When I was a kid, my parents had a friend who ran a car leasing/rental business for the local Ford dealership. This was back in the days when insurance companies were first demanding “used parts” for auto body damage repair. One fine day, a new yellow Thunderbird owned by the agency was in a wreck. A few days later, a new green Thunderbird also owned by the agency was stolen. The used parts which showed up at the body shop to repair the yellow Thunderbird were, of course, green. Nobody will ever be able to prove the second car was stolen and parted out to repair the first car, but neither can anyone prove otherwise. You will certainly never convince this man that it was sheer coincidence. He shrugged and laughed that to save a few dollars, the insurance company had bought him an entire new car.
Insurance companies makes things cost more, and not just with foolish financial decisions. Their very existence costs money. They have offices to rent, light, heat, and furnish. They have employees who deserve to be paid. They have regulations to follow and paperwork to file with the state. They have executives who must be paid enough that they don’t begin to think they should get jobs in banking or securities. They have actuarial tables to compile and interpret. Some of them are for profit, siphoning yet more money out of the system. Although some of the insurance company’s revenues are derived from investments, ultimately all this is paid for by the policy holder.
Insurance also drives up costs for virtually every business. Businesses need insurance too: property insurance; liability insurance; benefits such as health insurance for employees; workman’s compensation insurance; unemployment insurance; insurance for business vehicles. Depending on the industry, there may be over a dozen insurance bills to pay. All these expenses must be accounted for when determining how much to charge for products and services in order to make a profit.
Health insurance in particular drives costs up. It actively short circuits any semblance of the market economy in health care. Not only does the patient not pay the doctor, the patient usually doesn’t even pay the people who do. Most of the time, the patient’s employer pays the insurance company that pays the doctor. On the other side of the transaction, health insurance drives up the cost of doing business for doctors. Now, he needs to pay an employee or service that does nothing but submit insurance claims and process insurance checks. Furthermore, his staff has to spend time figuring out what portion of the final bill should be charged to the patient and what should be sent off to the biller. All of this is before time the doctor himself has to spend figuring out what the insurance company is willing to pay for, and any time he may spend on the phone with the insurance company trying to sort things out. FInally, there is little disincentive for the patient to use unnecessary services. There is a fine art to setting co-payments and deductibles low enough that people will seek help for genuine illness and high enough to discourage frivolous doctor visits, services, tests, and treatments that the patient insists upon despite lack of need.
Insurance has become a necessary fact of life in our modern society. Being without insurance can cost more than having insurance. People who do not carry insurance that they need cost everyone else money by not being part of the risk pool. Uninsured motorists cost money when they are in traffic accidents; if they can’t afford insurance they certainly can’t afford to pay for a wreck. People who do not carry homeowners or renters insurance lose everything should disaster strike. Companies without adequate liability insurance go out of business if they are sued, putting employees out of work and jeopardizing intellectual property. People without health insurance tend to wait until small illnesses become serious before seeking care, both losing productivity and turning a hefty bill into a gargantuan one — and more often than we care to think about, costing taxpayer dollars.
Going without insurance is obviously not a solution. However, something has to be done to bring insurance rates down. Insurance reform needs to be a priority in all 50 states. This is not something that can be fixed by slapping some artificial damage caps on jury awards. Indeed, most of the ways that insurance drives costs
up have nothing to do with the courts, let alone tort reform. The first step in insurance reform is not telling big business exactly how much money they can lose in a courtroom, but rather making sure that more insurance dollars are used to cover legitimate claims. Limit the profit motive: Re-mutualize.