by Mary Claire Kendall

Created on: February 09, 2009   Last Updated: November 19, 2011

Health insurance is expensive because the market lacks transparency, which reduces competition and choice.

With more transparency consumers would know the actual costs, allowing them to choose treatments more carefully. Also, they would have the incentive to choose prevention measures, thereby avoiding illness in the first place.

Fundamentally it’s about putting the consumer in the driver’s seat.

Instead, our current health insurance system of third party financing insulates patients from the true costs of healthcare. This encourages greater consumption, with inefficient government paying the lion's share, which further distorts and bloats the U.S. healthcare economy that in 2009 spent $2.5 trillion compared to $714 billion in 1990 and $253 billion in 1980.  

Perhaps equally important, health insurance, ironically, often fails to incentivize what it is in business to protect, namely "health.”  Since someone else is paying, we have less incentive to stay healthy.  The result is more expensive medical interventions, which create even greater inflationary pressures for providers and insurers alike. 

Then, too, we are victim of our own success whereby expensive diagnostic and therapeutic advances enable miraculous cures. Prescription drugs, at roughly 10% of healthcare spending, are the biggest contributor to the growth of U.S. healthcare costs, which would be completely acceptable but for the fact that the “cures,” especially from prescription drugs, often have terrible side effects for patients. 

World War II set the stage for this inflationary spiral when Congress circumvented the wartime wage freeze by making health insurance benefits tax-deductible for corporations only, which, in turn, incentivized costly "Cadillac" healthcare plans. This arrangement encouraged healthcare consumption free of worry over cost and unhealthy habits. It's the factory model embedded in our modern psyche. You go, go, go, and if you start to fall apart, you're made new through generous benefits and a miraculous healthcare system.

The legal and regulatory framework governing our health insurance industry only exacerbates the situation. For instance, many states mandate additional coverage, making the price of insurance too costly for a broad swath of consumers in the respective state, who don't need these extras. But, consumers can't seek relief out-of-state, where more reasonably priced policies

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