Tuesday, December 14, 2010

Why private health insurance can't help but fail

An advertisement for United Health Care on television last night stated that they can provide high quality service because of their size. In other words, their group is large enough to buffer inevitable losses, should they be forced into actually paying a claim. They take in enough in premiums to pay their executives and managers, and the legions of telephone operators health insurance companies place between the customer and customer satisfaction, i.e. medical services actually reimbursed by the company.

If you believe the advertisement, all is well with the health insurance titan. As a corporation competing in the marketplace, it has gathered many customers. One can safely assume these customers have been gathered from United Health Care's competitors. Those competitors are therefore smaller, less able to withstand the stresses of being in business, and less able to offer tempting premiums (relatively speaking) in the health insurance field.

By the principles of business competition, these weaker players must fail or consolidate. Unless some artificial external force, like regulation, steps in to prevent United Health Care and the other players from duking it out everywhere in the country, market forces will prevail.

By the principles we've been told guide the level of premiums, the biggest company should be able to provide the best coverage. Let's ignore for a moment the temporary and misleading "introductory offers" a smaller company might use to gather customers who will later pay for their folly with a sharp spike in their costs. Just judging a company's value on the basis of size, the best health insurance company would have a nationwide monopoly and a group that includes every living soul. In short, it would be universal. But just when you think the socialists have maneuvered the free marketers into checkmate, remember two things: monopolies get broken up (at least according to legal technicality, if you're thinking of the oil and drug cartels), and private businesses will push for the most profit they can squeeze from the industry in which they operate. If that industry has no real competition, everybody has to fork out whatever the company demands. Introduce a competitor and you make smaller groups, pushing premiums up on the basis of the increased risk.

One giant group, insured by a non-profit entity, is the only approach that will control costs and cover everyone fairly. That's never going to happen in this country. I just wanted to remind y'all what you will be missing and why.

No comments: