Debate Desk
Are Health Care Costs High Only Because of Insurers' Greed?
Insurers are one cost among many; third-party payment, tax rules, hospital consolidation and hidden prices push up spending far more than their margins do.
The claim
Critics argue that private insurance companies take their cut, deny claims, and profit from the sick, and that removing them would lower costs and ease the burden on families.
The answer in three points
- Insurers' margins are modest compared with total spending. Most of each premium dollar goes to pay for care. The major cost drivers are the prices of services and drugs, the volume of care and an aging population, none of which disappear when an insurer does.
- Our system is built around third-party payment. Employers and government pay most bills, so patients rarely see prices. A system in which no one has a reason to ask what a thing costs will have costs that rise.
- The tax rules that tie insurance to the job date from World War II wage controls, and they shaped the system. Hospital mergers, certificate-of-need laws and hidden prices add to costs. Fixing these structural problems lowers spending more than attacking insurers.
The better target is the structure that makes insurers and hospitals what they are. A system where a few insurers negotiate with a few hospital systems, in secret, over prices that patients never see, will produce high prices whoever wins. Competition, transparency and patient control of more of the money change the incentives for everyone, including insurers.
The numbers
- The Centers for Medicare and Medicaid Services reports that hospital care and physician services account for the largest shares of national health spending, together over half, according to its national health expenditure accounts.
- The tax exclusion for employer-paid health insurance originated in World War II era rulings, and the Revenue Act of 1954 codified it, according to the Joint Committee on Taxation.
- The Centers for Medicare and Medicaid Services reports that national health expenditures were about $4.9 trillion in 2023.
What they will say next
"Insurers deny necessary care." Some denials are wrong, and appeals and legal rights matter. A competitive market where patients can switch plans disciplines insurers better than a monopoly.
"Administrative waste is huge." Some of it is created by the complexity of the rules that government imposes. Simplification and price transparency would trim it.
"Profit has no place in medicine." Profit pays for hospitals, new treatments and medical equipment. The question is whether competition keeps it reasonable.
"Middlemen make money off patients." Some, such as pharmacy benefit managers, do, and conservatives support greater transparency and reform of those practices.
To lower costs, give patients a stake in price, increase competition, and remove the rules that block it.
"Other countries have no private insurers and spend less." Some do, and they limit spending by setting prices and budgets, which also limits supply and speed. Other countries, such as Switzerland and the Netherlands, rely on private insurers under regulation and still cover everyone, which shows that the real choice is about rules and incentives rather than the existence of insurance companies.