Insurance companies benefit from higher and higher prices for health care since that enables them to raise rates and profits generally follow as a portion of income. This however is offset by the fact that they have to compete, so that if another insurance company does its underwriting job or its claim handling job at less cost they have a competitive advantage. Rare there is a businessman who does not do everything he can to avoid competition, which is why governments have to constantly enforce antitrust.
I don't think, however, that we can blame anyone's greed for the American situation. People are greedy everywhere. No it's something about the system or about the institutions unique to America that is behind the problems, I think mainly the tort legal system and the fact that employers have traditionally provided insurance, creating a real problem for small businesses and the self-employed, and of course the complicated multi-layered tax system (other countries pay more as a percent of GNP but without nearly the damage to the economy).
When I'm in the States all I hear is that it is the best of the best, with the best systems and best government. That this is patently not true is something Americans have to admit.
You've laid out a thoughtful structural analysis, and I think it holds up well. A few reactions:
On the insurance economics, you're right that it's more nuanced than simple greed. The perverse incentive structure is the real culprit — insurers profit from a percentage of premiums, so cost inflation can actually help them, while competition is supposed to counteract that. The ACA tried to address this with medical loss ratio requirements (forcing insurers to spend a minimum percentage on actual care), but it's a patch on a deeper structural problem.
On your structural explanations, I'd broadly agree but add some nuance:
The employer-based insurance system is genuinely anomalous and largely accidental — it arose from WWII wage controls, when employers competed for workers with benefits instead of wages. It then got locked in through tax treatment. Almost no other developed country ended up here, and it creates exactly the fragmentation and small-business disadvantage you describe.
The tort system argument is real but often overstated by those who want to limit patient rights. Defensive medicine adds costs, certainly, but studies suggest it's maybe 2-3% of total spending — significant but not the primary driver.
What's probably underweighted in your list is market concentration and opacity. Hospital systems, pharma, and insurers have all consolidated massively, giving them pricing power that pure competition would theoretically discipline. And prices are deliberately opaque in ways that would be illegal in most markets.
On American exceptionalism, you're touching something genuinely frustrating. The inability to honestly benchmark against other countries — because doing so feels unpatriotic — is itself an institutional problem. Countries that have better outcomes (on infant mortality, life expectancy, chronic disease management) did so by copying and adapting from each other. The refusal to learn from abroad is expensive.
Though it's worth noting America does genuinely lead in some areas — medical research and innovation, cancer survival rates for certain cancers, speed of access for those with good coverage. The problem is those benefits are distributed so unevenly as to drag the aggregate outcomes down badly.
The main problem with the tort system is the contingency system.
That's a sharp and specific point worth taking seriously.
The contingency fee system does create some distinctive distortions. A lawyer who takes cases on contingency — getting perhaps 30-40% of any award — has a strong incentive to bring cases regardless of their actual merit, as long as the expected value is positive. A small chance of a large jury award can make a weak case worth pursuing. This means:
- Doctors practice defensively, ordering tests primarily to document that they covered every possibility
- Hospitals and manufacturers build enormous legal cost assumptions into their pricing
- Insurers price in litigation risk even for legitimate claims they'd otherwise settle reasonably
The deeper problem is that contingency fees were originally justified as a way to give ordinary people access to justice they couldn't otherwise afford — and that rationale is genuinely valid. The question is whether the cure has become worse than the disease.
Most other countries handle this differently. The British system of "loser pays" is the most common alternative, which sharply discourages speculative litigation. But it also has the effect of chilling legitimate claims by people who can't afford to risk paying the other side's legal costs if they lose.
What's perhaps most telling is that the American medical malpractice bar is essentially a private tax on the entire healthcare system, collected by a relatively small number of plaintiff attorneys, with the proceeds distributed somewhat randomly to some injured patients while others get nothing. It's a very inefficient way to either compensate victims or discipline bad medical practice.
No-fault compensation systems, like New Zealand's, handle medical injury administratively rather than through litigation — faster, cheaper, and arguably fairer, though they remove some deterrent effect on negligence.
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