What Do Airlines and Health Insurance Have In Common?
I don’t know, but here’s something they don’t have in common that I find interesting.
With airlines, corporations tend to pay more to fly. I’ve always suspected that the higher airfares paid by corporations are what enable airlines to charge “so little” to fly as an individual. Essentially, I’ve felt that corporations subsidize personal airline travel.
However the business of medical insurance seems to be the opposite. Corporations negotiate with medical insurance companies who end up paying just a fraction of a medical procedure’s cost. In doing so doctors and hospitals raise their prices to offset the tiny percentage insurance companies pay. In doing so, they totally price individuals without insurance out of the market.
Just some food for thought. Even while I was writing this, there were a bunch of things that came to mind about the structure of these businesses that creates an environment for these differences. I find thinking about things like this gives me insight into my own business, and that of my customers.
Dave,
I see where you’re going, but I don’t agree with your logic. Airline prices are kept low because of competition. If you want to get to San Francisco, whether you fly United, Jet Blue or SouthWest probably isn’t as important to you as the price. Loyalty points may make a difference if the money isn’t coming out of your pocket, but if it is coming out of your pocket, I’d bet you’ll take the cheaper airline, all other things being relatively equal. Business pay more because people aren’t spending their own money.
Health insurance is a tax. Okay, I live in California where it maybe expensive, but really, employee health insurance is a tax that corporations have no choice but to pay. Corporations may negotiate, but they do so at a grave risk and the insurance companies know it. The insurance that you buy for your company has to be good enough that your most fickle star won’t walk out the door because someone else offered him/her a better deal. Add to that the fact that once you’ve negotiated a deal, it starts wratcheding up every year.
As a business owner, these are things that drive one batshit. As someone working for a company, it never enters your mind.
Andy,
(Apologies for the delayed response!)
Health insurance is probably different in each state. And, yeah, probably a bit of a tax… but, as a consumer (not an employer) I find that the plans don’t make sense. They don’t take into account too many things that remind me how grateful I am to be able to pay a lot of my own medical bills out of pocket.
Remember, in both cases, the consumer doesn’t pay with their own money. So, a lot of that doesn’t come into play. What does is perhaps the difference between travel agents and insurance companies – both brokers between the consumer and provider of service. Also, notice in both cases, no one is paid on performance, though at least with an airline (in theory) they’ll get you where you need to be. With doctors, there is no such guarantee. In neither case, are the service provider motivations aligned with the consumer motivations. I find that to be problematic from a personal perspective. But, interesting from a business sense. How do you align those things using policy? Can you align them? It’s not a simple problem. I’ve noticed that the best doctors don’t even take insurance anymore. Or, at best, they remove themselves from the loop – I pay the doctor, and the doctor gives me what I need to work it out with the insurance company. If I were a doctor, I’d do the same. I’d use insurance as a way to build my business, but as soon as I was successful (assuming I were a good doctor), I’d put the burden back on the consumer.
With respect to airlines, it’s different. In fact, I don’t believe there is real competition in the airline market. Try flying out of Newark anywhere on an airline other than Continental. You won’t get very far. There are a few flights, but if you want to fly American, you need to go to JFK. And, so on. I think perceived competition has kept prices artificially low… which is not how it feels when you pay $12,000 for tickets for a two week business trip as I have had to do… but I don’t think there is real competition. And, the artificially low prices are unsustainable as we now see with subsidiary charges for everything from snacks, drinks, baggage, etc. You want a rant, get me talking about how Continental’s site now says “first bag checked is free!” — like they’re giving me something for nothing. Idiots.
I will say, I’ve had a great experience with Aetna, though Blue Cross set the bar really low for that! The important thing is thinking about some of these complexities… the practical effects these businesses want to achieve, and then the policies they need to put it into place. Finally, think about the IT infrastructure necessary to support those policies. When I go there, I wonder how it works at all.
I know this rambled for a bit, sorry. That’s where I am these days…
David