Awhile back I made the claim that healthcare costs in the US were soaring, because of obscene private healthcare insurance premiums, and not vice versa. More precisely, health care premiums are not rising because health care costs are rising, but health care costs are rising because health care insurance premiums are rising. Recently, I had the opportunity to test my suspicion in practice, and discovered that my theory is almost certainly correct.

Basically, without getting too detailed, my doctor recommended certain nuclear medical scans and blood tests. When scheduling the scans and tests, I was given two sets of prices, one for insurance and one self-pay (I’m on a high deductible catastrophic insurance plan, so I’m for all intents and purposes self pay). Amazingly, in nearly every case the cost for the same exact test with insurance was 2X to 6X more expensive when paying thru insurance then when paying out of pocket. So for instance a nuclear scan might cost $500 in the self-pay option, but would cost $3,000 under an insurance plan. So basically just by simply having private insurance, the cost of the same exact procedure skyrocketed a mind-boggling 400%!

So what’s going here? Rationally, in theory, the private insurance companies, by virtue of their having a large base of customers, should in fact command a lower price per procedure from providers than a single self-paying individual. So how can the cost of the tests be astronomically higher if one pays via insurance rather than with cash?

There is of course no logical explanation for this situation, even though insurance companies, hospitals and doctors will provide a plethora of explanations. For instance, some will say that the higher price reflects the difficulties in doing business with the insurance companies, i.e. paperwork to deal with, time of payment. Others will argue that the higher price is based on the fact that insurance companies will haggle with the provider to get down the price, so they need to charge higher to deal with the inevitable insurance discount. This nonsensical argument ignores the fact that in any case the provider is profitable at 50% or even lesss of the quoted test price anyhow, so what is the use of marking up the price by 5X?

Obviously what is happening here is quite simple: Private Healthcare insurance is simply a gigantic fraud. The healthcare insurance companies are so flush with cash from raising premium every year and denying benefits as much as possible, that they’re basically indiscriminate buyers. They’ll pay an obscence price for anything, under the right conditions. Healthcare providers know this and in a search for profit. “Just maybe, this time, they’ll pay this obscene rate,” the thinking goes, “and if not, we can always force the higher cost onto the patient who doesn’t have the resources or knowledge to fight the charges.” Ultimately, this pursuit of profit causes healthcare costs to skyrocket, at the cost of the health of a patient. Obviously, capitalism does not function when healthcare is in question!

Ironically, there is, of course, at this point in our society, no purpose in private healthcare insurance, except for catastrophic purposes, since your out of pocket costs are much less when you self-pay than if you went thru your insurance company. This of assumes that you are diligent in saving money in a Healthcare Savings Account (HSA) every month to pay for unforeseen non-catastrophic medical costs in the future.

So will Obama’s new plan solve the above problem? Of course not. Since Obama is using the private insurance companies to provide healthcare insurance he will add to the problem, instead of help it. The more money the private insurance companies have the higher our healthcare costs will be. Even worse, when everyone is forced to have insurance there will no longer be a self-pay option, to the joy of every medical provider and insurance company in the country, and to the detriment of every patient. It will soon be impossible to pay a reasonable price for any non-catastrophic medical expense as providers will jack up rates to meet the obscene insurance-based fees.

The solution of course is simple: Either dismantle the private insurers or limit the private healthcare insurance companies to only catastrophic insurance. How to pay for everything else? Let the government pay for it, as they do in every other civilized country. This is part of the government’s job. Print money to pay for the health of your citizens, not to buy speculative securities. As I stated above, capitalism simply does not work when it comes to healthcare. We cannot let the pursuit of profit influence our choices when it comes to our health and the health of our families.