The Great Insurance Scam

Insurance is a nice thing, right? I pay a little money each month, and when I suffer some terrible calamity, I simply present some card and my problem becomes somebody else's problem (minus a small deductible, of course). On top of that, insurance proves we're responsible, and makes everything cheaper, because we're buying in bulk! What a deal, right?


This is the story we're told, but it isn't true. Not only do we pay more for our repairs, we also pay for the massive bureaucratic insurance companies, which do absolutely nothing aside from push paper (lots of paper, wordy paper, impossible-to-read paper...). Insurance is a for-profit industry in this pseudo-capitalist system we suffer. Not only is it for-profit (meaning the companies are allowed to make as much profit as they can) it is also mandatory, meaning if you don't buy it, you'll be fined, vilified, and possibly put in a box for not participating. Some people think this is a good thing. They say it makes us responsible.

Question: if insurance is such a good thing, why is the medical industry so much worse since medical insurance became mandatory? 

The lie is that we should all have insurance, so when bad things happen, the insurance companies can pay for it. But the insurance companies don't pay for anything. Not with their money. If they did, they'd be out of business, because there's no profit in that. The customers pay for (nearly) everything. The only other party that pays is the American taxpayer (also you and me - just by another name. Convenient, no?). Not only do the customers pay for everything, we're paying for a monolithic litigious bureaucracy on top of our goods and services which invariably makes everything far more expensive, both for the individual and society at large. Here's how it works:

Say you take your car to the repair shop, and they say it'll cost $1000 to fix. When a mechanic says such a thing, he's considering the costs of parts, overhead on the shop, and finally, a price for his labor - because he's not doing the work for free. Whether you pay him, or some insurance company pays him, he must meet these three costs or he goes out of business. If the exchange is simply between you and the mechanic, there are fewer factors that need to be considered, and so the price is always at the absolute minimum (this is assuming both parties are ethical - we'll leave that here for a moment, but we'll come back to it later, because there IS fraud to consider). Of course, the price must be met in full at the time of the repair, so hopefully, you've stashed a few bucks under the mattress. But you haven't had to pay any premiums if there is no insurance, so ideally you have more money to stash. 

Enter insurance. If your car needs the same repair, it can never be as cheap as before, because now your adding the price of the paper-pushers that oversee the repairs. Now you have a representative and the repair shop has a representative that haggle for "best price", and they both need to eat. This means the cost of labor is inflated, because now you're paying for the work of three people instead of one. You may not notice this increase in cost, mostly because the cost isn't all at once. You've been paying it for months through your premiums. What would have cost you $1000 at the time of repair now costs $700 (that you already paid in premiums), and a mere $500 at the time of repair (your deductible). $500 out of pocket?! What a bargain! But not if you add the original $700 you spent in premiums. What would have cost you $1000 costs $1200 instead! The price can never be lower than the original $1000, because the parts still must be bought, the overhead still must be met, and the labor still must be compensated - of which there is now more, because papers! Lots and lots of papers!

Enter the lie of collective bargaining. It goes like this: if we're all insured, then the insurer can bargain a better deal with the mechanic. But the mechanic must make a profit, or just like the insurance company, he goes out of business. Now, the insurance industry must show their products are somehow cheaper, and since they are powerful - nay, mandatory! - they make demands of the repair shops. The demand goes like this:  the insurance company will never pay the full price of the covered goods and services. To do so destroys the illusion of collective bargaining. Instead, they'll only pay 80% of what the mechanic charges. Of course, the mechanic knows the insurance companies will pay whatever is asked, so long as it is "cheaper" than the "original" cost, so the mechanic artificially inflates his prices, because the greedy bastard still needs to eat and pay his bills. Now a repair that would have cost you $1000 walking through the door costs $1500 through the door - but only $1200 if you're properly insured! Wow, that's so much cheaper! It's a win-win - unless you pay at the door.

In this system guess who gets squeezed? The most poor among us. The ones living check to check that can least afford it. These bastards pay the full amount because they only have liability. Instead of paying the true cost of $1000 dollars for their repairs, they now have to pay $1500 so the insurance companies can prove the system works. Where does the extra $500 dollars go? Call it the cost of doing business - the paper kind, not the car repair kind... No, it isn't fair, but if the mechanic doesn't charge the inflated price, he won't get the majority of his money, which comes from insurance companies. Question is, was the mechanic a cheat before insurance, or only after he had to artificially inflate his prices? This brings us back to the question of fraud!

So what about fraud? There are a lot of sneaky cheater mechanics out there. Don't insurance companies cut down on fraud? As shone, insurance companies actually increase the amount of fraud as mechanics must artificially inflate their prices just to meet their costs - but it's worse than that! Insurance companies may actually expose the worst mechanics and force them either to play fair or go out of business - after all, it's good for public relations if the insurance companies do SOME good work - but just like every other industry, their is plenty of fraud within insurance companies themselves. I hate to impugn the integrity of the insurance industry - mostly because they tend to be a rotten group of litigious bastards well-versed in the byzantine machinations of our current legal system - but it must be said that insurers are just as fallible as the rest of humanity. They cheat just like the rest of us. So instead of there being two parties that must be ethical (the mechanic and the customer), there are now four parties that must be ethical (the mechanic, the customer, and an insurance company that represents each). There is also a whole new way to cheat the customers as insurance is easily as complicated as auto repair. The chance for fraud has actually doubled, while the chance of catching a fraud has halved. An ethical person now must know enough about cars AND insurance if he hopes to keep from getting ripped off. Good luck!

It gets worse. The psychology of insurance does nothing to improve things. People tend to use the services they purchase, and insurance is no exception. Indeed, the fact that insurance MUST be purchased makes for a resentful customer. Fully insured, we tend to take chances, because - fuck it - we're insured! What's the worst that can happen? Five hundred dollars out of pocket?! So we tend to cut a little closer to our neighbors. The number of accidents go up, and as a society we spend more on three things: auto repairs, injuries, and insurance. If we didn't have insurance, we'd be less likely to take stupid risks, because the cost out of pocket is no longer just the deductible. Now we have to pay the full repair. Mandatory insurance mitigates the sting of repair costs while demanding a "necessary" premium that "proves" responsibility - yet actually encourages irresponsibility. Without insurance, your money remains yours, meaning you can spend it on other things - so long as you drive safe. That fact alone make uninsured drivers safer drivers (all other variables considered equal - which they aren't; most reasonable people buy insurance and drive fairly safely, because it is far more expensive to defy the system and possibly suffer court costs, time in jail, and higher insurance premiums - but I digress). Nobody wants to pay for their stupidity. But when the money is already taken, we simply tend to be a little more stupid. Indeed, that's a fact the mandatory for-profit insurance industry banks on; we need mandatory insurance to combat stupidity - which conveniently increases with insurance!'s a vicious cycle.

Admittedly, this is an over-simplified take on a rather complex topic - and thank the gods for that! Nobody wants to read something as needlessly complicated and long-winded as say... their insurance policy. Maybe the problem is that we're over-complicating what should be a simple transaction by letting a bunch of verbose bureaucrats assure us their unending script is needed to make the public safe, the economy work, and the people responsible! Because somehow, despite all the insurance in the world (and trust me, we have it all), there are still accidents, people still get hurt, and you and I still pay for it. Only, as it currently stands, you and I pay for a whole lot more.

M. Andrew Jones