Nearly every year some core industry suffers a catastrophic loss.
2005: Insurance.
Hurricane Katrina was the worst natural disaster that the insurance industry had ever handled. Over $81 Billion dollars in damages. After that, some insurance companies stopped offering coverage to coastal residents. Rates went up along the entire coastal region so many people could
no longer afford coverage.
2007: Economy. The current global economic crisis
began.
2008: Banks, Stocks, Homes, and Cars. Bond Insurance companies
collapsed. If you invest in AA or AAA bonds today, you're taking a risk. Why? Because the bonds are worth more than the
insurance companies behind them. This year also had the housing collapse, massive bank failures, and automobile manufacturer bailouts.
2009. More bank failures and the year is not even half over. However, the big thing right now seems to be the American automobile industry.
Commonalities
There are a few things that all of these failures have in common. They lack transparency, they are overly complicated industries, and they are thoroughly dependent on decades of old technology.
People inside insurance companies had an idea of what was going on, but nobody outside saw it. Banks still are
not telling us how they spent their bailout funds. And American car manufactures depended more on their good names than on developing higher mileage and safer vehicles.
For example, when was the last time American cars got higher
crash test ratings than foreign vehicles? According to the IIHS's report for "
Midsize moderately priced cars, only one of their top six safety picks was American made (Ford), and it gets
worse gas mileage than some of the others. According to
GreenCar.com, the Ford Fusion gets about 23 MPG while the Honda Accord gets 25 MPG and the Volkswagen Jetta gets 34 MPG. If they are equally safe, then buy the better mileage. And if cost is a factor, then the Jetta costs less than the Fusion (MSRP
$17,515 versus
$19,270).
And notice how the two failing companies (GM and Chrysler) are not even in the top safety picks.
Trends
Each of these failed industries have another similarity: variable pricing. If two people go into the same insurance agency and ask for the same coverage, they will be given different quotes. Same thing with cars; with the exception of Saturn (which
GM recently eliminated), dealerships may give you a ballpark number, but there is no fixed price.
Dealerships also try to add confusion by throwing out other numbers under labels like "cash back", "bonus", "incentive", and "promotion". They use advertising gimmicks like "everything must go!", and "limited time only!" This sense of urgency means many people will not spend time looking closely at the numbers.
Pricing also varies with banks and stock markets purchases. If you want to buy shares of a company or invest in a fund, what price do you pay? Sometimes the price is "at the moment you bought it". Other times it is the closing day price, high for the day, low for the day, weekly average, or something equally nonsensical. Perhaps this is why selling stock requires a "
settlement". You really don't know what you're getting, but you'll settle with whatever you get.
Unhealthy Market
Knowing these similarities, we can start to identify trends. A market is likely to fail if (1) it lacks transparency -- you don't know what is really going on, (2) it relies on old technology, (3) it is overly complicated, and (4) it won't give you a straight answer on pricing.
So what's the next market to fail? I think it will be the health care system. I'm expecting big hospital chains to declare bankruptcy, medical centers to close, and people to give up on health insurance. This will send shockwaves through another sector: the pharmaceutical industry.
It's been a few years since I had a physical. While I take my car for regular checkups, I skimp on my own. My insurance is good about covering medicines, but it usually rejects all in-person doctor visits. One would think that the checkup for getting a prescription would be covered along with the drugs, but one would be wrong. Drugs are covered, but my doctor's appointment usually is not. Unless I get taken in by ambulance, I fully expect the visit to be rejected.
Anyway, I recently checked my insurance to see what local hospitals are "in my network". My insurance company's web page directed me to a different company (mentioned in a small logo on my insurance card) who in turn directed me to a third company that listed some local hospitals. I think I know which ones are in my network, but I'm not sure. (Lacks transparency and overly complicated.)
I called a few hospitals to get a quote: how much does a regular annual physical exam cost? None of the hospitals would give me a number. None would even give me an estimate. Every one of them said "it varies". Varies on what? The reply: on whatever code the doctor writes down. I asked if they could give me a ballpark figure -- are we talking $10, $100, $1000? Assume that I have no insurance -- how much can I expect to spend? "It varies." They couldn't rule out $1000 or more for the basic exam.
One hospital actually told me that pricing varies on the topics that I talk to the doctor about. Good! "Do you have a price list for topics?" "No." So... if I say that I have allergies, am I charged more or less than mentioning that I'm coughing up blood? How much does it cost to answer "How are you doing today?"
Can you imagine going into the grocery store and asking "How much is the orange juice?" "It varies." "Varies on what?" "Varies on the code that the checkout clerk types in and the topics you talk about."
As far as I know, the last computer seller that made price determination overly complicated was CompUSA. And they
declared bankruptcy, sold the brand to another company, and closed
nearly all of their stores.
I'm actually more scared about this unknown pricing than anything the doctor might find. (A tumor the size of a basketball? Oh God! How much is this going to cost?)
Estimating Estimates
When asking for a cost estimate, I understand that some things should be priced "above" a baseline. If my car's 60,000 mile checkup reveals a bad timing belt, I understand that replacing it will be above the basic examination costs. With hospitals, if I need additional tests then it should cost more. However, hospitals should at least be able to give me a baseline price or general ballpark figure.
There are also hidden fees. I have friends who have had various operations -- in patient, out patient, extended stay, etc. The ones who actually looked at their bills each said that there were doctors listed who never came by, or who popped their heads in, saw that the patient was still alive, and left -- 10 seconds max. This could be
wide-spread fraud, or it could be legitimate. But most hospitals do not keep detailed enough records to explain why another specialist was needed.
Semi-Transparent Field
In contrast to hospitals, other medical fields are much more direct and transparent. My optometrist and dentist readily provide pricing information when asked. I know how much a basic eye exam costs, I know how much glasses cost, and I even know the price to fill a cavity. I know these prices before I head to the appointment. But a basic blood pressure test at a hospital? No idea -- anywhere from $10 to $1000 or more, depending on what code the doctor writes down and the topics we talk about.
In all fairness, small walk-in clinics also give straight pricing. But these clinics have other problems: I never see the same doctor twice, they're not covered by my insurance, and many doctors are in training. This leads to clinic nicknames like "Doc in a Box" and "Quack Shack". It's fast-food health care.
Low Tech?
So hospitals lack transparency and cannot give even a vague estimate for something simple. And the entire process, from the hospital to insurance, is overly complicated, vague on details, and intentionally confusing. How about old technology?
While making my appointment, the person asked me some questions -- none related to my medical history. During this time, I kept getting placed on hold while the agent checked with her supervisor. It seems that the software was text based and overly complicated. She kept asking her manager about different codes and fields that needed to be filled in.
Text based and code numbers? That's like my insurance company -- but half of their software now has a GUI. (I'd also put my bank in there, but they got rid of their text-based system two years ago.) My optometrist and dentist both use paperless systems with pull-down menus (no code memorization) and intelligent forms. But the local hospitals? They seem to still use text-based entry forms circa Windows95. Sounds like old technology to me... It's enough to make a guy sick.
Every year a core industry fails. I fully expect 2010 to be the year of the hospital.
No one expects their car insurance to pay for their gas. Or their checkups -- you paid for that. Odd huh, that people are unwilling to invest money in themselves, like you just admitted.
Why is that? Which is why this whole insurance thing amazes me -- why should I subsidize a person unwilling to even spend money on their own health? People have their priorities so messed up.
Also, due to the last depression (yay FDR and his income caps!) health insurance is typically done through your company (due to tx reasons). I wonder what a real free market would look like? One where individuals could pick from all insurances, just like they choose their car insurance? Through a company, you typically get 1-3 choices, and that's it. Often the programs are very similar. You get no real choice!
Wouldn't it be weird if people chose car insurance through their work? Or expected it to pay for their gas?
Excellent observations.
I can spend $20 to fill my gas tank, $40 for a full-service oil change, and $100 for a 60,000 mile checkup. If a medical checkup had similar fees, I don't think this would be a problem.
With regards to expectations: when gas hit $5 a gallon, some employers and retailers began to supplement gas costs. What a horrible thought: image if gas was supplemented in a similar fashion to the health industry. The amount you pay for gas would suddenly vary based on your driving record and how long you spend at the pump (not necessarily how much gas you need).
The current problem is, fees vary dramatically. I prefer using a Quack Shack for the flu, strep, chest cold, or even the basic "feel bad". I prefer them because they give me a straight price. However, I'll take a known-expensive price over an "unknown but could be much less expensive" price. If I want to gamble with unknown dollar amounts, I'll go to Vegas. (Come on sevens! Yes! Dental coverage!)
Many optometrists, dentists, allergists, and walk-in clinics actually give discounts if you don't use insurance. The discount varies from 10% to 20% (just ask them!). My dentist said that the discount is for them not having to deal with insurance companies. They get paid faster and they actually come out ahead since they're not paying a receptionist to constantly be on the phone.
With regards to who pays for the insurance: I'm self-employed. I have crappy insurance because it is the only thing I can afford. A lot of better insurance plans cost as much or more than rent. Rather than giving the money to a better provider, I save it away. (Health Saving Accounts are awesome! http://www.ustreas.gov/offices/public-affairs/hsa/) My insurance is good at covering major medical and drugs. Sadly, I expect to pay for everything else. (I'm actually stunned whenever they do cover anything else.)
As an aside: paying for dental and vision coverage really isn't worth it. $10 a month for vision coverage is $120 a year. A basic eye exam runs around $80, so this is $40 savings. If I need new glasses, then the savings is a wash for that year, but I don't need new glasses every year.
Occasionally I do long-term contract work where I am eligible for insurance coverage from someone else. However, their health insurance offerings do not seem to be any better than what I provide myself, and are usually more expensive. Moreover, they usually take out part of the paycheck to cover the insurance. It's cheaper to cover myself.
I like your thought about separating insurance from employers and making more of an open market. They will still need much more transparency and less hassle, but I think it would lead to lower prices and better service. (And less fraud. I think there is so much health insurance fraud right now because of the lack of transparency and cover their tracks with layers upon layers of obscurity and bureaucracy.)
It's admittedly a little different. If my car breaks down because I didn't change the oil, I'll just take the bus, or pay more to have it repaired, or buy a new one -- and pay more out of pocket for my shortsightedness. If my body breaks down, nobody is willing to just write it off. And we generally agree that some health care issues should be covered by insurance, but interactions between diet, exercise, environment, drugs, genetics, and so forth are hugely complex and not well understood (and probably never will be). Is lung cancer covered? What if I smoke? What if I live near a smoker? etc.
Since health insurance companies will already pay to repair my body if I haven't kept it in perfect shape (which is impossible, and a standard nobody would stand for), it only makes sense that they should pay for preventive maintenance, which will save them money.
IOW, my car insurance doesn't cover oil changes because it doesn't cover the cost of repairing the consequences of never changing my oil. But health insurance has to cover the consequences of the corresponding negligence, so it should be willing to pay for the corresponding preventive measures (especially since they're cheaper).
"Also, due to the last depression (yay FDR and his income caps!) health insurance is typically done through your company (due to tx reasons)."
I believe I heard about a bill in Congress within the past few weeks to attempt to separate health insurance from employment for precisely these reasons. It came from a relatively controversial representative, which I'm afraid probably makes it less likely to pass, despite its merits.
An open heart surgery costs around 5000USD.
People take insurance against such high cost items. Otherwise for regular things no one bothers.