Insurance was originally designed to protect the individual (or beneficiary) from financial devastation in the event of a catastrophe, such as injury, long-term illness, death, or property damage resulting from an unforeseen event.
To protect the individual from financial devastation by itself does not yield customer satisfaction, but instead it yields the attitude of a begrudging customer. Therefore, insurance carriers now design the product so that the customer will receive benefits, appreciating the product, the service, and the company. They do, of course, charge a slightly higher premium, but the result is customer satisfaction. For example, a car owner who has comprehensive coverage will probably make use of his insurance policy at some time, even if the car is never in an accident. It may be a rock cracking the windshield, or a deer running into the road. Finding out he is covered for this type of problem makes the policyholder appreciate the insurance company. The result is a happy, appreciative customer. For the insurance provider, the return is greater than the investment.
Insurance also provides significant benefits to businesses. If a car owner is in an accident and an insurance carrier is paying the bills directly to the auto repair facility, the customer has no reason to be concerned about the cost of service. Many businesses offer small perks, such as the rental company picking up the car owner at home, or the auto shop detailing the car before it is picked up. These little extras please the customer, who will then refer the business to friends and family. The cost of these extra services is built into the company fees. It is a part of the cost of doing business, similar to the cost of marketing.
When an insurance company pays the fees to the service providers, the providers receive the following benefits:
- The customer doesn’t try to negotiate the cost up front
- The customer doesn’t scrutinize the bill after the fact to ensure every line item is accurate
- The customer is pleased by what he perceives as quality care on the part of the service provider
Hence, the insurance company is everyone’s friend!
However, It is also a well-known fact that when you have an accident, your auto premiums increase. However, you’ve already had the accident. Your premium is going up no matter what you do. Why shouldn’t you take advantage and get the most benefits out of the policy? Where is the motivation or incentive to reduce the cost of this claim? Why should you give up extra perks like a free car wash or clean interior? Maybe that car panel could have been repaired, saving hundreds, but instead it was replaced with a brand new one. You’re perfectly fine with that. The costs of the repairs do not directly correlate to your premiums, so why should it be of any concern?
Auto insurance is a good example of some of the problems inherent in our insurance programs. With auto insurance, it is easy to illustrate how businesses as well as policy holders take advantage of the existing system. Ultimately, the insured comes to think of extra services as entitlements, and the businesses become dependant on the income generated by their insurance agency alliances.
Workers Compensation and Unemployment are insurance programs that are required by law and funded by the employer. Employers’ premiums are significantly influenced by employee usage of the insurance.
With unemployment Insurance, the claimant (formerly the employee) is not responsible for paying any premiums. Unemployment Insurance is paid for by the employer, not the employee. The former employee is the beneficiary – there is no reason for him to be concerned about the financial impact on the employer.
With Workers Compensation, employers are assigned an “experience modification factor”. This factor can result in the loss of a 20% discount and a surcharge of 30%, resulting in a 50% increase in premiums, and is a significant factor in the cost of labor.
Under our current unemployment system, the claimant receives a weekly benefit for a fixed time period. When the set period of time expires, the benefits terminate. It is a cold turkey approach that does little to motivate the worker to find a job during the period covered by unemployment insurance. Would it not make more sense to designate a set period during which the worker would receive full benefits, and then systematically decrease the weekly benefits until they are stopped altogether? This would financially motivate the unemployed person to make the maximum effort to locate a job.
In some states, employees who file a Workers Compensation claim are required to self-insure their loss of income for the first five days of a claim. This substantially reduces the number of fraudulent claims and thus reduces the cost of Workers Compensation.
For every line of insurance there is a logical remedy.
The cost of these insurance programs is a key factor impeding the creation of new jobs and the growth of small business. Since the early 90’s, residential building contractors moved away from hiring workers as employees; instead, they now hire individuals to work as subcontractors to avoid the financial burden of providing insurances.
When we focus on problems with our health care system, we become very apprehensive. However, the issue can be correlated to the auto repair example. The health care scenario is much more convoluted, but the principles are the same. Instead of it being an auto repair shop that takes advantage of our insurance programs, it is the large medical practices and hospitals that take advantage. We, as patients, appreciate what we perceive as extra attention to our well-being, and rarely question doctors’ or hospitals’ practices. We do not think to question prescribed tests or procedures. After all, we trust that our caregivers have our best interest as their main focus. However, we need to remember that medical care is an industry.
The new requirement that insurances provide services such as routine physicals at no ‘out of pocket” cost to the patient may fuel job creation and the growth of both the medical industry and the insurance industry. However, the rising costs of insurances are a primary factor in the out-sourcing of manufacturing jobs. It is a key component in the decision “not to hire.” As the medical and insurance industries continue to grow, so does the ratio of uninsured verses insured.
So, back to the question! Is the Insurance Companies a Friend or Foe? How can anyone expect a health care program to become more affordable when our government insists on expanding benefits? Have we not already lost enough of our manufacturing jobs to other countries? How many state budgets are “in the red” due to the cost of health care? Insurance needs to return to its original form: a product designed to protect the individual from financial devastation in the event of a catastrophe.
Steps will have to be structured for health care reform so that our health care industry and our insurance industries don’t topple. A single bill will not solve this problem. We must develop a plan with steps that allow for adjustment so that we can achieve the goal of reasonably priced health care for everyone. The goal is simple: No American should need insurance to pay for a routine office visit, and every American should be able to afford and secure good health care.