Politicians have been debating how to bring down healthcare costs for more than two decades. The Affordable Care Act, signed into law in 2010, was supposed to fix the problem. It has not. Why? Because U.S. health insurance isn’t really insurance in the traditional sense. It is more of a price-fixing scheme than anything else.
We often hear critics say that the healthcare system is broken. It is not. The system itself works just fine. The problem is how we pay for it. The only way for us to control pricing without stifling innovation is to scrap our current payment system. That means scrapping what we so foolishly refer to as health insurance.
How Insurance Is Supposed to Work
The whole point of an insurance policy is to protect consumers from significant financial loss when a covered event takes place. You have car insurance to cover liability claims and repairs in the event of an accident. You join other consumers in paying annual premiums to your insurance company. Those premiums are invested. The combination of premiums and investment returns pays insurance company expenses and generates profit.
Does your car insurance pay for gas? No. Does it pay for oil changes and tire rotations? No. Your car insurance only pays to cover the costs of an accident. You pay for everything else.
So why does your health insurance pay for well-child visits? Why does it pay to cover annual checkups and blood pressure screenings? Because health insurance really isn’t insurance. It is a payment system. And as Stanford’s Vaden Health Services puts it so eloquently in explaining health insurance to students, “either way, you will pay the cost for care you receive.”
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Pay Now or Later
Stanford goes on to explain that they think it is better to pay a high premium upfront and lower out-of-pocket costs later. They are essentially admitting that health insurance isn’t really insurance in a traditional sense. It is just a payment system. But it’s also a payment fixing scheme.
Your insurance company almost certainly works with an organization known as a pharmacy benefit manager (PBM). That PBM negotiates prescription drug prices on behalf of your insurance carrier. The PBM decides how much you will pay for your prescriptions. Likewise, your insurance company negotiates directly with hospitals, doctors’ offices, etc. to determine your prices.
Healthcare providers are free to set their own prices, and they do for patients who pay cash. Did you know that such patients can always negotiate directly with their providers? Patients with insurance cannot. They pay hard co-pays and deductibles over which they have no say.
This explains why Canada Pharmacy and other online Canadian drug sellers can offer prices so much lower. They are not caught in the U.S. insurance web. They sell to U.S. consumers at prices driven by competition rather than price-fixing.
There Is No Competition
In the meantime, insurance carriers, benefits managers, and healthcare providers are working together to set prices among themselves. This is not legal in any other industry. Healthcare has been granted an exemption due to an archaic law from the 1940s, an exemption that allows them to engage in price-fixing. The Competitive Health Insurance Reform Act, signed into law by President Trump, does little to correct the problem.
Protecting price-fixing has all but eliminated competition from healthcare pricing. Prices are set behind the scenes. If you have health insurance, you have no say in the matter. You cannot shop around to find better prices. You’re stuck. That’s why our system doesn’t work. It is why we continually pay more than we should for healthcare.