The underlying problem is that insurance companies are allowed to segment their customer base by risk. For low risk customers this is great because they get a cheap rate. For the companies it's great because they get to advertise a cheap rate and attract customers (and run really lean administratively... don't need a lot of claims handlers etc).

Things go off the rails though for customers perceived as high risk. Grouping all these folks together means a higher rate, possibly quite a bit higher.

The use of prior claim history as a risk measurement seems like a very cheap way to do underwriting. This feeds into being able to offer the cheapest offering... no need for experienced and qualified underwriters... which means a cheaper product.

The original goal of insurance, shared risked, has been somewhat eroded by this.

Isn't the problem that the government, which is supposed to uphold justice, let's it go on?

What's justice got to do with anything? Insurance is a service, offered by a private entity to a private entity. You pay more in insurance than you're expected to pay for damages over a lifetime, but you get the peace of mind that comes from knowing you're not going to be bankrupt by an accident.

Sure, most industries benefit from a bit of regulation, but from that to "justice" is a long road.

That's an interesting twist.

Health insurance is somewhat the same too... Hospitals and Dentists have special rates for insured patients (much higher)... you can end up paying the same as an uninsured patient... Which is why I was getting hospitalization-only insurance, but with Obama-care, I can't do that anymore.

Also, I have been told that it might be illegal to claim that you are uninsured, pay the bill and then get reimbursed by your insurance company to avoid surcharges... not sure if that is true.

> Health insurance is somewhat the same too... Hospitals and Dentists have special rates for insured patients (much higher)... you can end up paying the same as an uninsured patient...

Health insurance is actually very different[0]. The flow of money with medical billing is really, really complicated, which is why we end up with a system that's so confusing that even most physicians and clinicians don't really understand it.

Hospitals are generally not legally allowed to have higher rates for insured patients; this is actually why the sticker price for uninsured patients is so high. Hospitals use those high prices as a starting point to negotiate lower prices with insurers. (As an uninsured patient, you can almost always get the hospital to knock off 90% of a large bill for this reason; they really don't care what you pay, and they'd rather negotiate a smaller bill with you than have you default).

I could go on a long rant about the indirection of the medical billing system and all the problems it leads to, but I'll save that for another time.

> Also, I have been told that it might be illegal to claim that you are uninsured, pay the bill and then get reimbursed by your insurance company to avoid surcharges... not sure if that is true.

Yes, this is fraud. (It also happens to be a pretty bad example of fraud, since it's probably going to end up costing you more money, but it's still fraud).

[0] Strictly speaking, health insurance isn't really 'insurance', even though we talk about it and price it like it is, because one of the primary functions has nothing to do with smoothing risk.

That's interesting. You are forced to mention any health insurance you might have?

That's not particularly unusual.

You're forced to mention any car accident you've had to your insurers, even if you didn't claim for it. (At least, this is true in UK, not sure about US.)

Its a public record in the US iirc so there isn't a "need" to mention it as the insurance company can look it up. They can also do so with various tickets/violations. [e.g. moving violations]

That's very strange. Not saying it didn't happen to you, but to my knowledge, most medical professionals charge insured patients much LESS than insured ones, because insurance companies negotiate special rates.

My wife had to have an intensive surgery a few years ago. The total bill amounted to over $100,000. Insurance negotiated it down to $25,000 or so, and then paid 90% of the balance. That's pretty typical of my experience.

I see no reason that you couldn't tell the doctors that you are uninsured, negotiate it down on your own, pay the bill, and then submit it to insurance for reimbursement.

There are definitely clinics that give cash patients a 50% discount; I've been to several. The reason is obvious: they get real money rather than a several-month back-and-forth with various unhelpful assholes at an insurance company. That's why the prices are so high to start with. I think that if such a provider isn't careful it can get into trouble with its PPOs, because their contracts require that they get the "best" prices. However, it seems that if a provider is careful it can just say that it has a discount for the uninsured poor.

> give cash patients a 50% discount

> That's why the prices are so high to start with.

I feel like health insurance prices are too high by a factor noticeably larger than 2 though.

I had a big name health insurance company through a company policy which actually mandated that I pay a certain minimum for drugs purchased at the pharmacy. If I used the card and bought a generic which would normally cost say $9, I'd pay $20. Use the card, pay more than retail.

> What's the point of buying insurance then

Unfortunately, just like for many things, government makes it mandatory to buy insurance for many of your properties. So the scam can go on and on forever.

Which government requires insurance on a private home?

Mortgage lenders make homeowner's insurance a condition of the loan to protect their assets. I've never heard of a state requirement for homeowner's insurance.

I'm in the US, though. Might be different elsewhere.

Shared ownership properties, such as flats in tenements in Scotland and the UK (known as condominium ownership in the US, I think) require buildings insurance, as a fire or other damage to the fabric will affect other parts of the property.

This is codified in law by parliament as the Tenements (Scotland) Act 2004, Section 18, Obligation of owner to insure - http://www.legislation.gov.uk/asp/2004/11/section/18

It also makes sense that a bank would require a homeowner to have insurance. The bank gets all the benefits and the homeowner takes all the risks, in the form of payment costs and CLUE report liability.

Who are these "mortgage lenders" you speak of? It's all Fannie Mae and Freddie Mac and they set the underwriting requirements which include property insurance.

[1] - https://www.fanniemae.com/content/guide/selling/b7/3/02.html

OK, fine; I am speaking of those entities who originate and collect payment on a home loan. You pointed me to a government-sponsored enterprise that places an insurance stipulation in the terms of its voluntary contract with lenders who wish to guarantee or pass-through their loans.

Granted, almost no one will originate a subprime loan these days, because everyone in the private-label MBS business got out or was bailed out, so the best this example shows is a de facto standard set by the guarantor of last resort.

I own a non-warrantable property where Fannie Mae and Freddie Mac will not buy the mortgage. The bank still requires property insurance. Property insurance is not something invented by them that banks would not require otherwise.

Fannie Mae and Freddie Mac manage only about 40% of the mortgage market in the United States. Now, that's big enough to have a significant effect on the entire rest of the market but they do not control the entire mortgage market.

Parent is probably referring to the secondary mortgage market (mortgage-backed securities), of which F&F now control more like 90%.