U.S. Health Insurance Is Really a Price-Fixing Scheme

Policymakers have been debating how to cut health care costs for over two decades. The Affordable Care Act, passed in 2010, was supposed to address this problem. Doesn't have. Why? Because US health insurance is not really insurance in the traditional sense of the word. This is more of a pricing scheme than anything else.

We often hear critics say that the healthcare system is not working. No. The system itself is working fine. The problem is how we pay for it. The only way to control prices without discouraging innovation is to ditch our current payment system. This means giving up what we so foolishly call health insurance.

How insurance should work

The purpose of the insurance policy is to protect consumers from significant financial losses in the event of an insured event. You have auto insurance to cover liability and repair claims in the event of an accident. You and other consumers pay the annual premiums to your insurance company. These premiums are invested. The combination of premiums and investment income pays the insurance company's expenses and makes a profit.

Does your car insurance cover gasoline? No. Do you pay for an oil change and tire rotation? No. Your auto insurance only covers the costs of an accident. You pay for the rest.

So why does your health insurance pay for visits to a healthy child? Why cover annual check-ups and blood pressure tests? Because health insurance is not really insurance. This is a payment system. And, as the Stanford Waden Health Service eloquently explains when explaining health insurance to students, "you will pay the cost of the care you receive anyway."

Pay now or later

Stanford goes on to explain that they think it's best to pay the high premium right away and cut cash later. In essence, they recognize that health insurance is not really insurance in the traditional sense. It's just a payment system. But it is also a payment fixing scheme.

Your insurance company almost certainly works with an organization known as the Pharmaceutical Benefits Manager (PBM). This PBM negotiates prescription drug prices on behalf of your insurance company. PBM decides how much it will pay for your prescriptions. In addition, your insurance company negotiates directly with hospitals, doctors' offices, etc. to determine their prices.

Healthcare providers can set their own prices and do so for out-of-pocket patients. Did you know that these patients can always negotiate directly with their service providers? Patients with insurance cannot. They pay huge surcharges and deductibles to those who do not have the right to vote.

This is why Canada Pharmacy and other Canadian online drug retailers can offer much lower prices. They do not fall into the US insurance network. They sell to consumers in the US at prices driven by competition, not pricing.

No competition

Meanwhile, insurance companies, benefits administrators, and health care providers are working together to evaluate each other. It is illegal in any other industry. Healthcare received an exemption due to an archaic 1940s law, an exemption that allows them to participate in pricing. The competitive Health Insurance Reform Act signed by President Trump does little to address this issue.

Price protection has virtually eliminated price competition in healthcare. Prices are set behind the scenes. If you have health insurance, you do not have the right to vote. You can't look around to find the best prices. You are stuck. This is why our system doesn't work. This is why we consistently pay more for health care than we should.