Amidst rising discontent among Americans over escalating health insurance costs, insurers are poised to hike their rates by up to 30 percent next year. This follows previous increases of 7.2 percent for 2024 and 8.8 percent for 2025. It’s astonishing, really—at this rate, it feels like only the likes of Elon Musk will be able to afford health insurance.
For the past quarter-century, while inflation has averaged around 3 percent, health insurance premiums have shot up by 6 to 9 percent annually. What was once merely hard to afford has now become completely out of reach. Americans are appealing to Washington for help, but that’s akin to asking someone who started a fire to extinguish it.
The health insurance market operates quite differently from other markets. And that difference is driving up prices relentlessly.
Take auto insurance, for instance. The car owner is the first party, buying the insurance directly from the seller, the second party. There’s a straightforward transaction here; buyers compare prices and coverages, make informed choices, and pay out of pocket for what they select.
So, buyers have the freedom to choose and pay. And sellers must compete for consumers’ money. But health insurance? That’s a different story altogether, as it involves a third party.
In health insurance, the real buyer—the consumer—often isn’t the one paying. There are sellers who, interestingly, don’t compete for actual consumer dollars, since their payments from insurers or the government are usually less than what they charge. The vital decisions regarding patient care are made by these third parties, who dictate what care is provided, and when, often sidelining the preferences of the patients themselves.
These third parties also decide the payments to healthcare providers. It’s puzzling, but in this market, the actual price charged by a provider holds little meaning. Whether a doctor charges $100 or $500 for an office visit, they receive a capped amount from Medicare—often far less than the sticker price. Actual reimbursements for various procedures can be shocking as well, and often much lower than anticipated.
This third-party payment structure leads patients to consume healthcare without a direct financial impact, which discourages cost-awareness. For instance, a mother on Medicaid might rush her sick child to an emergency room rather than the pediatrician, indifferent to the significant cost difference, because she isn’t footing the bill—the government is.
In essence, competition among sellers is virtually absent in healthcare. Insurance companies vie for contracts with large health plans instead. These companies set prices based on estimates of their costs plus expected profits, all while prioritizing shareholder returns over policyholder needs. Healthcare insurance has emerged as one of the most profitable sectors in the country.
Analysts attribute the recent rate hikes to the ballooning costs associated with GLP-1 medications and the end of enhanced ACA subsidies. But really, the trend of rising insurance costs commenced well before those factors became relevant.
Third parties dominate healthcare spending through tax revenue and employer-sponsored health insurance (ESHI), which is a misnomer really, as the funds employers contribute to insurance firms are essentially wages earned by workers that are redirected. This system began during World War II as a workaround for wage freezes, but has persisted long after.
With financial control, these third parties also take on functions typically fulfilled by buyers and sellers in a free market. They dictate care options for consumers and set payment rates for providers, reducing the incentive for efficiency and competition.
Ultimately, who controls the money dictates pricing, and right now, third parties hold that power. Alternatives exist—whether it involves government-imposed price fixing or a truly free market where consumers regain control. We already see the challenges of third-party control; the perils of government price fixing are well-documented, too.
Price fixing results in a system where the government arbitrarily sets prices based on what it thinks is affordable, ignoring realistic production costs and necessary profit margins. In a recent poll, 59 percent of respondents expressed a desire for government intervention to cap healthcare prices. It’s concerning how many seem unaware of historical instances of price fixing leading to dire outcomes in places like the U.S.S.R. or North Korea.
Were price fixing applied to health insurance, the consequences would likely be dire: inadequate coverage, slow service delivery, unmotivated providers, and scarce medical advancements, leaving only the affluent with access to quality care.
On the other hand, a free market consistently improves prices and services. Just look at how technology, like smartphones, has advanced and become far more accessible; the progress is unmistakable. In a genuine free market, patients wield the power to control expenditures and can compel insurance companies to respond to their needs.
The crux of affordable healthcare is who manages the finances. Right now, third parties are in charge. Washington can enforce price limits, but ultimately, in a free market, the patients should be the ones holding the reins. To quote Smokey Bear in a way: “Only YOU can make health insurance affordable.”
