I have a question that I would like to get the opinions of people in health care professions to provide an answer to. I know Aedes is in the health profession, and if anyone else wants to chime in, it would be welcome. Mostly though, I was wondering if anyone knew of a site or forum that I could post this to. Thanks ahead of time.

Ok, my central question is this:

Why is private health insurance insufficient in controlling or unable to control the costs of health care?

I have heard many times that the main problem with health care costs is with the "pay for service" style way in which providers are paid. This seems perfectly reasonable, as there becomes a disconnect between the costs of health care and the benefits of wellness and preventative care is neglected. Both of these symptoms are plainly observable.

The problem I have with this, though, is that most consumers of health care funnel their payments through insurance companies and do not particularly "pay for service" (even if there may be deductibles and copays). What's more, insurance companies also have an interest in cheap preventative care. My company actually saves money in the long run by offering company wide Gold's Gym memberships, for example, because it makes the insurance cheaper.

So, it seems that the central problems with our healthcare should be directly combatted by health insurance companies, but they are not. Why?

Why is private health insurance insufficient in controlling or unable to control the costs of health care?

It is not that medical equipment is expensive to produce or so delicate that it is expensive to maintain.

The reason the equipment is so expensive is because of government restrictions and for technicians to repair the equipment need to be certified.

Because insurance companies are not interested in controlling the costs of health care. They're interested in making actuarial decisions that lead to profit. Sure, preventive care is cheaper than hospital care, but even cheaper than that is insuring people who don't get sick, and refusing coverage based on indication rather than cost. I had an insurance company refuse to cover the hospitalization of a patient who needed an amputation for an ischemic leg, until I could finally talk to a medical director and get them to come and review the record.

Furthermore, insurance companies have only so much leverage. Hospitals generally operate on the very edge of fiscal stability (and often at a loss that is made up by endowments). When insurance companies decide to play tough and start covering services at rates so low that hospitals can't even make back their operating costs, generally the hospital will refuse to honor that insurance company anymore -- and this is a position no insurance company wants to be in, because local business and HR departments are not going to be too thrilled about offering this insurance to their employees, and the insurance company will lose subscribers.

These two goals are not mutually exclusive. Health insurance companies would likely attempt to refuse coverage any chance they can, but it makes no sense to say that they wouldn't attempt to control the costs of health care as well and limit the costs of the coverage they do provide. The incentive would still be there.

Do you see it being the case that insurance have too much leverage in refusing important coverage, leaving customers without proper healthcare? What causes do you see for this?

This is the core of the question. The market should, without inherent inefficiencies, reach a clearing level where the costs of providing healthcare should approximate the costs of providing it.

This obviously isn't happening, and this tells me that some group in the process is not allowed appropriate bargaining ability.

I think that insurance companies hope that health care controls costs on its own. Insurance tends to prefer covering generic rather than brand name drugs, for instance -- my mom was recently changed from Crestor to simvastatin (generic Zocor) because it's a lot cheaper and the insurance coverage was better (and co-pay lower). Insurance is usually quite willing to pay for outpatient IV medications, because it's a lot cheaper than keeping someone in the hospital.

Well, I'd say that it's extremely rare that insurance refuses to cover something that you can truly justify medically. Medicine is more complicated than that, though, for instance sometimes it's really hard to get patients out of the hospital because of their social situation, but you're not really providing hospital-level care.

I think what it comes down to is that there is simply no other economic model that healthcare fits, and intuition just never seems to work unfortunately.