We’ve all read the stories of people needing life saving treatment and being denied by their insurance companies, or even getting the treatment but, because of bureaucratic red tape it amounts to too little, too late. Mark Chu-Carroll over at Good Math, Bad Math has a great explanation of why private insurance doesn’t work out well for patients:

You’ve got a lot of people interested in finding ways to make you pay as much as possible for paper pushing, and a lot of people interested in finding excuses to not cover your medical care.

Insurance is a way for many, many people to share each others risk and (by sharing) decrease each individual’s risk. Chu-Carroll opens his description by talking about a system run by the insured, where everyone has a vested interest in using the pooled money as well as possible and making sure that individuals get the coverage they need.

The problem comes when people are involved whose interest is opposed to the insured. The manager of an insurance company (especially a publicly held company, whose share price must always increase to keep the shareholders happy) is more interested in the company’s bottom line than the health of the insured. The manager will make more money when the company saves money and the easiest and most effective way for the company to save money is to deny as much coverage as possible.

Interestingly, this is the same sort of situation that brought about the current mortgage problem in the US. The advent of mortgage brokers - people who are paid based on the size of the mortgages they help issue, but have no responsibility to either ensure the mortgage is paid off or cover the losses if the customer defaults - brought about a recklessness in loan issuance that hasn’t been seen in almost thirty years. This, however, will fix itself; the banks have the power to take back control of their loan issuance and make sure that this doesn’t happen again (at least for another thirty years).

In the insurance industry, however, things cannot be automatically fixed by the market. As long as the insurance companies have their bottom lines as priority number one, the patient will come last. The insured to not have the power to change this; all insurance companies work this way and it takes many, many people to distribute risk efficiently. We need the federal government to force creation of health insurance that puts the patient first. The only way to do this is to remove the incentive for insurance companies to improve their bottom lines by harming their customers. That may mean federally mandated not-for-profit health insurance, it may mean an expansion of federally managed health care. However it happens, it needs to happen soon, our health care system is a mess.