Saturday, November 21, 2009

Are Insurance Companies Evil?

Activists on the left have recently denounced insurance companies as evil. Some believe that health insurance companies are evil because they profit off the misery of others. Charges have been made that health insurance companies make money by denying medical benefits to their policy holders and that they, and the Republicans, actually want people to die so that they can make more money. This is similar to the claim a few years ago that oil companies were evil because they made “obscene profits” as oil prices reached record highs.

Like the charges against the oil companies, the charges against the insurance companies are patently false and do not stand up to logical evaluation. In the first place, health insurance companies cannot and do not force anyone to buy their service. For each and every policy holder, the decision to do business with their insurer was entirely voluntary. Even in the case of people who participate in health insurance plan chosen by their employer, the decision to participate is still a voluntary choice by the employee. If the employee does not like the health insurance company that provides their company’s group plan, they have the options to either not buy health insurance at all or to select an individual health insurance plan of their own choice.

Health insurance companies do not make money by denying care. Health insurance companies make money by selling policies. If a health insurance company continually denies care that should be provided under the terms of their policy, people will exercise their option to buy a policy from another insurer. They also have the option to sue the insurer for breach of contract if the insurer does not follow the terms of the policy. In general, health insurance companies want to be seen as “a good neighbor,” as one insurance company slogan says. Companies do not get a reputation as a good neighbor if they are constantly losing lawsuits from their insureds.

What about the claim that health insurance companies are evil because they profit off the misery of sick and dying people? The purpose of health insurance companies is to make a profit. If a health insurance company does not make a profit, they will not stay in business. A health insurance company that is no longer in business can provide medical care for no one.

Granted, some companies do abuse their customers. We have all heard cases of insurance companies who improperly deny coverage or cancel the policies of sick customers. These cases, while rare, are serious. In many such cases, the insurance company attracts the attention of regulators or legislators who help to rectify the problem. Additionally, the company also attracts unwanted negative publicity which invariably hurts their bottom line. An insurance company cannot operate this way indefinitely and stay in business.

Insurance companies are held accountable by numerous parties. First and foremost is their customers. If an insurance company has poor customer service, their customers will go elsewhere. No one is required to deal with any particular insurance company or even to buy health insurance at all (yet). Second, insurance companies are held accountable by their shareholders. Negative publicity and poor management adversely affect stock prices and investment values. Shareholders can also vote with their feet. If a company has a poor record of paying claims and is financially unsound, they can also be rated poorly, which affects their ability to sell policies. Finally, if an insurance company breaks a contract or violates the law, they can also be held accountable by the courts or government regulators.

Some people in the public discourse today, seem to believe that profits are unethical in general. In truth, the desire for profits encourages people to make wise choices. A company cannot be profitable without a buyer for their goods or services as countless businesses from General Motors to the US Postal Service have discovered. However, if a company does not make a profit, it cannot stay in business. Furthermore, the lure of profits draws more companies into the business, increasing competition and driving down costs for consumers.

Businesses don’t necessarily set out to do a public good, yet that is precisely what happens. Business owners do not open their business to provide jobs for their fellow citizens, yet that is the result of a successful business. Business owners do not open their business out of an altruistic need to provide people with their wants or needs, yet that also happens. Businesses are not created to pay taxes to the government, yet, if the business is successful, its taxes do support the government.

It is no different for insurance companies. The insurance company is in business to make money for its owners and shareholders. In the course of making money, they also provide medical care for their policy holders. They also provide jobs directly for their underwriters, adjusters, actuaries, and support and management personnel. Indirectly, insurance companies help to provide jobs for physicians, nurses, and their staffs.

Insurance companies are not inherently evil. However, like any human endeavor, they are tainted by human frailties. Insurance companies serve a valuable role in society by spreading the risk of an expensive illness or injury among thousands of policy holders. Without insurance companies, thousands of people would not be able to afford advanced treatments that save or prolong their lives.

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