Incentives and Profit for Insurance & Drug Companies

Pharmaceutical companies are routinely called out for supposedly holding on to suspected cures because there’s no money to be made. Sometimes drugs are available but because the condition is comparatively rare is costs thousands of dollars for one treatment you’ll need the rest of your life.

How do they get away with it and why does it happen?

From a drug company’s perspective the issue of what to product and research is far more complex than arbitrarily holding back cures. For example, the research required to come up with an approved drug can run into the hundreds of millions. There’s also no guarantee the drugs will in fact be effective, sometimes R&D produces a dud, so that’s millions lost.

It’s no surprise that when a drug is approved drug company’s will want to have a lot of sick people for a long time buying the drug. So this isn’t necessarily a case of having no incentive to produce drugs for problems, but a need driven by the market to find drug treatments that will in turn product a profit.


Profit is the motive. The incentive is more cash, not healthy people. This doesn’t mean they act to degrade people’s health by not putting forward treatments, but they certainly have no incentive to invest in things like prevention. Ultimately, the name of the game is the bottom line and whom the corporations are accountable to–the shareholders.

Shareholders want higher profits. Admittedly this is changing somewhat as social welfare policies become more popular in corporations, but for the most part incentives are purely cash related.

The same thing goes for insurance companies. You have all sorts of insurance protection: home, stuff in your home, car, expensive items, health, business, your life.

Sometimes we can get caught up in the falsehood that because we’re the customer purchasing these products the supplier should be acting in our best interests.

Again, if you follow the line of incentive there’s no reason for insurance companies to treat even their own customers with upmost attention. In these cases the customer is not always right. Yes, insurance companies will feign interest in you, but once you make a claim you’re doing something–costing them money.

Insurance is a hedge game of change. The more payouts required the less profit is made. Less profit also means increases in premiums. It is therefore in the interest of the insurance company to attempt to pay out the lowest common denominator to injured people. It’s certainly much easier to try to nickel and dime clients from other insurance companies, but at the end of the day you’re just a number to your own insurance agency. They will attempt to settle your claim for the least amount as possible as well. This becomes more evident as claims increase in value. The more expensive the more incentive the insurance company has to find a way to mitigate you as an expense.

Some people are OK with this and have received great service when in need. But I’m sure everyone knows someone who’s be screwed by insurance who refuse to cover whatever problem/issue/malady that arises for whichever fine print reason.

If you’re unhappy with how things are going you’re usually left with the option of hiring legal counsel. Unfortunately this can be costly (either in the short run or in a lower settlement for you), but the avenues available to you for a fair settlement when you require payouts from insurance are few.

Ultimately, insurance companies don’t have an incentive to get you the highest payout, if that was the case they’d be out of business. Conversely, a litigating attorney will work on your behalf. They’ll put your interests number one and will opt to maximize your compensation to the maximum you’re entitled to.

Of course, that service doesn’t come cheap, you’ll make more but the fees for legal representation can be very high, usually greater for more complex cases.

So do your homework and decide whether the situation you’re in really points to you as being the primary incentive to get the result that will benefit you the most. Usually it’s the money trail and not the customer that’s making decisions at the end of the day.

Note: Some notes from Calgary injury lawfirm Taylor Conway.

3 comments

  1. Lets face facts; “they” keep telling us that the rich are getting richer and the poor ( and newly poor ) keep getting poorer. Does anyone really think that this is just an accident. that it is just the simple effects of a down economic condition ? It is planned and wanted by the people and big businesses that are profiting from it. Just heard on the news that companies are paying less and making more. Even in these poor economic times. That corp. shareholders are thrilled with results, and that is why on the verge of a governmental economic melt down stocks are WAY UP ! Well in Greece they take to the street, in America we take it up the, well you know where I was going with that. So why not force a solution to this problem that our congresspersons and those who hold the power refuse to correct? It is simple, stay home ! ! ! Do not go to work to make millions for the company you are working for while not receiving enough to live on. Don’t spend and gas so the Mega oil companies will drown in surplus and the price of oil on the market will plummitt ! Don’t go to the store to buy things, so companies like Walmart will realize that forcing jobs over seas does have an equal and oposite effect ! Don’t worry about paying your bills, no one should be at work to mail or deliver them. Not to mention process your payments. Don’t worry about the effect on the Gross National Product, that affects the rich not your bank account. If you are one of the lucky few who still have one. Lets pick a day. One day and start there. nd stay out of work accross the country for as long as it takes. When Rich people can’t buy food because we are not producing, or delivering, or working the check out lane, they will wake up. And fast ! ! ! They will not be able to knock on your door and drag you to work. Slavery ended along time ago and not this new system of indentured servants must end also ! ! ! I pick August 10th. Mid week. It will give us all a nice long weekend and after all congress wants to take the summer off too. So get the word out ! send this to all you know ! And those you don’t know ! get it on the news ! send it to local radio, newspapers, and televission stations ! Lets see how they react to the people taking the country back FOR THE PEOPLE BY THE PEOPLE AND OF THE PEOPLE ! ! !

    1. Well James, the first step would be for you to mobilize your community. If this is going to change then it’ll have to be the change initiated by the growing poor (who coincidently don’t vote).

  2. The power and motives of corporations today have veered so helplessly far away from the original intent of corporations. In the early years of our country corporations did not have the powers that we see them use today. They were often used for only a small period of time for a very specific public need (such as the building of a bridge). If the need took too long to fulfill, the power was often taken from the corporation and given to the state, or another power in order to prevent one institution from growing too powerful. In the beginning, directors and stockholders could be personally liable and were held accountable for their actions. Ultimately, corporations were required to serve the public good- the good of “we the people”.
    By allowing corporations to abuse laws of personhood and by giving the power to shareholders, the personal element of serving the public is lost. The motive is no longer driven by what is best for the common good, but as you stated, the motive is profit.
    It makes sense that companies need money to keep moving. But to give an irresponsible amount of money to those in leadership or in ownership and then disregard the needs of its customers is unconstitutional.
    I was motivated particularly by your point that “we assume suppliers are acting in our best interest”, but that is often not true. In order to benefit the state of our economy on an individual level, it is important to investigate and understand the products that we are investing our money into, and encouraging others to do the same. Outrageous incentives must be discouraged in order for a change to take place in the motives and conduct of corporation. We have each been entrusted with the money provided to us by God, and we are each accountable to being good stewards of this money in order to benefit our society. This stewardship begins with education. Education of the people, in order to work towards an economy for the people is essential.

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