The Problem with the health insurance industry is that there is no free market for it.

This is one of those ideas that just popped into my head this morning, but it seems to make sense. Think of a traditional capitalistic market, such as toys, food, or pretty much any other market. Generally the more competition there is in these markets, the lower the prices. Cost cutting measures in these industries would involve making more of the product per man-hour and for a few cents less, and make up the loss through volume. They can then try to out compete each other, etc.

I then realized that the health insurance(and most other insurance) industries don't work this way, in fact they CAN'T. What's the most effective cost cutting measure for an insurance company besides denying claims? Its volume, but not in mass production of some type of widget, instead by expanding the risk pool of insurers to low risk groups of people. The problem is that people don't get built off the assembly line.

There's a lot of talk about "choice" and competition within the insurance industry, the problem is that population shifts, and and growth, occurs too slowly for costs to drop. There are no pricing wars within this industry in regards to premiums, simply because the amount of people any individual company can potentially sign up is negligible, and may not offset the costs of paying claims.

Usually, in a capitalistic market, the more competitors there are, the lower the prices in that market. In the Insurance industry, the opposite happens. The reason is simple, for every new competitor out there, the size of the risk pool for EVERY insurance company out there actually drops, and this can increase costs for those companies that are then passed on to the both current and future policy holders.

This tells me that the industry itself isn't sustainable in the long term at all, and the cracks are apparently showing now. They can try other cost cutting measures, I hear a lot of talk of computerizing claims and billing, but over any extended period of time, this would have a limited effect. We were promised the "paperless office" back in the 1980s, I doubt that the 2000s can deliver on the promise any more than the 1980s had.

The most effective cost cutting measure for insurance companies would be consolidation, not competition, the problem is that this would be advocating for a monopoly, which is generally bad for customers of any sort. It seems to me that the insurance industry will end up being destroyed, or at least marginalized, in this country, if not by being replaced by some public financing system, then by destroying themselves. I just hope we are smart enough to be able to set up an effective public system to fall back on when that happens.