What is the real cause of market failure in health insurance?

Question

What is the real cause of market failure in health insurance?

Answer 1

This question assumes that there is market failure. So far, Americans have a great deal more choice, flexibility and technology in their healthcare than most other countries. The record shows that smart, regulated markets have worked, at least until the recent spate of large rate increases.  

Also, there is an assumption that we have a pure market for healthcare, when it is well documented that 45% of healthcare is currently government paid for, through a variety of public programs, mostly Medicare, Medicaid and Government employees/retires (including military).

Affordability is the main problem in the system. One reason rarely considered is cost transfer, from public payors who pay below cost, to private payors who pay above cost.

Those who question whether this exists fail to understand the 100 year history of hospital financing in the US, which has always relied on big transfers to make the books balance.  

Basically, the US has an elaborate system of insuring and transfering real costs away from those actually consuming care. Every system that does that, always goes out of control cost wise, eventually.

Central planning using a pure govenment model might help this, but US citizens and particullarly Physicians have, every 10 years for last 100 years, always turned away from this model when push comes to shove. Most are not comfortable with any large institution managing all care, public or private.

We are probably headed for a continuation of our mixed model in the future, with more consumers picking up smaller medical costs and more government picking up hospital, surgical and pharmacutical costs, or at least regulating their pricing.

Answer 2

There are multiple issues.  So I will approach each one separately and as neutrally as I can

The first issue is technology - With all of the cutting edge technological advances in medicine, people can get procedures done to fix problems that were not available in the past.  These procedures cost a  lot of money.  Since the insurers have to pay the bill, the rates go up.

Pharmacueticals - These companies are continually coming up with advances in medicine.  The problem is that most of the rest of the world cannot afford it.  So the Pharmacuetical lobby invests a lot of money in Washinton to protect their profits.  And, we as Americans pay much more than anyone else for their products.  At the same time, the companies have a set amount of time before their products lose their patent, and where generic manufactures can compete against them.  So what do they do, they change the shape, color or some inert ingredient and get the patent extended.

Society - We would rather treat symptoms than solve problems in our body.  If fat, people would rather try a pill than to diet and exercise. So we are really just setting up ourselves for increasing our reliance on pharmacueticals.  People also will run to the doctor for anything that bothers them, rather than just letting mother nature take her course...So we run to the doctor when we get the sniffles and the doctor writes up a prescription.

Doctors - They are so afraid of malpractice lawsuits that they will run an extraneuous amount of tests to rule out all other possibilities when diagnosing.  These tests costs money...The other issue with doctors is that they get "incentives" from pharmacuetical companies to prescribe their products.  My former doctor was nothing more than a drug dealer wearing a white jacket.

Medical Malpractice - The insurance premium the doctors are paying to cover malpractice are causing them to fight for more money from the health insurance carriers, driving up rates.

Lawyers - Need I say more.

In short, most of the problem is from greed and technology.  The solutions are probably going to have to come from new legislation, tort reform, and education.

As an insurance broker, I may have a view of the world that is warped due to my job.  In the past I have voted for Republicans to protect my income.  This time, I have to vote for Barack Obama because I think his program just might work...