Why Does Health Insurance Cost So Much?
By David J. Theroux • Thursday September 10, 2009 10:57 AM PDT • 27 Comments
In direct contrast to Barack Obama’s nationally televised talk on his government-mandated health care plan, here is John Stossel’s recent, very incisive, special segment on ABC-TV’s 20/20, “Health Care Mystery: What’ll That Cost?”, in which he examines government-created third-party payers and asks why it is so hard to find out what health care actually costs:
Tags: Budget and Tax Policy, Business, Free Market, Government subsidies, Healthcare, Insurance, Personal Liberty, Presidential Power, Privatization, Regulation, Socialism, Taxation, The State, Video 
Thanks for that one, David – will pass it on to friends.
PLJ | Sep 10, 2009 | Reply
It’s not true that we don’t pay for it – my husband and I pay $1000+ per month health insurance premium – that’s over $12,000 per year! On top of that, every time we go to a doctor or use a medical service we have to make a co-payment but first, we have to meet a deductible and the insurance company tells us what THEY allow to count as our deductible and we end up paying much more out of our pockets than the stated $1500 deductible. No one else is paying for our medical – WE pay for it through his work. Most years, we do not meet my deductible because my husband’s medical bills in addition to the insurance are so high that there is no opportunity left over before the end of the year (and the deductible starts all over again) after we pay for his uncovered medical expenses for me to get the medical attention I need. We do not know what medical services cost until after the fact because the insurance company tells the doctor how much he can charge and what our co-pay will be – it seems to be the same for every preferred provider so there is no use in shopping around. Besides, I think one should keep the same doctor if you are happy with him. I would not have much confidence having to go to a different doctor for every visit. The real reason medical insurance and services are so expensive is NOT the consumer’s fault – in fact, it is against the law for a doctor to negotiate a fee with a patient who would pay cash if that doctor accepts payments from insurance companies for other patients. And this is the cause of the high cost – our congress and state legislators have stolen our rights and protections to contract and negotiate with insurance companies, drug companies and providers and sold them to the highest bidder – in this case the insurance companies. All the sweetheart underhanded deals they have made with the insurance companies have made it so they are nothing less than huge monopolies who can charge us with impunity because of they have successfully lobbied and corrupted our elected officials and their staff members.
Dee Miller | Sep 14, 2009 | Reply
Wow – Dee Miller has a perfect description of our medical insurance costs. We pay $922 and have a 2k deductible. But I wonder if the 51 state mandates in Colorado are the real reason our insurance is so expensive. My near 50 year old teetotaling wife must pay for maternity care and alcohol rehab. Every mandate was backed by some special interest group. Would my insurance cost half as much if the 51 mandates were eliminated? What if I could buy what I wanted and could buy from any insurance company in the nation?
Mike Spalding | Sep 15, 2009 | Reply
Health insurance costs so much, because covered medical services cost so much. Stossel clearly makes the point that there is no market in health care services. I discussed the decreasing costs of non-covered procedures recently at atleastonewhy.blogspot.com, making essentially the same case as John Stossel, with different examples.
Evgeniy Gentchev | Sep 15, 2009 | Reply
You can’t compare health care to groceries. Heath care is a good that is sold in markets dominated by localized monopolies, whereas groceries are sold in competitive markets. Next, there are substantial asymmetries of information in the provision of heath care services b/c consumers don’t know what they’ve purchased until their purchases have been made and time has passed. In other words, when you go to the grocery store, you know what you’re getting, but when you go to the hospital, you don’t. Finally, there exists positive externalities in the provision of many heath care services, thus the free market will never be able to allocate goods with optimal efficiency. When the free market fails, the government intervenes. The question is not whether the government will intervene, rather how. Both republicans and democrats want the government to intervene and we’re crazy if we presume that it’s possible to sell heath care related services similar to how we sell groceries (silly, but strolling around w/ a basket of groceries can be quite convincing).
Adam | Sep 17, 2009 | Reply
One thing that must be clarified is the difference between health CARE and health INSURANCE. This story uses those terms interchangably and it is confusing to those who do not know that there really IS a difference, and it also (as planned) made the health care industry the enemy.
What I would like to know is WHY the cost of CARE (not insurance) is so expensive. If we all knew the answer to THAT question, then we would know why health INSURANCE is so expensive. How come it will cost over $300,000 for surgery and a 3-day hospital stay? What does that fee include? Have you ever looked at your Health Insurance Statement of Benefits after a hospital stay? $500/night “lodging fee.” $100 for Tylenol. $65 for gloves. Talk about INFLATED! No wonder health insurance companies are looking for a bargain. Wouldn’t you do the same thing if it were YOUR money? If you knew in advance what everything would cost for surgery and a hospital stay, or even just a physical examination, wouldn’t you like the opportunity to take a pen to line items and say, “Uh, no. I’m not going to pay $575 for an x-ray. How about $245?” THAT is what insurance companies do. They negotiate rates with hospitals and doctors to keep the cost of care for their members down. When the cost of CARE goes up, then INSURANCE premiums go up. My company’s premiums just increased by almost 30% from last year, which means I’ll be paying a lot more for insurance AND care for myself and my family in 2010. When will the cost of INFLATED HEALTH CARE go down? Why is no one asking THAT question?
Kathleen | Sep 22, 2009 | Reply
I think insurance companies are out of their minds. No one can afford insurance now days with the premiums and deductibles are so high. Insurance companies are taking our money. Because we still have to pay the bills even if the bill is less than the $5,000 to $10,000 deductible. So were is the insurance helping us. We pay $12,000 a year to the insurance companies and pay our own bills. What good are the insurance companies. Because we never make the $10,000 deductible a year. We never have medical bills that high. Like I said we get stuck with the bills and pay for the premiums. INSURANCE COMPANIES RIP PEOPLE OFF!!!!!!!!! They want the money for themselves!!!!!!!!!!!!!
annamay | Oct 8, 2009 | Reply
Annamay,
I would recommend you look again at the Stossel video which discusses why third-party provision and government mandates on the kinds and pricing of healthcare insurance have made costs so high–government has radically reduced competition and created incentives to overuse healthcare. Another major factor is that it is illegal to purchase health insurance from firms in other states (or other countries) so that everyone is restricted to the insurance costs created by government mandates in their own state. The difference between the lowest and highest cost states is about 1:4, and Congress and Obama refuse to address this matter.
Overall, government’s involvement in health care restricts competition, subsidizes overuse, creates shortages, drives up costs, and makes the entire system unaccountable to the consumer. The solution is to have separation of healthcare and state by removing government’s involvement.
David Theroux | Oct 8, 2009 | Reply
Great articles, thanks! I guess we need to be careful as all that glitters isn’t gold.
Cheers,
Tom O
Tom O'Connor | Aug 21, 2010 | Reply
Health insurance will always cost more than it should due to (i) the amount of lawsuits and (ii) the fact that it has an inelastic demand, i.e., the majority of people consider it a foregone conclusion they must have it.
health & acne treatment | Mar 4, 2011 | Reply