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Metlife home and car insurance reviews Costlier care is often worse care.CreditPhotograph by Phillip Toledano

It is spring in McAllen, Texas. The morning sun is warm. The streets are lined with palm trees and pickup trucks. McAllen is in Hidalgo County, which has the lowest household income in the country, but it’s a border town, and a thriving foreign-trade zone has kept the unemployment rate below ten per cent. McAllen calls itself the Square Dance Capital of the World. “Lonesome Dove” was set around here.

McAllen has another distinction, too: it is one of the most expensive health-care markets in the country. Only Miami—which has much higher labor and living costs—spends more per person on health care. In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns.

The explosive trend in American medical costs seems to have occurred here in an especially intense form. Our country’s health care is by far the most expensive in the world. In Washington, the aim of health-care reform is not just to extend medical coverage to everybody but also to bring costs under control. Spending on doctors, hospitals, drugs, and the like now consumes more than one of every six dollars we earn. The financial burden has damaged the global competitiveness of American businesses and bankrupted millions of families, even those with insurance. It’s also devouring our government. “The greatest threat to America’s fiscal health is not Social Security,” President Barack Obama said in a March speech at the White House. “It’s not the investments that we’ve made to rescue our economy during this crisis. By a wide margin, the biggest threat to our nation’s balance sheet is the skyrocketing cost of health care. It’s not even close.”

The question we’re now frantically grappling with is how this came to be, and what can be done about it. McAllen, Texas, the most expensive town in the most expensive country for health care in the world, seemed a good place to look for some answers.

From the moment I arrived, I asked almost everyone I encountered about McAllen’s health costs—a businessman I met at the five-gate McAllen-Miller International Airport, the desk clerks at the Embassy Suites Hotel, a police-academy cadet at McDonald’s. Most weren’t surprised to hear that McAllen was an outlier. “Just look around,” the cadet said. “People are not healthy here.” McAllen, with its high poverty rate, has an incidence of heavy drinking sixty per cent higher than the national average. And the Tex-Mex diet has contributed to a thirty-eight-per-cent obesity rate.

One day, I went on rounds with Lester Dyke, a weather-beaten, ranch-owning fifty-three-year-old cardiac surgeon who grew up in Austin, did his surgical training with the Army all over the country, and settled into practice in Hidalgo County. He has not lacked for business: in the past twenty years, he has done some eight thousand heart operations, which exhausts me just thinking about it. I walked around with him as he checked in on ten or so of his patients who were recuperating at the three hospitals where he operates. It was easy to see what had landed them under his knife. They were nearly all obese or diabetic or both. Many had a family history of heart disease. Few were taking preventive measures, such as cholesterol-lowering drugs, which, studies indicate, would have obviated surgery for up to half of them.

Yet public-health statistics show that cardiovascular-disease rates in the county are actually lower than average, probably because its smoking rates are quite low. Rates of asthma, H.I.V., infant mortality, cancer, and injury are lower, too. El Paso County, eight hundred miles up the border, has essentially the same demographics. Both counties have a population of roughly seven hundred thousand, similar public-health statistics, and similar percentages of non-English speakers, illegal immigrants, and the unemployed. Yet in 2006 Medicare expenditures (our best approximation of over-all spending patterns) in El Paso were $7,504 per enrollee—half as much as in McAllen. An unhealthy population couldn’t possibly be the reason that McAllen’s health-care costs are so high. (Or the reason that America’s are. We may be more obese than any other industrialized nation, but we have among the lowest rates of smoking and alcoholism, and we are in the middle of the range for cardiovascular disease and diabetes.)

Was the explanation, then, that McAllen was providing unusually good health care? I took a walk through Doctors Hospital at Renaissance, in Edinburg, one of the towns in the McAllen metropolitan area, with Robert Alleyn, a Houston-trained general surgeon who had grown up here and returned home to practice. The hospital campus sprawled across two city blocks, with a series of three- and four-story stucco buildings separated by golfing-green lawns and black asphalt parking lots. He pointed out the sights—the cancer center is over here, the heart center is over there, now we’re coming to the imaging center. We went inside the surgery building. It was sleek and modern, with recessed lighting, classical music piped into the waiting areas, and nurses moving from patient to patient behind rolling black computer pods. We changed into scrubs and Alleyn took me through the sixteen operating rooms to show me the laparoscopy suite, with its flat-screen video monitors, the hybrid operating room with built-in imaging equipment, the surgical robot for minimally invasive robotic surgery.

I was impressed. The place had virtually all the technology that you’d find at Harvard and Stanford and the Mayo Clinic, and, as I walked through that hospital on a dusty road in South Texas, this struck me as a remarkable thing. Rich towns get the new school buildings, fire trucks, and roads, not to mention the better teachers and police officers and civil engineers. Poor towns don’t. But that rule doesn’t hold for health care.

At McAllen Medical Center, I saw an orthopedic surgeon work under an operating microscope to remove a tumor that had wrapped around the spinal cord of a fourteen-year-old. At a home-health agency, I spoke to a nurse who could provide intravenous-drug therapy for patients with congestive heart failure. At McAllen Heart Hospital, I watched Dyke and a team of six do a coronary-artery bypass using technologies that didn’t exist a few years ago. At Renaissance, I talked with a neonatologist who trained at my hospital, in Boston, and brought McAllen new skills and technologies for premature babies. “I’ve had nurses come up to me and say, ‘I never knew these babies could survive,’ “ he said.

And yet there’s no evidence that the treatments and technologies available at McAllen are better than those found elsewhere in the country. The annual reports that hospitals file with Medicare show that those in McAllen and El Paso offer comparable technologies—neonatal intensive-care units, advanced cardiac services, PET scans, and so on. Public statistics show no difference in the supply of doctors. Hidalgo County actually has fewer specialists than the national average.

Nor does the care given in McAllen stand out for its quality. Medicare ranks hospitals on twenty-five metrics of care. On all but two of these, McAllen’s five largest hospitals performed worse, on average, than El Paso’s. McAllen costs Medicare seven thousand dollars more per person each year than does the average city in America. But not, so far as one can tell, because it’s delivering better health care.

One night, I went to dinner with six McAllen doctors. All were what you would call bread-and-butter physicians: busy, full-time, private-practice doctors who work from seven in the morning to seven at night and sometimes later, their waiting rooms teeming and their desks stacked with medical charts to review.

Some were dubious when I told them that McAllen was the country’s most expensive place for health care. I gave them the spending data from Medicare. In 1992, in the McAllen market, the average cost per Medicare enrollee was $4,891, almost exactly the national average. But since then, year after year, McAllen’s health costs have grown faster than any other market in the country, ultimately soaring by more than ten thousand dollars per person.

“Maybe the service is better here,” the cardiologist suggested. People can be seen faster and get their tests more readily, he said.

Others were skeptical. “I don’t think that explains the costs he’s talking about,” the general surgeon said.

“It’s malpractice,” a family physician who had practiced here for thirty-three years said.

“McAllen is legal hell,” the cardiologist agreed. Doctors order unnecessary tests just to protect themselves, he said. Everyone thought the lawyers here were worse than elsewhere.

That explanation puzzled me. Several years ago, Texas passed a tough malpractice law that capped pain-and-suffering awards at two hundred and fifty thousand dollars. Didn’t lawsuits go down?

“Practically to zero,” the cardiologist admitted.

“Come on,” the general surgeon finally said. “We all know these arguments are bullshit. There is overutilization here, pure and simple.” Doctors, he said, were racking up charges with extra tests, services, and procedures.

The surgeon came to McAllen in the mid-nineties, and since then, he said, “the way to practice medicine has changed completely. Before, it was about how to do a good job. Now it is about ‘How much will you benefit?’ “

Everyone agreed that something fundamental had changed since the days when health-care costs in McAllen were the same as those in El Paso and elsewhere. Yes, they had more technology. “But young doctors don’t think anymore,” the family physician said.

The surgeon gave me an example. General surgeons are often asked to see patients with pain from gallstones. If there aren’t any complications—and there usually aren’t—the pain goes away on its own or with pain medication. With instruction on eating a lower-fat diet, most patients experience no further difficulties. But some have recurrent episodes, and need surgery to remove their gallbladder.

Seeing a patient who has had uncomplicated, first-time gallstone pain requires some judgment. A surgeon has to provide reassurance (people are often scared and want to go straight to surgery), some education about gallstone disease and diet, perhaps a prescription for pain; in a few weeks, the surgeon might follow up. But increasingly, I was told, McAllen surgeons simply operate. The patient wasn’t going to moderate her diet, they tell themselves. The pain was just going to come back. And by operating they happen to make an extra seven hundred dollars.

I gave the doctors around the table a scenario. A forty-year-old woman comes in with chest pain after a fight with her husband. An EKG is normal. The chest pain goes away. She has no family history of heart disease. What did McAllen doctors do fifteen years ago?

Send her home, they said. Maybe get a stress test to confirm that there’s no issue, but even that might be overkill.

And today? Today, the cardiologist said, she would get a stress test, an echocardiogram, a mobile Holter monitor, and maybe even a cardiac catheterization.

“Oh, she’s definitely getting a cath,” the internist said, laughing grimly.

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To determine whether overuse of medical care was really the problem in McAllen, I turned to Jonathan Skinner, an economist at Dartmouth’s Institute for Health Policy and Clinical Practice, which has three decades of expertise in examining regional patterns in Medicare payment data. I also turned to two private firms—D2Hawkeye, an independent company, and Ingenix, UnitedHealthcare’s data-analysis company—to analyze commercial insurance data for McAllen. The answer was yes. Compared with patients in El Paso and nationwide, patients in McAllen got more of pretty much everything—more diagnostic testing, more hospital treatment, more surgery, more home care.

The Medicare payment data provided the most detail. Between 2001 and 2005, critically ill Medicare patients received almost fifty per cent more specialist visits in McAllen than in El Paso, and were two-thirds more likely to see ten or more specialists in a six-month period. In 2005 and 2006, patients in McAllen received twenty per cent more abdominal ultrasounds, thirty per cent more bone-density studies, sixty per cent more stress tests with echocardiography, two hundred per cent more nerve-conduction studies to diagnose carpal-tunnel syndrome, and five hundred and fifty per cent more urine-flow studies to diagnose prostate troubles. They received one-fifth to two-thirds more gallbladder operations, knee replacements, breast biopsies, and bladder scopes. They also received two to three times as many pacemakers, implantable defibrillators, cardiac-bypass operations, carotid endarterectomies, and coronary-artery stents. And Medicare paid for five times as many home-nurse visits. The primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine.

This is a disturbing and perhaps surprising diagnosis. Americans like to believe that, with most things, more is better. But research suggests that where medicine is concerned it may actually be worse. For example, Rochester, Minnesota, where the Mayo Clinic dominates the scene, has fantastically high levels of technological capability and quality, but its Medicare spending is in the lowest fifteen per cent of the country—$6,688 per enrollee in 2006, which is eight thousand dollars less than the figure for McAllen. Two economists working at Dartmouth, Katherine Baicker and Amitabh Chandra, found that the more money Medicare spent per person in a given state the lower that state’s quality ranking tended to be. In fact, the four states with the highest levels of spending—Louisiana, Texas, California, and Florida—were near the bottom of the national rankings on the quality of patient care.

In a 2003 study, another Dartmouth team, led by the internist Elliott Fisher, examined the treatment received by a million elderly Americans diagnosed with colon or rectal cancer, a hip fracture, or a heart attack. They found that patients in higher-spending regions received sixty per cent more care than elsewhere. They got more frequent tests and procedures, more visits with specialists, and more frequent admission to hospitals. Yet they did no better than other patients, whether this was measured in terms of survival, their ability to function, or satisfaction with the care they received. If anything, they seemed to do worse.

That’s because nothing in medicine is without risks. Complications can arise from hospital stays, medications, procedures, and tests, and when these things are of marginal value the harm can be greater than the benefits. In recent years, we doctors have markedly increased the number of operations we do, for instance. In 2006, doctors performed at least sixty million surgical procedures, one for every five Americans. No other country does anything like as many operations on its citizens. Are we better off for it? No one knows for sure, but it seems highly unlikely. After all, some hundred thousand people die each year from complications of surgery—far more than die in car crashes.

To make matters worse, Fisher found that patients in high-cost areas were actually less likely to receive low-cost preventive services, such as flu and pneumonia vaccines, faced longer waits at doctor and emergency-room visits, and were less likely to have a primary-care physician. They got more of the stuff that cost more, but not more of what they needed.

In an odd way, this news is reassuring. Universal coverage won’t be feasible unless we can control costs. Policymakers have worried that doing so would require rationing, which the public would never go along with. So the idea that there’s plenty of fat in the system is proving deeply attractive. “Nearly thirty per cent of Medicare’s costs could be saved without negatively affecting health outcomes if spending in high- and medium-cost areas could be reduced to the level in low-cost areas,” Peter Orszag, the President’s budget director, has stated.

Most Americans would be delighted to have the quality of care found in places like Rochester, Minnesota, or Seattle, Washington, or Durham, North Carolina—all of which have world-class hospitals and costs that fall below the national average. If we brought the cost curve in the expensive places down to their level, Medicare’s problems (indeed, almost all the federal government’s budget problems for the next fifty years) would be solved. The difficulty is how to go about it. Physicians in places like McAllen behave differently from others. The $2.4-trillion question is why. Unless we figure it out, health reform will fail.

I had what I considered to be a reasonable plan for finding out what was going on in McAllen. I would call on the heads of its hospitals, in their swanky, decorator-designed, churrigueresco offices, and I’d ask them.

The first hospital I visited, McAllen Heart Hospital, is owned by Universal Health Services, a for-profit hospital chain with headquarters in King of Prussia, Pennsylvania, and revenues of five billion dollars last year. I went to see the hospital’s chief operating officer, Gilda Romero. Truth be told, her office seemed less churrigueresco than Office Depot. She had straight brown hair, sympathetic eyes, and looked more like a young school teacher than like a corporate officer with nineteen years of experience. And when I inquired, “What is going on in this place?” she looked surprised.

Is McAllen really that expensive? she asked.

I described the data, including the numbers indicating that heart operations and catheter procedures and pacemakers were being performed in McAllen at double the usual rate.

“That is interesting,” she said, by which she did not mean, “Uh-oh, you’ve caught us” but, rather, “That is actually interesting.” The problem of McAllen’s outlandish costs was new to her. She puzzled over the numbers. She was certain that her doctors performed surgery only when it was necessary. It had to be one of the other hospitals. And she had one in mind—Doctors Hospital at Renaissance, the hospital in Edinburg that I had toured.

She wasn’t the only person to mention Renaissance. It is the newest hospital in the area. It is physician-owned. And it has a reputation (which it disclaims) for aggressively recruiting high-volume physicians to become investors and send patients there. Physicians who do so receive not only their fee for whatever service they provide but also a percentage of the hospital’s profits from the tests, surgery, or other care patients are given. (In 2007, its profits totalled thirty-four million dollars.) Romero and others argued that this gives physicians an unholy temptation to overorder.

Such an arrangement can make physician investors rich. But it can’t be the whole explanation. The hospital gets barely a sixth of the patients in the region; its margins are no bigger than the other hospitals’—whether for profit or not for profit—and it didn’t have much of a presence until 2004 at the earliest, a full decade after the cost explosion in McAllen began.

“Those are good points,” Romero said. She couldn’t explain what was going on.

The following afternoon, I visited the top managers of Doctors Hospital at Renaissance. We sat in their boardroom around one end of a yacht-length table. The chairman of the board offered me a soda. The chief of staff smiled at me. The chief financial officer shook my hand as if I were an old friend. The C.E.O., however, was having a hard time pretending that he was happy to see me. Lawrence Gelman was a fifty-seven-year-old anesthesiologist with a Bill Clinton shock of white hair and a weekly local radio show tag-lined “Opinions from an Unrelenting Conservative Spirit.” He had helped found the hospital. He barely greeted me, and while the others were trying for a how-can-I-help-you-today attitude, his body language was more let’s-get-this-over-with.

So I asked him why McAllen’s health-care costs were so high. What he gave me was a disquisition on the theory and history of American health-care financing going back to Lyndon Johnson and the creation of Medicare, the upshot of which was: (1) Government is the problem in health care. “The people in charge of the purse strings don’t know what they’re doing.” (2) If anything, government insurance programs like Medicare don’t pay enough. “I, as an anesthesiologist, know that they pay me ten per cent of what a private insurer pays.” (3) Government programs are full of waste. “Every person in this room could easily go through the expenditures of Medicare and Medicaid and see all kinds of waste.” (4) But not in McAllen. The clinicians here, at least at Doctors Hospital at Renaissance, “are providing necessary, essential health care,” Gelman said. “We don’t invent patients.”

Then why do hospitals in McAllen order so much more surgery and scans and tests than hospitals in El Paso and elsewhere?

In the end, the only explanation he and his colleagues could offer was this: The other doctors and hospitals in McAllen may be overspending, but, to the extent that his hospital provides costlier treatment than other places in the country, it is making people better in ways that data on quality and outcomes do not measure.

“Do we provide better health care than El Paso?” Gelman asked. “I would bet you two to one that we do.”

It was a depressing conversation—not because I thought the executives were being evasive but because they weren’t being evasive. The data on McAllen’s costs were clearly new to them. They were defending McAllen reflexively. But they really didn’t know the big picture of what was happening.

And, I realized, few people in their position do. Local executives for hospitals and clinics and home-health agencies understand their growth rate and their market share; they know whether they are losing money or making money. They know that if their doctors bring in enough business—surgery, imaging, home-nursing referrals—they make money; and if they get the doctors to bring in more, they make more. But they have only the vaguest notion of whether the doctors are making their communities as healthy as they can, or whether they are more or less efficient than their counterparts elsewhere. A doctor sees a patient in clinic, and has her check into a McAllen hospital for a CT scan, an ultrasound, three rounds of blood tests, another ultrasound, and then surgery to have her gallbladder removed. How is Lawrence Gelman or Gilda Romero to know whether all that is essential, let alone the best possible treatment for the patient? It isn’t what they are responsible or accountable for.

Health-care costs ultimately arise from the accumulation of individual decisions doctors make about which services and treatments to write an order for. The most expensive piece of medical equipment, as the saying goes, is a doctor’s pen. And, as a rule, hospital executives don’t own the pen caps. Doctors do.

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If doctors wield the pen, why do they do it so differently from one place to another? Brenda Sirovich, another Dartmouth researcher, published a study last year that provided an important clue. She and her team surveyed some eight hundred primary-care physicians from high-cost cities (such as Las Vegas and New York), low-cost cities (such as Sacramento and Boise), and others in between. The researchers asked the physicians specifically how they would handle a variety of patient cases. It turned out that differences in decision-making emerged in only some kinds of cases. In situations in which the right thing to do was well established—for example, whether to recommend a mammogram for a fifty-year-old woman (the answer is yes)—physicians in high- and low-cost cities made the same decisions. But, in cases in which the science was unclear, some physicians pursued the maximum possible amount of testing and procedures; some pursued the minimum. And which kind of doctor they were depended on where they came from.

Sirovich asked doctors how they would treat a seventy-five-year-old woman with typical heartburn symptoms and “adequate health insurance to cover tests and medications.” Physicians in high- and low-cost cities were equally likely to prescribe antacid therapy and to check for H. pylori, an ulcer-causing bacterium—steps strongly recommended by national guidelines. But when it came to measures of less certain value—and higher cost—the differences were considerable. More than seventy per cent of physicians in high-cost cities referred the patient to a gastroenterologist, ordered an upper endoscopy, or both, while half as many in low-cost cities did. Physicians from high-cost cities typically recommended that patients with well-controlled hypertension see them in the office every one to three months, while those from low-cost cities recommended visits twice yearly. In case after uncertain case, more was not necessarily better. But physicians from the most expensive cities did the most expensive things.

Why? Some of it could reflect differences in training. I remember when my wife brought our infant son Walker to visit his grandparents in Virginia, and he took a terrifying fall down a set of stairs. They drove him to the local community hospital in Alexandria. A CT scan showed that he had a tiny subdural hematoma—a small area of bleeding in the brain. During ten hours of observation, though, he was fine—eating, drinking, completely alert. I was a surgery resident then and had seen many cases like his. We observed each child in intensive care for at least twenty-four hours and got a repeat CT scan. That was how I’d been trained. But the doctor in Alexandria was going to send Walker home. That was how he’d been trained. Suppose things change for the worse? I asked him. It’s extremely unlikely, he said, and if anything changed Walker could always be brought back. I bullied the doctor into admitting him anyway. The next day, the scan and the patient were fine. And, looking in the textbooks, I learned that the doctor was right. Walker could have been managed safely either way.

There was no sign, however, that McAllen’s doctors as a group were trained any differently from El Paso’s. One morning, I met with a hospital administrator who had extensive experience managing for-profit hospitals along the border. He offered a different possible explanation: the culture of money.

“In El Paso, if you took a random doctor and looked at his tax returns eighty-five per cent of his income would come from the usual practice of medicine,” he said. But in McAllen, the administrator thought, that percentage would be a lot less.

He knew of doctors who owned strip malls, orange groves, apartment complexes—or imaging centers, surgery centers, or another part of the hospital they directed patients to. They had “entrepreneurial spirit,” he said. They were innovative and aggressive in finding ways to increase revenues from patient care. “There’s no lack of work ethic,” he said. But he had often seen financial considerations drive the decisions doctors made for patients—the tests they ordered, the doctors and hospitals they recommended—and it bothered him. Several doctors who were unhappy about the direction medicine had taken in McAllen told me the same thing. “It’s a machine, my friend,” one surgeon explained.

No one teaches you how to think about money in medical school or residency. Yet, from the moment you start practicing, you must think about it. You must consider what is covered for a patient and what is not. You must pay attention to insurance rejections and government-reimbursement rules. You must think about having enough money for the secretary and the nurse and the rent and the malpractice insurance.

Beyond the basics, however, many physicians are remarkably oblivious to the financial implications of their decisions. They see their patients. They make their recommendations. They send out the bills. And, as long as the numbers come out all right at the end of each month, they put the money out of their minds.

Others think of the money as a means of improving what they do. They think about how to use the insurance money to maybe install electronic health records with colleagues, or provide easier phone and e-mail access, or offer expanded hours. They hire an extra nurse to monitor diabetic patients more closely, and to make sure that patients don’t miss their mammograms and pap smears and colonoscopies.

Then there are the physicians who see their practice primarily as a revenue stream. They instruct their secretary to have patients who call with follow-up questions schedule an appointment, because insurers don’t pay for phone calls, only office visits. They consider providing Botox injections for cash. They take a Doppler ultrasound course, buy a machine, and start doing their patients’ scans themselves, so that the insurance payments go to them rather than to the hospital. They figure out ways to increase their high-margin work and decrease their low-margin work. This is a business, after all.

In every community, you’ll find a mixture of these views among physicians, but one or another tends to predominate. McAllen seems simply to be the community at one extreme.

In a few cases, the hospital executive told me, he’d seen the behavior cross over into what seemed like outright fraud. “I’ve had doctors here come up to me and say, ‘You want me to admit patients to your hospital, you’re going to have to pay me.’ “

“How much?” I asked.

“The amounts—all of them were over a hundred thousand dollars per year,” he said. The doctors were specific. The most he was asked for was five hundred thousand dollars per year.

He didn’t pay any of them, he said: “I mean, I gotta sleep at night.” And he emphasized that these were just a handful of doctors. But he had never been asked for a kickback before coming to McAllen.

Woody Powell is a Stanford sociologist who studies the economic culture of cities. Recently, he and his research team studied why certain regions—Boston, San Francisco, San Diego—became leaders in biotechnology while others with a similar concentration of scientific and corporate talent—Los Angeles, Philadelphia, New York—did not. The answer they found was what Powell describes as the anchor-tenant theory of economic development. Just as an anchor store will define the character of a mall, anchor tenants in biotechnology, whether it’s a company like Genentech, in South San Francisco, or a university like M.I.T., in Cambridge, define the character of an economic community. They set the norms. The anchor tenants that set norms encouraging the free flow of ideas and collaboration, even with competitors, produced enduringly successful communities, while those that mainly sought to dominate did not.

Powell suspects that anchor tenants play a similarly powerful community role in other areas of economics, too, and health care may be no exception. I spoke to a marketing rep for a McAllen home-health agency who told me of a process uncannily similar to what Powell found in biotech. Her job is to persuade doctors to use her agency rather than others. The competition is fierce. I opened the phone book and found seventeen pages of listings for home-health agencies—two hundred and sixty in all. A patient typically brings in between twelve hundred and fifteen hundred dollars, and double that amount for specialized care. She described how, a decade or so ago, a few early agencies began rewarding doctors who ordered home visits with more than trinkets: they provided tickets to professional sporting events, jewelry, and other gifts. That set the tone. Other agencies jumped in. Some began paying doctors a supplemental salary, as “medical directors,” for steering business in their direction. Doctors came to expect a share of the revenue stream.

Agencies that want to compete on quality struggle to remain in business, the rep said. Doctors have asked her for a medical-director salary of four or five thousand dollars a month in return for sending her business. One asked a colleague of hers for private-school tuition for his child; another wanted sex.

“I explained the rules and regulations and the anti-kickback law, and told them no,” she said of her dealings with such doctors. “Does it hurt my business?” She paused. “I’m O.K. working only with ethical physicians,” she finally said.

About fifteen years ago, it seems, something began to change in McAllen. A few leaders of local institutions took profit growth to be a legitimate ethic in the practice of medicine. Not all the doctors accepted this. But they failed to discourage those who did. So here, along the banks of the Rio Grande, in the Square Dance Capital of the World, a medical community came to treat patients the way subprime-mortgage lenders treated home buyers: as profit centers.

The real puzzle of American health care, I realized on the airplane home, is not why McAllen is different from El Paso. It’s why El Paso isn’t like McAllen. Every incentive in the system is an invitation to go the way McAllen has gone. Yet, across the country, large numbers of communities have managed to control their health costs rather than ratchet them up.

I talked to Denis Cortese, the C.E.O. of the Mayo Clinic, which is among the highest-quality, lowest-cost health-care systems in the country. A couple of years ago, I spent several days there as a visiting surgeon. Among the things that stand out from that visit was how much time the doctors spent with patients. There was no churn—no shuttling patients in and out of rooms while the doctor bounces from one to the other. I accompanied a colleague while he saw patients. Most of the patients, like those in my clinic, required about twenty minutes. But one patient had colon cancer and a number of other complex issues, including heart disease. The physician spent an hour with her, sorting things out. He phoned a cardiologist with a question.

“I’ll be there,” the cardiologist said.

Fifteen minutes later, he was. They mulled over everything together. The cardiologist adjusted a medication, and said that no further testing was needed. He cleared the patient for surgery, and the operating room gave her a slot the next day.

The whole interaction was astonishing to me. Just having the cardiologist pop down to see the patient with the surgeon would be unimaginable at my hospital. The time required wouldn’t pay. The time required just to organize the system wouldn’t pay.

The core tenet of the Mayo Clinic is “The needs of the patient come first”—not the convenience of the doctors, not their revenues. The doctors and nurses, and even the janitors, sat in meetings almost weekly, working on ideas to make the service and the care better, not to get more money out of patients. I asked Cortese how the Mayo Clinic made this possible.

“It’s not easy,” he said. But decades ago Mayo recognized that the first thing it needed to do was eliminate the financial barriers. It pooled all the money the doctors and the hospital system received and began paying everyone a salary, so that the doctors’ goal in patient care couldn’t be increasing their income. Mayo promoted leaders who focussed first on what was best for patients, and then on how to make this financially possible.

No one there actually intends to do fewer expensive scans and procedures than is done elsewhere in the country. The aim is to raise quality and to help doctors and other staff members work as a team. But, almost by happenstance, the result has been lower costs.

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“When doctors put their heads together in a room, when they share expertise, you get more thinking and less testing,” Cortese told me.

Skeptics saw the Mayo model as a local phenomenon that wouldn’t carry beyond the hay fields of northern Minnesota. But in 1986 the Mayo Clinic opened a campus in Florida, one of our most expensive states for health care, and, in 1987, another one in Arizona. It was difficult to recruit staff members who would accept a salary and the Mayo’s collaborative way of practicing. Leaders were working against the dominant medical culture and incentives. The expansion sites took at least a decade to get properly established. But eventually they achieved the same high-quality, low-cost results as Rochester. Indeed, Cortese says that the Florida site has become, in some respects, the most efficient one in the system.

The Mayo Clinic is not an aberration. One of the lowest-cost markets in the country is Grand Junction, Colorado, a community of a hundred and twenty thousand that nonetheless has achieved some of Medicare’s highest quality-of-care scores. Michael Pramenko is a family physician and a local medical leader there. Unlike doctors at the Mayo Clinic, he told me, those in Grand Junction get piecework fees from insurers. But years ago the doctors agreed among themselves to a system that paid them a similar fee whether they saw Medicare, Medicaid, or private-insurance patients, so that there would be little incentive to cherry-pick patients. They also agreed, at the behest of the main health plan in town, an H.M.O., to meet regularly on small peer-review committees to go over their patient charts together. They focussed on rooting out problems like poor prevention practices, unnecessary back operations, and unusual hospital-complication rates. Problems went down. Quality went up. Then, in 2004, the doctors’ group and the local H.M.O. jointly created a regional information network—a community-wide electronic-record system that shared office notes, test results, and hospital data for patients across the area. Again, problems went down. Quality went up. And costs ended up lower than just about anywhere else in the United States.

Grand Junction’s medical community was not following anyone else’s recipe. But, like Mayo, it created what Elliott Fisher, of Dartmouth, calls an accountable-care organization. The leading doctors and the hospital system adopted measures to blunt harmful financial incentives, and they took collective responsibility for improving the sum total of patient care.

This approach has been adopted in other places, too: the Geisinger Health System, in Danville, Pennsylvania; the Marshfield Clinic, in Marshfield, Wisconsin; Intermountain Healthcare, in Salt Lake City; Kaiser Permanente, in Northern California. All of them function on similar principles. All are not-for-profit institutions. And all have produced enviably higher quality and lower costs than the average American town enjoys.

When you look across the spectrum from Grand Junction to McAllen—and the almost threefold difference in the costs of care—you come to realize that we are witnessing a battle for the soul of American medicine. Somewhere in the United States at this moment, a patient with chest pain, or a tumor, or a cough is seeing a doctor. And the damning question we have to ask is whether the doctor is set up to meet the needs of the patient, first and foremost, or to maximize revenue.

There is no insurance system that will make the two aims match perfectly. But having a system that does so much to misalign them has proved disastrous. As economists have often pointed out, we pay doctors for quantity, not quality. As they point out less often, we also pay them as individuals, rather than as members of a team working together for their patients. Both practices have made for serious problems.

Providing health care is like building a house. The task requires experts, expensive equipment and materials, and a huge amount of coördination. Imagine that, instead of paying a contractor to pull a team together and keep them on track, you paid an electrician for every outlet he recommends, a plumber for every faucet, and a carpenter for every cabinet. Would you be surprised if you got a house with a thousand outlets, faucets, and cabinets, at three times the cost you expected, and the whole thing fell apart a couple of years later? Getting the country’s best electrician on the job (he trained at Harvard, somebody tells you) isn’t going to solve this problem. Nor will changing the person who writes him the check.

This last point is vital. Activists and policymakers spend an inordinate amount of time arguing about whether the solution to high medical costs is to have government or private insurance companies write the checks. Here’s how this whole debate goes. Advocates of a public option say government financing would save the most money by having leaner administrative costs and forcing doctors and hospitals to take lower payments than they get from private insurance. Opponents say doctors would skimp, quit, or game the system, and make us wait in line for our care; they maintain that private insurers are better at policing doctors. No, the skeptics say: all insurance companies do is reject applicants who need health care and stall on paying their bills. Then we have the economists who say that the people who should pay the doctors are the ones who use them. Have consumers pay with their own dollars, make sure that they have some “skin in the game,” and then they’ll get the care they deserve. These arguments miss the main issue. When it comes to making care better and cheaper, changing who pays the doctor will make no more difference than changing who pays the electrician. The lesson of the high-quality, low-cost communities is that someone has to be accountable for the totality of care. Otherwise, you get a system that has no brakes. You get McAllen.

One afternoon in McAllen, I rode down McColl Road with Lester Dyke, the cardiac surgeon, and we passed a series of office plazas that seemed to be nothing but home-health agencies, imaging centers, and medical-equipment stores.

“Medicine has become a pig trough here,” he muttered.

Dyke is among the few vocal critics of what’s happened in McAllen. “We took a wrong turn when doctors stopped being doctors and became businessmen,” he said.

We began talking about the various proposals being touted in Washington to fix the cost problem. I asked him whether expanding public-insurance programs like Medicare and shrinking the role of insurance companies would do the trick in McAllen.

“I don’t have a problem with it,” he said. “But it won’t make a difference.” In McAllen, government payers already predominate—not many people have jobs with private insurance.

How about doing the opposite and increasing the role of big insurance companies?

“What good would that do?” Dyke asked.

The third class of health-cost proposals, I explained, would push people to use medical savings accounts and hold high-deductible insurance policies: “They’d have more of their own money on the line, and that’d drive them to bargain with you and other surgeons, right?”

He gave me a quizzical look. We tried to imagine the scenario. A cardiologist tells an elderly woman that she needs bypass surgery and has Dr. Dyke see her. They discuss the blockages in her heart, the operation, the risks. And now they’re supposed to haggle over the price as if he were selling a rug in a souk? “I’ll do three vessels for thirty thousand, but if you take four I’ll throw in an extra night in the I.C.U.”—that sort of thing? Dyke shook his head. “Who comes up with this stuff?” he asked. “Any plan that relies on the sheep to negotiate with the wolves is doomed to failure.”

Instead, McAllen and other cities like it have to be weaned away from their untenably fragmented, quantity-driven systems of health care, step by step. And that will mean rewarding doctors and hospitals if they band together to form Grand Junction-like accountable-care organizations, in which doctors collaborate to increase prevention and the quality of care, while discouraging overtreatment, undertreatment, and sheer profiteering. Under one approach, insurers—whether public or private—would allow clinicians who formed such organizations and met quality goals to keep half the savings they generate. Government could also shift regulatory burdens, and even malpractice liability, from the doctors to the organization. Other, sterner, approaches would penalize those who don’t form these organizations.

This will by necessity be an experiment. We will need to do in-depth research on what makes the best systems successful—the peer-review committees? recruiting more primary-care doctors and nurses? putting doctors on salary?—and disseminate what we learn. Congress has provided vital funding for research that compares the effectiveness of different treatments, and this should help reduce uncertainty about which treatments are best. But we also need to fund research that compares the effectiveness of different systems of care—to reduce our uncertainty about which systems work best for communities. These are empirical, not ideological, questions. And we would do well to form a national institute for health-care delivery, bringing together clinicians, hospitals, insurers, employers, and citizens to assess, regularly, the quality and the cost of our care, review the strategies that produce good results, and make clear recommendations for local systems.

Dramatic improvements and savings will take at least a decade. But a choice must be made. Whom do we want in charge of managing the full complexity of medical care? We can turn to insurers (whether public or private), which have proved repeatedly that they can’t do it. Or we can turn to the local medical communities, which have proved that they can. But we have to choose someone—because, in much of the country, no one is in charge. And the result is the most wasteful and the least sustainable health-care system in the world.

Something even more worrisome is going on as well. In the war over the culture of medicine—the war over whether our country’s anchor model will be Mayo or McAllen—the Mayo model is losing. In the sharpest economic downturn that our health system has faced in half a century, many people in medicine don’t see why they should do the hard work of organizing themselves in ways that reduce waste and improve quality if it means sacrificing revenue.

In El Paso, the for-profit health-care executive told me, a few leading physicians recently followed McAllen’s lead and opened their own centers for surgery and imaging. When I was in Tulsa a few months ago, a fellow-surgeon explained how he had made up for lost revenue by shifting his operations for well-insured patients to a specialty hospital that he partially owned while keeping his poor and uninsured patients at a nonprofit hospital in town. Even in Grand Junction, Michael Pramenko told me, “some of the doctors are beginning to complain about ‘leaving money on the table.’ “

As America struggles to extend health-care coverage while curbing health-care costs, we face a decision that is more important than whether we have a public-insurance option, more important than whether we will have a single-payer system in the long run or a mixture of public and private insurance, as we do now. The decision is whether we are going to reward the leaders who are trying to build a new generation of Mayos and Grand Junctions. If we don’t, McAllen won’t be an outlier. It will be our future. ♦


By Amy Fontinelle

Property insurance protects the things you own. Casualty insurance protects you financially in the event that someone sues you. The two are often referred to collectively as property and casualty insurance because the things you own have the potential to harm people in ways that could cause them to sue you. In this chapter, we’ll review the main kinds of property and casualty insurance: auto insurance, homeowners insurance, renter’s insurance and umbrella insurance. (For background reading, see Do You Need Casualty Insurance?)

Auto Insurance

Almost every state requires drivers to carry a minimum amount of auto insurance. Even if it weren’t legally required, you would want to carry auto insurance because the losses from an accident can be substantial. If you totaled someone’s car, would you have the cash to pay them to replace it? The average used car cost more than $18,000 in 2015, according to Edmunds. What about $50,000 to cover medical bills and lost work time? Not only should you want to carry car insurance, you should probably carry more than the legal minimum. (For related reading, see How Auto Insurance by the Mile Works.)

Car insurance covers damage caused to other vehicles and property in an accident as well as injuries caused to people. It also covers damage caused to your car by a storm or a collision with an animal. (For more insight, read Shopping for Car Insurance.)

Your deductible is the amount you will pay when you file a claim that the insurance company approves and agrees to pay its share of. If you have a $250 deductible and file an approved claim for $2,000, your insurance company will cut you a check for $1,750.

Besides the type and amount of coverage and the deductible you choose, your auto insurance rates are determined by your driving record, your annual mileage, where you live, how old you are, your gender, the type of car you drive and your credit score. The better your driving record, the more driving experience you have and the higher your credit score, the better your rates will be. A car that is less safe, more expensive to repair, and popular with thieves will cost more to insure. (For tips on reducing your rates, see 12 Car Insurance Cost Cutters.)

If you are in a car accident, having your auto insurance company’s app on your phone can come in handy. It can guide you through the process of what to do next, take accident photos, record incident details and help you file a claim. Insurance apps also make it easy to pull up your proof of insurance, track a claim, message an agent and contact roadside assistance. (Source: https://play.google.com/store/apps/details?id=com.nationwide.mobile.android.nwmobile&hl=en and https://play.google.com/store/apps/details?id=com.esurance.app and https://play.google.com/store/apps/details?id=com.geico.mobile)

Homeowners Insurance
As we explained in section 3, mortgage lenders require borrowers to carry enough homeowners insurance to cover the full replacement cost of the home’s structure. As with auto insurance, you’d want homeowners insurance even if it wasn’t required because the potential loss will likely be more than you could afford. For a home, it could reach into the hundreds of thousands of dollars (or millions, if you’re rich). If you make substantial improvements to your home that significantly increase its value, you’ll want to increase your homeowners insurance coverage so that you can rebuild your home in its updated form if it is totally destroyed. Homeowners insurance also covers your possessions whether they’re in your home, with you on a trip or in your car. (For background reading, see Beginners' Guide To Homeowners Insurance.)

Homeowners insurance comes as a standardized contract depending on what type of coverage you need. Each contract is called a form, and there are eight of them, numbered HO-1 to HO-8. HO-1 is the simplest and covers damage from 10 things, which the insurance industry calls “named perils.” These are fire or smoke; explosions; lightning strikes; hail and windstorms; theft; vandalism; damage from vehicles; damage from aircraft; riots and civil commotion; and – wait for it – volcanic eruption.

To get more coverage, you’ll want HO-2 or “broad form” coverage, which insures against everything in HO-1 plus damage caused by falling objects; the weight of ice, snow, or sleet; the freezing of household systems; the sudden and accidental tearing apart, cracking, burning, or bulging of pipes and other household systems; accidental discharge or overflow of water or steam; and sudden and accidental damage from artificially generated electrical current.

Still better is form HO-3, the most common type of homeowners insurance, which covers everything that could possibly go wrong with your house except for perils that are specifically excluded (and there are plenty of exclusions, which we’ll discuss in a moment). HO-4 is for renters, and HO-5 offers the most inclusive homeowners coverage of all the forms. HO-6 insures condo units, while HO-7 covers mobile homes and HO-8 covers older homes that have unique insurance requirements. Older homes designated as historic landmarks, for example, can have unique repair requirements to maintain their special appearance and status. Samples of these forms are available through the Insurance Information Institute’s website. (For more insight, see Have the Right Condo Insurance? and 9 Things You Need To Know About Homeowners Insurance.)

Homeowners policies do not cover certain types of damage. (Learn more in What Is and Isn’t Covered by Homeowners Insurance.) The popular HO-3 form, for example, excludes the following:

1. Losses caused by ordinance or law, meaning, for example, that a local ordinance requires you to repair your property in a way that is more expensive than anticipated.

2. Earth movements, such as earthquakes, landslides and sinkholes. (You can buy earthquake insurance in high-risk areas such as California, however.)

3. Water damage such as flooding and sewage backup. You can buy a separate flood insurance policy, and your mortgage lender will require you to if your home is located in a high-risk flood zone. You may want this insurance even if your lender doesn’t require it. (Learn more in Understanding Lender-Required Flood Insurance and Flood Insurance: Myths and Misconceptions.)

4. Power failure: Certain losses covered by the power company’s failure are not covered.

5. Neglect: If you don’t attempt to preserve and protect your property at the time of a loss and afterward, the insurance company won’t cover the loss. In other words, make sure to call the fire department if your home catches on fire.

6. War: If your home is damaged by an act of war or seized for a military purpose, you’re out of luck.

7. Nuclear hazard: If a nuclear reaction, radiation or radioactive contamination damage your home, your insurance company won’t pay.

8. Intentional losses are not covered. So if you want a remodeled kitchen, don’t start a grease fire and then try to file an insurance claim. That would be insurance fraud. (Learn more in How Insurance Companies Detect Insurance Scams.)

9. Governmental action: If the government seizes, confiscates or destroys your home, your insurance won’t cover it. (See What to Do When the Government Wants Your Land.)

In addition, homeowners in hurricane- or tornado-prone areas may have to pay an additional hurricane or windstorm deductible or buy a rider or separate policy to protect against damage caused by these storms. (For more information, see our Hurricane Insurance Deductible Fact Sheet.)

Homeowners insurance deductibles work like automobile insurance deductibles. Your deductible is the amount you will pay when you file a claim that the insurance company approves and agrees to pay its share of. If you have a $2,000 deductible and file an approved claim for $10,000, your insurance company will cut you a check for $8,000. Homeowners deductibles sometimes come in percentages, such as 0.5% of the value of your home, which would translate to $1,000 on a $200,000 home. (Learn about factors besides your deductible that affect your premiums in How Are Home Insurance Rates Determined? and Highest Homeowners Insurance States.)

Credio | Graphiq

Renters Insurance

Renters insurance covers the value your personal possessions in the event of loss, theft or damage when they are in the apartment, house, townhome or condo you rent and, like homeowners insurance, also covers your possessions while traveling or when they’re in your car. It also provides personal liability coverage to protect you if someone is injured while visiting you. Many landlords require proof of renters insurance as a condition of being able to rent from them (sometimes this requirement trickles down from their own insurers, and sometimes it’s the landlord’s choice). The landlord’s insurance covers the structure and the grounds of the property you rent. The HO-4 form describes the 16 perils a renter’s policy covers. (Learn more in Insurance 101 For Renters and What Does Renter’s Insurance Cover?)

For both homeowners insurance and renters insurance, you should create a video or photo inventory of your home and its possessions to help you substantiate a claim, should you need to make one. The Insurance Information Institute’s free Know Your Stuff app can help you create a comprehensive inventory organized by room. (Source: https://play.google.com/store/apps/details?id=com.wimbim.knowyourstuff)

Umbrella Insurance
Umbrella insurance provides additional liability coverage beyond what your auto and homeowners or renters insurance provide. It protects you in the event that someone sues you for a large amount of money and wins. If you have significant assets or many earning years ahead of you – a lawsuit could mean a claim against not just your existing assets but also your future wages – umbrella insurance may be a wise purchase. The policy itself tends to be inexpensive for the amount of coverage it offers, but you may need to increase your underlying policies to provide the maximum available liability coverage, which will cost more. Umbrella insurance also provides the legal defense you need in the event of such a suit and protects you against certain liabilities associated with having household help. (Learn more in Is Umbrella Insurance Only for the Wealthy? and It’s Raining Lawsuits: Do You Need an Umbrella Policy?)

In the next section, we’ll go over the basics of health insurance.

Intro To Insurance: Health Insurance


By Amy Fontinelle

In the previous section, we explained how risk pooling makes insurance possible: when lots of people pay premiums but only a few file claims each year, coverage is there for everyone when they need it. Now, let’s talk about some additional insurance basics: the different types of risk and why it makes sense to eliminate or minimize them even if you have insurance, who can buy insurance and how to get it, and the importance of reviewing your insurance contract.


Risks can broadly be sorted into four categories.

Preventable risks are possibilities of something bad happening that you have the power to stop. If you don’t run red lights, you can prevent yourself from causing some types of car accidents.

Minimizable risks are bad things that you can greatly reduce the chances of. You can greatly reduce the chances of someone stealing your car by not parking it on the street with the keys on the front seat and the doors unlocked. You can greatly reduce your chances of getting lung cancer by not smoking cigarettes.

Avoidable risks are dangers you can stay away from. Your house can’t fall off a cliff in a mudslide if you don’t buy a house on a cliff.

Unforeseeable risks are ones you have no power to minimize or prevent. A sinkhole could open up in your backyard and severely damage your house. If you don’t live in an area that is predisposed to sinkholes (such as Florida), you would have no reason to think you were at risk of one. (What’s more, most homeowners policies don’t cover sinkholes, as we’ll discuss in the next section.)

Taking risks costs you money, and limiting risks can save you money. Here’s an example of how this works.

Type of risk: garage fire

The effect: You have to file a homeowners insurance claim.

The costs: When you file an insurance claim, you have to pay your deductible, and your premiums are likely to go up the next time you renew your policy.

Mitigating risk: Don’t store the gas can you use to fill your lawn mower next to the your water heater, whose pilot light could ignite the gasoline vapors and start a fire or cause an explosion. Buy a gas container with a flame arrestor and a lid that prevents spills.

(For more insight on the concept of risk, see Determining Risk And The Risk Pyramid.)

Risk Financing and Transference
If you can’t eliminate a particular risk from your life, then you should try to prevent, minimize or avoid it while purchasing insurance to protect against the unforeseeable aspects of that risk. For example, if you don’t have access to good public transportation where you live and you can’t walk or bike everywhere, you’ll have to drive a vehicle to get to work, run errands and have a social life. That puts you at risk of causing a car accident or being involved in a car accident caused by someone else.

You can lessen the risks of driving by obeying the speed limit, driving defensively, wearing a seatbelt, not using your phone while you drive and paying extra attention in challenging driving conditions like traffic jams and downpours, but no matter how careful you are, you could still be involved in an accident. You can’t foresee that a cyclist will suddenly fall off his bike, causing you to swerve into the other lane and hit someone. Insurance helps protect you against such risks. It allows you to transfer the majority of the financial risk of a loss to an insurance company in exchange for paying a premium and sharing a portion of any loss through a deductible.

Required Insurance vs. Optional Insurance

Some types of insurance are required. Mortgage lenders require borrowers to carry homeowners insurance. They also require homeowners to carry flood insurance if they live in a high-risk flood zone. State law requires drivers to carry automobile insurance. The federal government requires Americans to carry health insurance or pay a penalty. And when insurance is required, it is also required in certain amounts. For example, your mortgage lender will expect you to cover the full replacement cost of your home’s structure, and the state of California requires drivers to carry a minimum of $15,000 per person and $30,000 per accident in both bodily injury liability coverage and uninsured motorist bodily injury coverage.

Other types of insurance are optional. No one will make you buy life insurance, disability insurance, personal liability umbrella insurance or long-term care insurance. You don’t even have to buy comprehensive coverage on your car if you don’t mind paying to replace it yourself if it’s stolen (that’s called self-insuring). But you might want to have some types of optional insurance anyway to protect yourself, your family and your finances.

Sometimes insurance is unavailable for the risk you want to insure because the risk is so high or the potential loss is so large that insurers can’t afford to cover it. For example, most insurance policies don’t cover damage caused by acts of war. Sometimes insurance is unavailable to particular individuals because of their unique risk. If you’re terminally ill, you will not be able to get life insurance. If you’re filed too many homeowners insurance claims, haven’t taken care of regular maintenance on your house, have bad credit or live in a particularly high crime area, you might have a hard time finding an insurer that will offer you coverage. Sometimes insurance is available through high-risk pools or specialty insurance companies in these situations; such coverage is often expensive. (Source: https://quotewizard.com/home-insurance/unable-to-get-homeowners-insurance)

Insurable Interest

To buy any type of insurance policy, you must have an insurable interest in the risk being insured against. This means that you would suffer a financial loss or legal liability if you didn’t have insurance against that event. For example, you can’t buy automobile insurance for your neighbor’s car because you don’t stand to lose anything if she gets into an accident; if that accident happens to be with you, your own insurance would cover it. And you can’t buy homeowners insurance on your parents’ home because you hope to one day inherit it. Your parents would have to purchase and own the policy – though you could reimburse them for the premiums.

How to Buy Insurance
You can buy insurance directly from an agent who works for a specific insurance company or from an insurance broker who is authorized to sell policies for many different insurance companies. You can also buy insurance directly through an insurance company’s website or through a website that offers policies from numerous insurance companies and allows you to compare prices.

The two types of insurance agents are captive agents, who work for a single company, and independent agents, who sell policies from many different companies and are compensated by each of those companies for every policy they sell. For example, you could buy a Farmers insurance policy directly from a Farmers agent or from an independent agent who is authorized to sell Farmers policies. A benefit of working with a captive agent is that they should be well versed in that company’s offerings. A benefit of working with an independent agent is that they can shop around with different insurers to find you the best value on a policy. One type of agent is not necessarily better than the other for consumers as long as you understand what you stand to gain or lose from working with each type. (For more, see How does an insurance broker make money? and 8 Qualities That Make a Good Insurance Agent.)

When you apply for a policy, an insurance underwriter will evaluate your underwriting risk before deciding whether to issue a policy to you and at what cost.

If the insurance underwriter denies your application, find out why and see if they would be willing to approve you if you remedied the problem. If not, you can keep trying other insurers until you get a yes. To save time or to get insurance when you’re especially high risk, an independent agent who specializes in people in your situation can be a tremendous help. In some cases, your only option may be to get insurance through a high-risk pool. For example, drivers who have received multiple speeding tickets in a short period or who have been convicted of driving under the influence may only be able to get automobile insurance through a high-risk pool, and that insurance will be very expensive.

Your Insurance Contract
Your insurance contract defines the terms of the agreement between you and your insurance company. It lays out your responsibilities as well as the insurance company’s responsibilities. It explains what losses the insurance company will cover and under what conditions, as well as what losses are excluded.

When you purchase an insurance policy, you will receive a copy of your insurance contract. You should read this contract from cover to cover right away. It might seem intimidating at first, but once you start to read it, you might find that you understand more than you think. For the parts that you don’t understand, you should do research online or talk to your insurance agent. You want to make sure that your policy protects you against everything you think it does and that you’re getting what you think you’re paying for. If there’s a particular risk you want covered that isn’t covered, you might be able to purchase a rider to customize your policy or a separate policy that insures against that risk. Insurance contracts are usually standard forms; everyone who buys a policy gets the same contract. Don’t expect to negotiate with your insurance company to get them to cover something that isn’t covered by the standard form or a rider. (For more insight, read Understand Your Insurance Contract.)

The standard homeowners insurance contract, for example, typically only covers jewelry and electronics up to a certain amount. If you want more coverage, you can purchase a rider.

In the following section, we’ll go into more detail about two types of insurance – homeowners and renters – that people buy to protect the places they live and the possessions they own.

Intro To Insurance: Property And Casualty Insurance


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