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Why doesn't the American market provide efficient and effective health insurance like it does for car insurance?

Car insurance is relatively simple. I shop around, telling them how much coverage I want. They request my driving history, and give me a quote. At any time, I can shop around and change insurance policies without any problems. Once it’s time to collect payment, it’s a relatively simple matter. What makes health insurance so difficult, controlling, unreliable, and expensive? For example, with health insurance:

  • Can only shop during a specific enrollment period
  • Policies are so complex, the vast majority of the population can’t understand them
  • It’s commonly provided in part by the employer because buying a policy otherwise is prohibitively expensive
  • Insurance companies are notorious for denying payments
litchralee , (edited )

At its very core, an insurance company operates by: 1) pooling policyholder’s risks together and 2) collecting premiums from the policyholders based on actuarial data, to pay claims and maybe make a small profit. But looking broader, an insurance market exists when: a) policyholders voluntarily or are obliged to obtain policies, b) insurers are willing and able to accept the risks in exchange for a premium expected to support the insurance pool, and c) the actuarial risks are calculable and prove true, on average.

The loss of any of A, B, or C will substantially impact a healthy insurance market, or can prevent the insurance market from ever getting started. For some examples of market failures, the ongoing California homeowner insurance crisis shows how losing B (starting with insurers refusing to renew policies near the wildland-rural interface) and C (increase in insured losses due to climate change) results in policies becoming unaffordable or impossible to obtain.

As a broader nationwide example, an established business sector that operates wholly without insurance availability is cannabis. A majority of US States have decriminalized marijuana for medical use, and a near-majority have legalized recreational consumption. Yet due to unyielding federal law, no insurer will issue policies for marijuana businesses, to protect from risks that any business would face, such as losses from fire, due to a product recall or product liability, or for liability to employees. These risks are calculable and there’s a clear need for such policies – thus meeting criteria A and C – but no commercial insurer is willing to issue. Accordingly, the formal market for cannabis business insurance is virtually non-existent in the USA.

With these examples, we can see that the automobile insurance market meets all three criteria for a healthy market, but it’s how these criteria are met which is noteworthy. Motorists in the USA are obliged to insure in every state except New Hampshire and Virginia: it is a criminal offense to drive a car without third-party liability insurance, meaning the motorist might spend time in jail. Note: NH and VA won’t send a motorist to jail, but they do have administrative penalties for driving without “financial responsibility”, which includes insurance or a bond at the DMV.

The exact requirement varies per state, with some requiring very low amounts of coverage and others requiring extra coverage like Personal Injury Protection (PIP, aka no-fault insurance). The point is that criteria A is easily met: motorists want to avoid jail, but also want to avoid the indignity of being sued after having caused a road incident, in addition to protecting their apparently only viable mode of transportation.

Insurers can take into account the overall trends in national risks trends for automobiles (eg new car safety, through the Insurance Institute for Highway Safety, IIHS) as well as local or hyper-local risks (eg hail damage in the southeast, property crime in a particular zip code). And as a large country with nearly as many cars as people, many insurers are willing to meet the demand. This satisfies criteria B and C.

So well-organized is the automobile insurance market that you could almost say that it’s vertically integrated: the largest nationwide insurers have contracts in place with every dealership network, auto collision chain, new and used parts dealers, as well as automatic data sharing with state DMVs, plus with firms like CarFax that buy information. Despite each state being slightly different, the insurers have overcome and achieved a level of near uniformity that allows an efficient market to exist.

Things are drastically different for the American healthcare system and for American health insurance companies. While most think of their healthcare provider as a national name like Anthem Blue Cross or Kaiser Permanente, the reality is that each state is an island, and sometimes counties in a state are enclaves. Even federal programs like Medicaid and Medicare are subject to state-level non-uniformities. For example, hospitals can be either privately operated (eg religion-affiliated, or for-profit) or run by a public entity (eg county or state), and can exist as a single entity or form part of a regional hospital network. Some entities operate both the insurance pool as well as providing the health care (eg HMOs like Kaiser Permanente) while others dispatch to a list of contracted providers, usually being doctor’s own private practices or specialist offices.

With so many disparate entities, and where healthcare is a heavily-regulated activity by each state, the cost of insurable risks – that is, for routine healthcare services – is already kinda difficult to compute. Hospitals and doctors go through intense negotiations with insurers to come to an agreement on reimbursement rates, but the reality is that neither has sufficient actuarial data to price based on what can be borne by the market. So they just pass their costs on, whatever those may be, and insurers either accept it into their calculations, or drop the provider.

Suffice it to say, there are fewer pressure to push the total cost of healthcare down, given this reality, and more likely prices will continue to climb. This fails criteria C.

financial flow in the US healthcare systemSource

Briefly speaking, it’s fairly self explanatory why people would want health insurance, since the alternative is either death or serious health repercussions, paying out-of-pocket rates for service, or going to the ER and being burdened by medical debt that will somehow haunt even after death. Criteria A is present.

As for Criteria B, that was actually resolved as part of the Affordable Care Act (ACA). During discussions with the drafters, insurers bargained for an obligation for everyone to have insurance (aka the individual mandate, bolstering criteria A), in exchange for an obligation to issue policies for anyone who applies, irrespective of pre-existing health conditions. Thus, Criteria B is present for all ACA-compliant policies in the USA, even though the individual mandate was later legislatively repealed.

So to answer your question directly, the costs for healthcare in the USA continue to spiral so far out of control that it causes distortions in the health insurance market, to everyone’s detriment. Specific issues such as open-enrollment periods, employer subsidies, and incomprehensible coverage levels all stem from – and are attempts to reduce – costs.

Enrollment periods prevent people from changing plans immediately after obtaining an expensive service, like a major surgery. Employer subsidies exist due to a federal tax quirk decades ago, which has now accidentally become an essential part of the health insurance and health care situation. And coverage levels try to provide tiered plans, so people can still afford minimal coverage for “catastrophic” injuries while others can buy coverage for known, recurring medical needs.

But these are all bandaging the bleeding which is unchecked costs. It would take an act of Congress – literally – or of state legislatures to address the structural issues at play. The most prominent solution to nip costs is the bud is to achieve the same near-vertical integration as with automobile insurance. This means a single or very few entities which have contracts in place with every provider (doctors and hospitals), negotiated at once and uniformly, so as to achieve criteria C. The single-payer model – which Medicare already uses – is one such solution.

Going further would be the universal healthcare model, which discards the notion of health insurance entirely and creates an obligation for a government department to provide for the health of the citizens, funded by taxes. This means doctors and hospitals work at the behest of the department for the citizenry, or work privately outside the system entirely, with no guarantee of a steady stream of work. Substantial administrative savings would arise, since the number of players has been reduced and thus simplifies things, including the basic act of billing and getting paid for services rendered.

These models could be approached by individual states or by the nation as a whole, but it’s unclear where the Overton window for that idea currently is.

Tikiporch ,

Because the human body needs way more maintenance and expertise to maintain.

mkwt ,

Can only shop during a specific enrollment period

With cars it’s relatively easy to determine if a particular collision occurred before or after you bought insurance. It’s also very hard to predict exactly when these commissions will occur. Consequently, it is not so easy to delay and only buy a policy when you already have a claim ready to go.

With many progressive diseases, it’s much easier to wait and only buy insurance if you think it’s going to be expensive, but haven’t been diagnosed with anything yet. That’s why health insurance has open enrollment periods.

bluGill ,

Because the customer and user are not the same people and insurance is keeping the costomer happy. High prices mean I cannot afford to quit my job or retire early. I have to have a job to have any form of insurance at all. It is great for the hr department that buys my insurance. In theory I can buy my own on the market but that means the thousand dollars a month my employer is paying gets thrown away.

Rookwood ,

Obamacare really fucked up the health insurance market. Open enrollment is because of Obamacare. Obamacare was written by the insurance lobby. They created a porous law and likely already had ideas to exploit it before it passed. And they have. It has been an incredible boon to them and Americans have suffered. Healthcare was NOT this expensive before Obamacare and insurance wasn’t this complicated and was more affordable too.

Obamacare is the biggest piece of regulatory capture in our lifetime, and in a time of rampant regulatory capture, that’s saying a lot. It also showcases why our 2 party system is just broken. When the so called left option can produce such a broken capitalist piece of legislation.

PeepinGoodArgs ,

You’re only partially right. There was a penalty for not having healthcare that was reduced to $0 where it has stayed since 2017. When that happened premiums shot up because healthier people decided to not get insurance. Considering health insurance is about pooling risk, healthier people left weren’t there to subsidize the relatively sicker folks. So, it’s also a problem of incentives

LesserAbe ,

Open enrollment isn’t because of Obamacare. Your employer-provided health plan had open enrollment periods before the ACA.

eran_morad ,

Dolla dolla bill

Kaboom ,

You can get your own health insurance. Its called market place insurance. Most use their employers health insurance, but that option exists. And theres no “enrollment period”

fifbiff ,

Yeah but it’s way more expensive

Kaboom ,

Yes. With employment insurance, your employer pays a large chunk of it, its called benefits for a reason. Like 401k matching, if you dont use it, youre leaving money on the table

zbyte64 ,

They call it benefits because it’s marketing that works.

db2 ,

They definitely marketed effectively to you.

That’s not a good thing.

Kaboom ,

Do you not have a 401k? Or a Roth IRA? Are you at least paying into social security?

db2 ,

No, no, and yes until the so-called Republicans gut it and pocket the money.

You’re not speaking the same language here.

Kaboom ,

You really need to start saving for retirement, its never too early, and if you start late, it can still help

db2 ,

Unless you’re offering to pay for it I’m in the same boat as many others. I live check to check, there is no extra.

cm0002 ,

Healthcare is a human right, it should have never been a benefit tied to employment.

Kaboom ,

Thats why Medicare and Medicaid exist

cm0002 ,

Those things are a joke, have you ever been on Medicare? It’s terrible and are still strangled by private insurances at every turn.

A few years ago, it was calculated that moving to a single-payer healthcare system and abolishing private healthcare would, at worst, increase an individuals tax to like <$1000/yr

I have a fairly decent employer provided insurance and even then it’s still 500+ a MONTH in just premiums. Before even factoring in other private insurance bullshit like copays and out of pockets and a myriad of other fees and gotchas, I’ll exceed that 1000 tax bill in like 2 months.

Even if you’re a selfish conservative asshole, it would save you so much money as well.

But sure, keep listening spouting the rich elite propaganda, you’re just a temporarily embarrassed billionaire after all.

snooggums ,
@snooggums@midwest.social avatar

By tying insurance to employment (side effect of some economic policy) the option to shop around was removed. When people are already forced to use the insurance provided by employment so that they can afford it, there is no way for some other insurance agency to be competitive. Then it just got worse over the years.

The ACA attempting to make a competitive market was a half assed substitute for just going all in on single payer, but at least people with the jobs that don’t provide insurance have the possibility of affording it now so it is better. Just getting stabbed instead of being shot better.

CrimeDad ,

I think, from the perspective of the insurance companies, the risk is greater for insuring people’s health than their vehicles. Also, people’s lives are at stake, so it’s basically just a complicated extortion market. I don’t know I think all the pharma and healthcare industries should be nationalized and all the healthcare workers conscripted. Can’t be worse than what we have now.

ThrowawayPermanente ,

It can always get worse

dogsnest ,
@dogsnest@lemmy.world avatar

Why doesn’t America join the first world and provide Universal Health Care?

FlashMobOfOne ,
@FlashMobOfOne@lemmy.world avatar

deleted_by_author

    •
    dogsnest , (edited )
    @dogsnest@lemmy.world avatar

    deleted_by_author

    •
    FlashMobOfOne ,
    @FlashMobOfOne@lemmy.world avatar

    Trump’s existence doesn’t make Obama’s health care plan suck any less.

    Also: “Your guy sucks as badly as our guy” isn’t the awesome rebuttal you think it is.

    (Plus I’m not a Trump supporter.)

    dogsnest ,
    @dogsnest@lemmy.world avatar

    hey, I edited and deleted my shit bc I couldn’t get it to present correctly, so feel free to delete! I’m pretty sure we’re pointed in the same direction!

    cheers,

    FlashMobOfOne ,
    @FlashMobOfOne@lemmy.world avatar

    Sure thing, man. Cheers.

    Angry_Autist ,

    ^This is a media manipulation account

    finley ,

    Because rich people on large corporations refuse to pay their fair share of taxes

    DemBoSain ,
    @DemBoSain@midwest.social avatar

    Because the American system provides for a rich ecosystem of middlemen and lobbyists. If we switch to Universal Healthcare, what will they do? Code?

    yemmly ,

    No one knows, but for sure the reason is something rotten. I’ve never ever heard a reasonable argument against it.

    BearOfaTime , (edited )

    Car insurance isn’t efficient nor effective. It’s a complete ripoff.

    Go file a claim, see how much grief they put you through. Every claim I’ve ever made, I’ve had to file a complaint with the state insurance regulators to get my insurance company to reimburse me (and I’ve never been at fault).

    Insurance is the problem for both cars and health. They artificially inflate pricing for both, because they get to determine what is paid and at what rates (especially for health care).

    It’s why you hear stories of things like tylenol at the hospital being $10 a pill. Since insurance may only reimburse the hospital at 10% of the filed claim, the hospital increases the cost 10x. (It’s more complex that this, it’s why medical coding is a specific job now, finding ways to code things to get sufficiently reimbursed).

    Montagge ,

    I also had to get the state involved when the insurance agent just wouldn’t return my calls

    Hildegarde ,

    I have made two claims with my insurance and they paid without any pushback. I think that’s just your insurance company. I would highly encourage you to name and shame.

    fuckwit_mcbumcrumble ,

    Yeah I’ve also had 0 issues with my insurance the two times I’ve used them.

    Hell when I went to a repair shop I insisted on only OEM parts and the guy there said insurance typically wouldn’t replace that part OEM. But when I asked them about it they said they were happy to keep things 100% OEM.

    DBT ,

    How do you file a complaint? I had frame swap that cost almost 20k a couple years ago after getting rear ended and my insurance said the diminished value was only 60 bucks. I never even cashed the check I was so pissed.

    bionicjoey ,

    My sister lives in British Columbia, and from what I’ve heard, they have single-payer provincial government run car insurance (in addition to health insurance like the rest of Canada). It sounds awesome.

    Passerby6497 ,

    Might be your company, I’ve had 3 not at fault and 1 at fault accident and I’ve never had any issues with the insurance company paying out. In fact, my insurance has always been super chill about it, and the two not at faults that involved another driver both had the opposing insurance company tried to screw around to get out of paying.

    taiyang ,

    I also have to say I’ve had only good experiences with my current insurance provider (Amica) but I also pay a little more. My mom got an at fault accident in my car she borrowed when her car was in the shop and it was handled without complaint nor did they raise my rates.

    But you’re still right about a lot of others. I’m almost certain GEICO or Progressive would have raised mine. I wish it was regulated such that my experience is the mandatory norm.

    SatansMaggotyCumFart ,

    It is effective and efficient, just not for the consumer.

    cerement ,
    @cerement@slrpnk.net avatar

    (easier for health insurance companies to double-dip this way)

    Cosmos7349 ,

    I mean, people are more complicated and more expensive to fix

    neidu2 ,

    And for some of our parts, the warranty outright sucks.

    Nougat ,

    https://youtu.be/vVoMyR9X-4Q

    NocturnalMorning ,

    Maybe, but the U.S. does have some of the most expensive health system in the world, and the quality of care isn’t really better.

    snooggums ,
    @snooggums@midwest.social avatar

    More expensive, worse care, and not available to everyone.

    Cosmos7349 ,

    but my understanding is that’s mostly because they don’t fully rely on the market, the way the US does. The market’s priority is not the wellbeing of people, which is why government regulation is important for affordable healthcare.

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