We love to hate cable companies. Thanks to little competition for their products, prices rise at least once a year and often twice. The customer service is maddening, we often end up having to buy products we don’t want to get the products we do, and there really aren’t a whole lot of alternatives to it without some serious market disruption. Come to think of it, those descriptions could very well describe your average insurance company. In most states, they have a commanding share of the market (60%+). They raise prices whenever they want. We hate the customer service, we’re covered for things we don’t want, and trying to find an alternative often results in frustration. It’s not hard to see how they’re in similar situations.
Cable companies act as distributors for video programming. They are middleman between us and the content we want. The content owners often want cable companies to agree to various terms to carry their content. This could be an agreement to carry less popular channels in exchange for the must-haves, specific channel assignments, or, as is usually the case, more money than last year. While we’re the consumers of the content, we have very little say in the purchasing decision. Almost annually, one or more cable providers will get into a fight to put on a good face as a customer advocate, lose the programming for a few days or weeks, and we get stuck with the higher bill.
In the same way, insurers act as a distributor for access to healthcare. They’re also middlemen, but between us and medical providers. The medical providers spend a lot of time and energy trying to maximize payments from insurance companies. The actual consumers of the service, you and me, have very little leverage or control over the process. In fact, we usually aren’t even able to find out what a given procedure costs, instead hoping that our insurance will, on our behalf, negotiate better pricing.
Just like TV viewers who traded their cable package for Netflix, doctors are already wising up to the insurance scam. With the cost of managing insurance claims and constantly cut payments, some practices spend more than half their income managing the mess. Some even go so far as to offer a sort of insurance of their own that, when combined with a high-deductible catastrophic plan, is much cheaper than carrying insurance. How do they do it? It’s not just the overhead. They’re also able to do tests either in-house or with negotiated rates of their own, sometimes for pennies on the dollar what it would otherwise cost.
So why hasn’t this model been broken to pieces? As John McClane says, it’s always been about the money. Just as with cable, there’s a lot of it on the table. Content providers like forcing every single cable subscriber to pay a small fee for their stations whether they want/watch them or not. It’s a model that puts a lot of money in a lot of pockets by socializing the costs. Medical coverage is largely the same way. In fact, well-managed quality care would likely shutter half the hospitals in the country. The Comcasts and the Blue Shields of the world are making a sizeable fortune on inefficiencies.
As with most enterprises facing their own extinction, the knee-jerk reaction is to try and insulate themselves against the changing winds, at least until they can figure out how to keep their bottom lines. Cable reacts by scaring programmers away from selling directly to consumers, degrading competitors that use their hugely profitable Internet connections to bypass traditional distribution channels, and blocking competition in their local markets with predatory pricing. Insurance is taking more-or-less the same road. They got a law passed to require everyone to buy their product, secured huge subsidies for those who can’t afford to buy it, and don’t have to answer at all for costs. Both have found ways to coerce others into supporting a model that they hate and want to replace.
What this highlights is the danger of strong market dominance by a single player. That dominance inevitably leads to higher prices for a lower-quality service. Solving those problems requires disruption from new players, not doubling down.