying very hard to distill this down as much as possible. I hope the things I'm leaving un-typed are obvious to those still following along. Marketing folk at the company level, flush with fresh budgets and driven to sell more policies, work very hard to give customers more than indemnity allows, sometimes succeeding in each soft market cycle. Each cycle leaves the core principle of insurance more tattered.
Add to that the regular influence of outside pressures on indemnity, and the industry becomes more and more fucked. For example, you may have heard of asbestos. The power of the legal system was brought to bear on insurance companies when asbestos was found to cause cancer. Asbestos was everywhere at the time. Laws were changed and suits were won and then asbestos claims became very expensive. Then there was lead paint, followed by polybutylene pipe, now mold.
Again, I'm using a different type of insurance to explain health insurance. It's a bit easier that way. I hope it's not harder to understand. See, were I to explain all this using examples from health insurance, I would be talking about entitlements you all have been conditioned to believe are yours by right. When we discuss car accidents, we think about faked neck pain... and we're only talking about a material possession, right? Not a life. Suppose I brought up coverage for a normal, healthy pregnancy. I would be attacked for suggesting that this should not be covered under an insurance policy. Should it? Is a pregnancy a financial accident? Should it be considered to always be so?
Again, I'm leaving a lot out. I'm assuming we are all already familiar with the standard excuses for rising healthcare costs, such as pharmaceutical R&D costs and malpractice suits. Despite my avoidance of the government interference angle so far, there's also a lot to be said about the need of Socialized Medicine being a self fulfilling prophecy that's been actively helped along at the expense of our health and wallets.
I've said a lot to start answering a simple question. I'm not even sure if Blanco was just fishing for the left-side of the excuse engine, so I'll back off and open the floor now.
HAVE A NICE DAY.
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