What if auto insurance was run like health insurance?

Tags: perspective, health insurance, health care costs, administrative burden

By Stephen Benold, M.D.

Imagine that there are three entities in our parable: the filling station is the doctor’s office, the auto parts store is the pharmacy, and the garage or repair shop is the hospital.

The Filling Station

At the filling station, gasoline, diesel, ethanol, and other automobile propulsion fluids are sold. Some stations offer minor parts, oil changes, lubrication, state inspection and tire repair, but most don’t. You would prefer to go to a station that offers multiple services, but these are hard to find because they are reimbursed less for auto products than the single service stations that specialize in only one service. Most individuals choosing to open a filling station are choosing to specialize in one service, because the annual income is double that of a multi-service station.

There are no prices on any product, because each customer pays a different price depending on their auto insurance. An exception are customers without insurance, who pay 30 percent more than anyone else, because no “discount” has been negotiated for them by an insurance company or the government. A card confirming auto insurance must be presented before each purchase; the clerk states your co-pay amount (which varies with each customer), and the rest of your purchase is filed with your insurance company. The filling station is three times as large as the ones you remember from your youth, because there are three clerical workers for each employee actually servicing your automobile.

If you have auto insurance through your employer, as most people do, you can only go to certain stations, and those permissible stations change nearly every other year. If you are going to travel out-of-town, you will need a prior referral from the filling station manager to a specific station where you are visiting for your insurance to pay for products purchased there. He is busy, and hates to have to do this. Even if your particular station can do minor repairs, if your insurance has subcontracted this to a special auto business, then you must go there, even if it is across town.

If you are poor, then the government pays 100 percent of your filling station needs. The poor customer must also present his government benefit card prior to purchase, which frequently expires, and must be verified by a telephone call each visit. However, the station is only paid 50 percent of what private insurance pays, so only about one in 10 stations will accept poor customers. They usually wind up getting their fuel at the all-night Stop-and-Go Mart, where they never see the same attendant twice.

A special government auto insurance program covers all customers over the age of 65, and thus there are no private insurance plans available for these customers except the government plan and co-pay supplement plans approved and regulated by the government. A filling station that accepts any customer with this government program must accept this program for all of their over-65 customers, or sell to no over-65 customers at all. It is getting harder all the time to find a filling station to service your auto if you are over age 65, because the station is reimbursed only about 80 percent of the employer auto insurance amount, and these prices have virtually not been increased for seven years. The current rumor is that they are actually going to be cut 10 percent next year.

There are a lot more regulations for the over-65 customers at the filling station than for other customers. The over-65 plan pays for oil changes, but not for tune-ups, a claim filed for any propulsion fluid other than gasoline must include a description of the engine of the vehicle, and any claim for repair of a flat tire must be accompanied with a Polaroid photo of the flat. The plan will provide for replacement of the wiper blades once a year, but if the station manager is not careful, and replaces the wiper blades in just 364 days, he will not get paid. Certain services, such as car washes, are not covered by the over-65 insurance plan, and the customer may pay for these in cash, but only after the customer signs a form agreeing to do so prior to the service. A filling station that violates these regulations is at risk of being heavily fined, and excluded from serving any over-65 customers.

The Auto Parts Store

Generally, automobile insurance covers any and all auto parts that require the written approval of a filling station manager. Auto parts that can be purchased without written permission from the station manager are not covered, but may be purchased with cash. Used auto parts have a very low co-pay, brand new parts have higher co-pays, and chrome-plated auto parts have very high co-pays. As at the filling station, each customer has a different co-pay, so the insurance card must be presented prior to purchase. If age 65-and-over customers purchase a supplementary insurance policy for auto parts, they only have to pay 25 percent of the amount due after the deductible that must be paid once a year. Some employer insurance plans limit auto parts purchases to certain brands of parts, but so far the over-65 plan does not. To save money, many insurance plans encourage their policyholders to avoid auto parts stores, and purchase their parts from a catalog by mail. Although it is sometimes against the law, everyone knows that auto parts are a lot cheaper in other countries and some persons whose cars need a lot of parts try to purchase them abroad.

The Garage (Repair Shop)

If your car is in an accident, or has major engine problems, then it may be taken to the repair shop by a tow truck. In the past, it was not unusual for filling station managers to also do repairs at the garage, but this is a rapidly disappearing custom. Most of the employees at the garage only work there.

For the majority of customers, who are over age 65, the garage is paid a fixed fee by auto insurance, based on the description of the damage. This fee doesn’t change, whether the repair takes a few hours, or many days. It is the same for a Corolla and a Lexus. Employer-provided insurance companies generally negotiate discounts for their policyholders, but the bill is based on the actual work done and time spent. As at the filling station, customers without insurance actually get charged more. They can negotiate a discount, but they usually don’t know to do this. Often their bills are so large they just abandon their cars in the parking lot of the garage.

Actual repairs to the engine of the automobile are reimbursed much better than repairs to the body of the car, so specialty garages that only repair engines have been built. The single-service filling station managers that refer business to those garages often own them. The loss of the lucrative “engine business” makes the general repair garages less profitable. However, they can make it up by the good return they get on billing for their computer diagnostic services, which are heavily used. Because filling stations are only open eight hours a day, it has become necessary for garages to sell fuel in emergencies. This emergency fuel service now is being used for convenience by people who find 8-to-5 hours inconvenient, and by persons who cannot find a filling station that will take their business. Thus, the emergency fuel site in garages is chronically crowded with long waits. Attempts to get customers to use filling stations instead have been unsuccessful because auto insurance covers the higher fuel charges at the garage.

Conclusion

Because of the escalating demand for fuel, parts and repairs, the cost of automobile insurance rises higher and higher every year. Because of this insurance-payment system that is peculiar to automobiles, the cost of using and maintaining an automobile is rising much faster each year than the overall rate of inflation attached to other goods and services. The auto insurance companies pass the increased cost on to the employers and to the government as higher premiums. The employers pass the increased costs onto their employees as reduced wages, which is somewhat hidden by the fact that the premiums are payroll-deducted, and are not taxed. The government tries to control its rising costs by reducing what it pays to filling stations and garages, and with regulations that make it harder to use or maintain an automobile. It has been suggested that it would just be a lot easier if the government just owned all of the filling stations, auto parts stores, and garages, and took control of this crazy mess! Doesn’t anyone have a better idea?

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