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Criticisms
of the insurance industry
Lack of knowledge of policyholders
Insurance policies can be complex and some policyholders may not understand
all the fees included in a policy. As a result, people could buy policies
at unfavorable terms. In response to these issues, governments often
make detailed regulations that set down minimum standards for policies
and govern how they may be advertised and sold.
Redlining
Location is one of the variables used to set rates. Insurers are also
starting to use credit "scores", occupation, marital status,
and education level to set rates. Many consider these practices to be
"unfair" and even racist. An interesting refutation to this
is that the job of an insurance underwriter is to properly categorize
a given risk as to the likelihood that the loss will occur. Any factor
that causes a greater likelihood of loss should in theory, be charged
a higer rate. This is a basic principle of insurance and must be followed
for insurance companies or groups to operate properly, even for non-profit
groups. Thus, discrimination of potential insureds by legitimate factors
is central to insurance. Therefore the only thing that can be considered
legitimately "unfair" are practices that discriminate against
a given group without actual factors that show that the group is a higher
risk.
Health insurance
Health insurance is one of the most controversial forms of insurance
because of the conflict between the need for the insurance company to
remain solvent versus the need of its customers to remain healthy, which
many view as a basic human right. This conflict exists in a liberal
healthcare system because of the unpredictability of how patients respond
to medical treatment. Suppose a large number of customers of a particular
insurance company were to contract a rare disease costing 100 million
dollars to fight for each patient. The insurance company would be faced
with the choice of either charging all its future customers astronomical
premiums (thus losing customers and going out of business), paying all
claims without complaint (thus going out of business) or fighting the
customers in an attempt to deny the costly treatment (thus outraging
patients and their families, and becoming a target for lawsuits and
legislation).
Many
countries have made the societal choice to avoid this important conflict
by nationalizing the health industry so that doctors, nurses, and other
medical workers become state employees, all funded by taxes; or setting
up a national health insurance plan that all citizens pay into with
tax payments, and which pays private doctors for health care. These
national health care systems also have their problems. Many countries
have citizen groups which protest bureaucracy and cost-cutting measures
that unduly delay medical treatment.
In
the United States, health insurance is made more complicated by Federal
Medicare/Medicaid programs, which have had the unintended consequence
of determining the price of medical procedures. Many suspect that these
prices are set independently of medical necessity or actual cost. A
physician who refuses to accept a Medicare/Medicaid payment will be
banned from accepting any such payments for a number of years, regardless
of the reason for rejecting the payment or the amount offered. In either
case, this means that private insurers have little incentive to pay
more than the government does.
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