"Why do they do that? It seems to me that the motivation for doing that derives from needing to keep costs down since avoiding payouts is one of a variety of ways of keeping costs down. And why is it necessary to keep costs down? So you can get your cut of the business, IOW, compete. And why do you want to compete? Duh, to stay in business in an environment where there are competitors."
Lane, in a free market, competitive environment you'd be right. The sad truth is, however, that the major insurance companies don't compete that way.
Why do you think it is that there are only one or maybe two major health insurance companies controlling 70-80% + of most health insurance company markets? Why is it that legal and medical malpractice insurance policies are offered by only a handful of insurance companies? Why is it that inefficiencies and inflated overheads are so common in the industry?
It's not because they want to "stay in business in an environment where there are competitors."
Those who think that Obama is putting hard working, hard competing, American insurance companies out of business with health care reform are misinformed.
The way it has worked in far too many insurance markets is that the major companies fix prices, divide up markets, play scrooge with their policy holders by refusing them the benefits of their contracts or by putting huge hurdles in their path to collecting benefits and generally maximize their take. Much of the bounty goes to "overhead" which, in too many cases, means that they don't correct inefficiencies, pay their executives too much and keep too many staff.
And, thanks to their legislative pull, none of this is illegal. The federal antitrust provisions, much less enforcement, don't apply to insurance companies, a status that only major league sports shares.
So, if you and I are the only two sellers of gasoline in the area how will we price a gallon of gas? We could "compete" with each other and drive the price down to the point where if it went any lower we'd lose money and go out of business. Or, not being subject to the antitrust laws, we could have trade meetings and set prices at the highest point the market would bear. That's where we'd maximize our profits.
As far as competition, we'd only compete if a third party tried to come into the picture and ruin the sweet setup we shared. And if that happened we'd compete hard by lowering our prices below break even, accepting losses until we'd driven the new guy out of business and then raising them again.
But maybe I'm wrong, maybe insurance companies don't take advantage of their antitrust exemptions, their small numbers and their oligopolistic positions to squeeze the maximum dollar out of their policy holders. Maybe they are "ethical" interests who care about the American economy and are run by executives who aren't trying to loot their coffers of every bonus dollar they can squeeze out. Yeah, that's it, human nature has been suspended.
The only thing keeping a lid on them may have been their fear that if they went too far their pet legislators might have been forced to rein them in. That hasn't happened yet, even with this new health care legislation, but there are rumblings. Time will tell whether their money and influence is great enough to make the Democrats pay a price or whether they will ultimately lose their protected status, have their practices revealed for what they are and suffer the wrath of a public that was fooled into feeling sorry for them for a long, long time. Ed |
