Overview of the Insurance industry

The system of medical health insurance that prevailed from the forties through the seventies contained the seeds of its own destruction. Any system in which patients spend other people's money at the point of purchase medical insurance and in which providers are reimbursed based on their costs and not on set fees, is a system in which health care costs will invariably rise.

Rising health care costs lead to higher health insurance premiums, giving the people who are being overcharged through the system of community rating greater incentives to find cheaper alternatives. New entrants into the health insurance market have incentives to supply those alternatives. And with increasing pressure to hold premiums down, diverse third-party payers have increasing incentives to find cheaper alternatives to the cost-plus system of hospital finance.Thus, the system began to unravel in the seventies and eighties. Large employers began to manage their own health care plans; started paying hospitals based on set charges rather than costs, and negotiated price discounts. Through the Medicare program, the federal government began paying hospitals fixed prices for surgical procedures [the Prospective Payment System]. Alternative prepaid programs, such as health maintenance organizations [under which total charges are fixed in advance] emerged as competitors to traditional fee-for-services medicine [under which charges rise with usage by people in the covered group]. The system of community rating collapsed as individual insurers lowered their premium prices for lower-risk individuals and groups. The market for every medical service became more competitive.The government also began to encourage competition in the health care sector. For example, it eliminated federal funding for, and encouragement of, health planning agencies. It also eliminated certificate of need controls, under which hospitals had to have the government's permission to expand capacity or to buy expensive equipment. These changes strengthened the private sector's ability to solve many problems. Yet, the removal of the most obvious barriers to competition while leaving more subtle barriers in place - has exacerbated three problems.Lack of health insurance: One problem is that about millions people do not have health insurance, and their number has been rising. At least two government policies, some private health insurance company have contributed to this problem and made it much worse than it needs to be.The first is the tax law. Most people who work for large companies receive health insurance as a fringe benefit. Because the health insurance premiums are deductible expenses for employers, many workers effectively avoid a some percent income tax, a some percent tax for Social Security [half of which is paid by employers], and a 2 to 9 percent state and local income tax. Thus, as much as fifty cents of every rupees spent on health insurance through employers is effectively paid by government [government medical employ scam]. And we get what we subsidize. About 90 percent of the people who have private health insurance obtain it through an employer.In contrast, the unemployed, the self-employed, and most employees of small businesses get little or no tax subsidy. If they have health insurance at all, they must first pay taxes and then purchase the insurance with what is left over. At the same time most of the millions people who have no health insurance pay higher tax rates to fund the some billion annual tax break for those who have employer-provided insurance.A second source of the problem is state government regulations specifically, laws that mandate what is covered under health insurance plans. Examples of mandated coverage’s include alcoholism, drug abuse, AIDS, mental illness, acupuncture, and in vitro fertilization.