There is no incentive to be cheap, or even consistent. But there's always an incentive to charge more.

I once found myself staring at an emergency room bill of cosmological proportions, even though the condition (and what they actually did to diagnose and treat it) was quite modest. With the itemized bill (I had evidence!) in hand, I called my insurance company to try and alert them to how THEY were being taken.

They didn't seem too concerned about it, they acted as if it was perfectly reasonable and normal, even when taking the the usual emergency room overcharges into account. (My wife's migraine did not require oxygen and xrays.) I couldn't understand how anyone could be so cavalier about being swindled. I was outraged, and it didn't even cost me a cent, except maybe in higher insurance premiums (which my boss paid most of anyway) the following year.

And then I realized why. The insurance company really didn't care they were being taken to the cleaners. They could always raise their rates the following year to make up for it. The little piece of paper in my hand was all the justification they needed. Why spend money auditing their service providers? They would charge more, maintain profits, and when the high costs drove away their paying customers, they would simply raise rates some more among those who were left. The system would stabilize when prices got so high only a portion of the population could afford medical care, and the others simply did without. But isn't that exactly the same result you'd have if there were no insurance companies at all?

You see, the insurance company doesn't really produce anything, no product or service. Maybe at one time they were a means of distributing risk and entitled to charge a fee for that work, but now they are just machines for making money. Paying medical bills is not their reason to exist, paying those bills is just their cost of doing business. They manage costs by implementing a price structure that is variable, charging in relation to what they are risking. The highest risk individuals (and now, whole populations) are priced out of the market. That isn't distributing risk at all, it's exploiting it. If only the young and healthy are insured at a reasonable cost, of course they'll make a profit. And there is no market mechanism at work, because their customers (often companies and government) feel compelled to continue buying more and more, no matter what it costs. Not only that, the insurance companies get to invest their premiums, so they have a double revenue stream.

With this money machine working and growing, everyone feels compelled to take advantage of it, doctors, hospitals, laboratories, all the providers win and the insurer takes its X percent off the top. Those who can't afford it and must do without insurance are not a loss of revenue, because those who can still pay will make up for it. And since people are ready to pay almost anything to avoid pain and death, there is no end in sight.

And the business is profitable, and growing extravagantly, even in a time of general economic hardship. It will bitterly resist any attempt to change the conditions that make it so, whether they be instituting regulation, or removing all regulation. They will spend whatever it takes to keep it just the way it is.