What makes health insurance different from other forms of insurance?

Most importantly, health insurance covers conditions that may mean the difference between life and death. Delays and denials are literally life-threatening.

Secondly, health insurance is unique in paying for routine expenses. Only a small percentage of motorists will be in a car accident. A minority of houses will be damaged by earthquakes or hurricanes. But the damages could be significant and not easily handled. So insureds pay a fraction of what the damage might be every year. Most of the time, the money is “wasted” because the accident or earthquake doesn’t happen. But the “wasted” money — minus insurance company expenses and profits — pays the claims of those who are damaged.

Auto and other forms of insurance are paid for out of pocket. Health insurance is available as a tax-free benefit of employment. Therefore, everyone with employer-paid insurance effectively pays for health care with pre-tax rather than after-tax dollars. Naturally, employees want as many services as possible covered. Health insurance morphs into pre-paid health care covering routine items like check-ups and vaccinations whereas car insurance does not pay for gasoline, wiper blades and smog checks.

The structure of health insurance companies differs from other insurance companies as well. Few if any other insurance companies are vertically integrated. Auto insurance companies do not generally operate auto body repair yards. They do not purchase replacement auto parts from manufacturers and resell them. They do not take over and operate auto mechanic businesses. Home insurers are not in the home construction or remodeling business. They do not own hardware stores.

Health insurance companies do much more than pay claims. Health insurers buy and operate medical practices. They buy and distribute drugs through captive pharmacy benefit managers. They double dip paying claims themselves.

Like any other good or service, health care is rationed by either price or availability. When health care is pre-paid and the money is coming from a third-party insurer, patients will logically demand the most extensive and expensive care available. Meanwhile, those paying insurance premiums want the premiums to be as low as possible. The insurance companies want to maximize the gap between claims paid and premiums received.

These goals are utterly incompatible. The result is a system where the insurers — be they public or private — become the gatekeepers, raising premiums, augmenting the insurance business with profits from vertical integration and/or rationing by restricting or denying care.

What are alternatives?

Single-payer “Medicare for All” eliminates the conflicts inherent in vertical integration. It takes the profit out of health insurance. But it does not change the pre-paid health care dynamic, the third-party payment problem or denial of care conflicts.

Shifting from pre-paid health care to big-ticket catastrophic coverage would subject everyday expenses to the normal laws of supply and demand. Points of conflict between insurers and insureds would be reduced. Costs would be reduced by eliminating the dead-weight expense of unneeded insurance negotiations and claims processing.

Is there a best of all worlds solution? Not really. Is there something better than the current system? There has to be.

Jeffrey Scharf welcomes your comments. Contact him at jeffreyrscharf@gmail.com.