Bryan Caplan explains the difference in perceptions between health care insurance and auto and life insurance.
I agree that there is a popular perception that health insurance is an unusually crooked industry. My main explanation is that customers of health insurance companies have more latitude for unreasonable demands. If your dad dies, the life insurance company owes you $X. If customers ask for $X+1, the firm refuses, and no one sees this as proof that the free market can't be trusted with life insurance. If you get sick, in contrast, it's hard for an insurance company to decisively prove that they've lived up to their agreement. You can always insist on another expensive test, even if the insurer knows it's useless.
First, Steve Horwitz has a valid argument in the comments. In fact, I would add that as a company that provides my employees health insurance as a benefit, I may not really care about the quality of the insurance coverage as long as the rates are low. Yes, information spreads, especially in the internet era, but how many people actually research a company's health insurance benefits prior to taking a job? Unless of course they have some pre-existing condition requiring coverage and don't want a waiting period.
But in addition to Bryan's comment about the caps on coverage, there is not likely any uncertainty about my payout from a life or auto insurance company when it's time for me to exercise my rights under the policy. If I die I die. There is no, "Well, he died from causes different than what we expected, therefore you only get .8X of your coverage."
And if I am involved in an automobile accident, not only are there limits to what my insurance company can and will pay out on my behalf specified in the policy, other than medical costs, fixing my car is fairly routine and objective. There is little dispute if my quarter panel is not dented - they don't replace it. In fact, most automobile insurance policies require you to see their adjuster first, who gives an estimate of what they will pay, which you can take to any repair shop. The repair shop must be within a certain percentage of that estimate or you can bring it back to the adjuster. Disputes are handled beforehand.
Health insurance on the other hand, includes coverage that is not only subjective, but the services I expect to consume as part of my policy are continuously changing. Medical technology is rapidly changing and, with no caps on my coverage, I want the newest and best service available. In fact, I refuse to go anywhere other than top medical research universities for my medical care.
A lot of the fault of this poor perception of health insurance providers lies with doctors and the medical profession as a whole for pushing unnecessary procedures. The consequence is that it pits the consumer and doctor against the insurance company and the latter comes out looking like the ogre because it needs to weed out cost-ineffective services.
Doctors have an incentive to perform unnecessary or unproven procedures, including surgery, and then pontificate about how they are not able to provide what their customer/patient needs after the insurance company rejects coverage for the procedure. Two doctors recently told us that my son required additional corrective surgery for Legg-Calvé-Perthes disease, his regular doctor and a second opinion. We did our own research and found that the procedures for this ailment that these doctors were advocating are hotly debated within the profession and so we sought a third opinion. That third doctor has been researching this disease for twenty-five years and said that studies show no difference in outcomes of those who had the surgery and those who did not. He told us that fifteen years ago he would have recommended the surgery, but today with this new information, he can't. The Hippocratic Oath notwithstanding, which course of action do you expect most doctors to take.
For an automobile policy it's easier for an insurance company to detect fraudulent and unnecessary charges and refuse to pay for it. The procedure is not performed and I get my car back with no discernible difference in performance. With the medical example above however, I am not likely to discern the success or failure of the procedure for years to come, and even then will be unlikely to attribute any benefit or harm to the medical procedures undertaken in the past. I therefore fault the insurance company when they refuse to pay for what my doctor recommends.
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