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Market-based solutions are usually a good way to solve economic problems. Competition and the profit motive usually provide a strong incentive to market participants to provide what the consumer wants. However, there are some economic areas where the profit motive especially prevents the consumer from getting what that person needs.

Health insurance is a prime example.

First, let's remember we are trying to provide a solution to people's health problems. This is a unique market. We're not trying to build a product more efficiently with better parts. We're focusing on peoples lives. A delayed decision or a cost-cutting treatment may prevent someone from having a high quality of life or actually lead to someone's premature death.

Let's flesh out the above statement. The insured (I) has a policy with health insurance company (X). I has a complicated medical situation and seeks treatment. I sees 2 doctors. One prescribes a cheaper treatment that is less effective while the other prescribes a more expensive treatment that is more effective. X says it will only pay for the cheaper treatment. I starts and completes the this treatment and it is ineffective.

At this point, notice what has happened.

1.) Time has elapsed and I is not better. In fact, I could be in worse condition because the ineffective treatment has now allowed the medical problem to become worse.

2.) I's quality of life has decreased because he is still sick. Personal and family level stress have increased because I is not at 100%. I is probably less productive at work because he is still sick.

3.) However, X has saved money. Because the company is profit oriented the company has increased shareholder value which is a prime motivator in a market based system. In other words, the company has operated exactly how it should in a market-based economy.

Let's look at another situation. I has a life-long medical condition that can be treated but only with an expensive prescription drug regimen. If I doesn't have medical insurance the entire expense may be too much for him to pay. This may lead to a premature death. If I does have insurance, it may be cheaper for the company to continually deny coverage instead of paying the claim.

Here's the end result.

1.) Time has elapsed and I is not better. In fact, I could be in worse condition because the ineffective treatment has now allowed the medical problem to become worse.

2.) I's quality of life has decreased because he is still sick. Personal and family level stress have increased because I is not at 100%. I is probably less productive at work because he is still sick.

3.) However, X has saved money. Because the company is profit oriented the company has increased shareholder value which is a prime motivator in a market based system. In other words, the company has operated exactly how it should in a market-based economy.

Let's look at a situation from the company's perspective. They want to increase profit to increase shareholder value. This means they want to pay as little in claims as possible. That means the only insurance risk they want is a low risk -- a policy holder who will not make a claim. To increase profits, X will deny coverage to anyone with a potential medical problem.

Here's the end result.

1.) Time has elapsed and I is not better. In fact, I could be in worse condition because the ineffective treatment has now allowed the medical problem to become worse.

2.) I's quality of life has decreased because he is still sick. Personal and family level stress have increased because I is not at 100%. I is probably less productive at work because he is still sick.

3.) However, X has saved money. Because the company is profit oriented the company has increased shareholder value which is a prime motivator in a market based system. In other words, the company has operated exactly how it should in a market-based economy.

The above situation clearly illustrates the divided loyalties of profit-motivated health insurance companies. On one hand, they have customers who must be given services they paid for. However, the profit motive prevents the company from actually delivering service to its customers. And by denying service, the insureds are no better.

Apply this on an economy-wide scale, and you have an entire population with untreated medical problems but with an insurance industry that is financially healthy.

Is this really the way to help people stay healthy?