We hear this over and over.
“Competition will drive down costs.”
“Competition across state lines will drive down costs.”
In most cases that is true. But Insurance is not most cases. How Insurance Companies make their money seems to be a complete mystery to most Americans. Probably because it is not like anything that they are familiar with.
Let’s take a company that makes a product. If they only see the product in one state and there is no outside competition, they can set the price to whatever the market is willing to pay. So the price will be higher because, well, they can get by with it. And if we bring in several competitors, most likely the price will come down.
And the company makes money by manufacturing an item and selling it for more than their costs to make a profit.
We all understand this business model.
But that is not how Insurance works.