Why Medical Insurance?

By Steve Strayer

The medical establishment and most politicians promote insurance as the only viable way to fund medical services. Is that reasonable?

There is lots of hand wringing these days in the medical establishment and by politicians over the "uninsured", those people who choose for whatever reason not to purchase medical insurance. The term, "uninsured" (often almost automatically linked with the word poor, as in "the poor and uninsured") is used as if it refers to some underclass to be pitied or despised as a sort of blight on society. Let's step back, check premises and investigate the reality of the issue. Why have physicians and other medical service providers, who care so deeply about your well being, closed their collective mind to alternative ways to fund medical costs? What benefit do you gain by trading a substantial portion of your income for the promise by some anonymous middleman to cover the costs of any future medical problem you might encounter?

Oops, did I just try to sneak something past you? Isn't medical insurance essentially free for some, provided by "good" employers as an employee benefit? Well, is it really free, or does somebody have to pay for it? Do insurance companies charge premiums for coverage over and above what they pay out for medical services? Does your employer pay these from some separate money bucket, or is it quietly deducted from what they can afford to pay for your work? If it's not clearly listed as a deduction from your stated salary, do you have any idea how much this "free benefit" is costing you? And when you are a customer of a business that provides medical insurance for its employees, doesn't that business have to charge you more to compensate for its employee benefit costs?

Advocates of medical insurance typically attempt to frighten us by quoting price tags for treatment associated with acute long term conditions, implying that insurance coverage gives you something for almost nothing. The unstated truth is that those high quoted prices are almost never actually paid by insurance companies or anybody else. The seldom mentioned fact is that for the vast majority of policy holders the cost in premiums over a lifetime is many times the cost of medical services actually needed and paid for. The reality is that medical insurance adds an additional layer of costs, risks and delays to the delivery of medical services, while transferring decision authority over medical care from the patient to insurance company administrators. If I want medical services of any kind and have no insurance, I simply visit the provider of my choice, receive the services under mutually agreeable terms, and pay the bill. If on the other hand, I want services covered by medical insurance, I must visit a facility approved by the insurance company and after an evaluation; wait for negotiations between the provider and the insurance company, live with whatever decisions they make about my case, and hope the insurance company eventually pays the bill as promised. Only a small fraction of the money paid to insurance companies in premiums is used to pay for medical services. Most of the money is consumed by overhead, taxes, corporate profits, and labor costs for sales people, administrators, attorneys and executives. My rough estimate is that insurance multiplies the lifetime medical costs for a typical family by four times at least, while reducing the quality of service to patients.

Why does the medical establishment have such high regard for insurance? I probably don't know the complete answer, but I'm pretty sure it has very little to do with altruistic concern for you and me. I believe the following are some of the benefits to the medical establishment from your insurance dollars.

• More business and higher profits for providers. Insured patients are more likely to submit to unnecessary or overpriced medical services since they don't pay them directly.
• Insurance companies can serve as scapegoats when patients are dissatisfied with services.
• Insurance allows providers to avoid unpleasant decisions about treatment for individual patients based on the uncertainty of payment; and allows providers to avoid uncomfortable discussions with patients over financial issues.
• Insurance helps established medical service providers discourage competition from new or innovative providers. Insurance administrators would likely favor the status quo over what they would view as risky new procedures.