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Game is up for health insurers

October 29, 2009

By John M. Berry

John M. Berry, who has covered the economy for four decades for the Washington Post and other publications, is a guest columnist.

Health insurance companies are aggressively raising premiums at the same time they are fighting to stop the creation of public non-profit funds that would give them serious competition.

This foolish effort to pad profits before any healthcare overhaul gets passed ought to backfire. The so-called public option was already gathering support despite claims by conservatives that it would lead to a government takeover of health care.

Small businesses face an average premium increase of 15 percent for 2010, according to The New York Times. Separately, the Centers for Medicare & Medicaid Services, which run Medicare, said that premiums for Medicare Advantage plans — those are private plans for people also enrolled in regular Medicare — are going up 25 percent.

With costs rising like this, it is remarkable how many supporters the insurers have in Congress. Even the best of the companies are a pain to deal with.

The for-profit insurance companies are a unique feature of the U.S. health care system. No other developed country has them, and their existence is a key reason Americans spend a much higher share of their national income on health care — while leaving many people uninsured.

T.R. Reid, a long-time Washington Post correspondent, lays out those details in a fascinating new book, “The Healing of America.” Reid worked in Post bureaus in London and Tokyo, and he and his family had received health care under the British and Japanese systems. During his research, he traveled to many other countries seeking treatment for a bum shoulder he had seriously injured years earlier while in the Navy.

The result is a tale that highlights the positive and negative aspects of other systems. By almost every measure, the healthcare outcomes are better in other developed countries than in the United States, while the costs are lower.

None is perfect. They all face the problem of rising costs. But all other developed countries essentially provide care for everyone.

“For most working people under 65, we’re Germany or France or Japan,” Reid writes. “For Native Americans, military personnel and veterans, we’re Britain, or Cuba … For those over 65, we’re Canada … For the 45 million uninsured Americans, we’re Cambodia, or Burkina Faso or rural India.”

People in the latter group get care if they can pay the bill out of pocket. The United States, however, is like no other country because it “maintains so many separate systems for separate classes of people, and because it relies so heavily on for-profit private insurance plans to pay the bills,” Reid says.

Some opponents of healthcare reform complain that the focus is on extending coverage to the uninsured, which will be expensive, rather than on ways to control costs. There’s some truth to that, but extending coverage is the far more critical step. Other changes to control costs can come in turn.

Reid notes that on average, U.S. health insurance companies pay out in claims only about 80 percent of what they collect in premiums. The rest goes for marketing, underwriting and administration, with what’s left, for profit.

In France, Reid explains, everyone has a carte vitale, a green plastic card with a small memory chip. The card carries the full health history of each person, who treated him for what and what he was charged. Every time a doctor treats someone, the details are entered on the card and the update is sent to the national non-profit insurance fund which pays the doctor’s bill, generally within a week, without any additional claim being filed.

The insurance fund’s administrative costs are about one-fourth those of U.S. insurers.

Whatever the exact dimensions of healthcare reform will turn out to be aren’t clear. But one thing seems certain: Insurance companies are going to have to cover anyone who applies. They’re not going to be able to exclude anyone because of their health history.

That likely will raise the cost of their claims. But think how much they’ll be able to save on underwriting expenses.

Comments

Mr Berry, you need to do your research. Most insurance carriers are non-profit. Those which are for profit make a whopping… wait for it… 6% profit. Now, can you honestly tell me that government waste and inefficiency is going to be less than 6%? Of course you can’t… but what a government plan WILL do is drive out both for-profit AND non-profit carriers, and drive up costs. The free market works, and works quite efficiently? Government? Not so much.

Let’s keep in mind that this is the government which is planning to cut out the waste and inefficiency and fraud in Medicare… the same waste and inefficiency and fraud they’ve been planning to cut out since its inception.

Thanks, but I’ll take the free market. There are a couple nice socialist systems just north of us, and about 90 miles south of the Florida keys. You’re welcome to use them.

 

Gotta wonder how the insurance company shills get in so fast with their “Insurance companies are great” stories. Maybe they have an automated comments system?

Posted by Thinking | Report as abusive
 

GMT,

I believe it’s you who “needs to do [his] research”. This is obvious from your question that:

“Now, can you honestly tell me that government waste and inefficiency is going to be less than 6%?”

This is not a hypothetical question. Medicare and the VA already operate on only ~3% overhead costs. Last I checked, these are government-run programs (one socialized medicine, the other single-payer).

You also don’t understand how the *for profit* model can increase costs via secondary effects beyond the actual profits. For it is the seeking of profits (actually economic rents, but I digress) that justifies the excess expenses that drive up overhead costs to ~20% in private insurers, as the author points out. Among these excessive costs are a bureaucracy to do cherry-picking underwriting, an army of claims deniers, absurd executive compensation, and massive marketing budgets. And don’t forget the huge lobbying costs.

Yeah, the free market works. Always. Just because you say so. Care to adduce any evidence? Do I need to point out the multiple market failures all around us, not just in health care which is plagued by asymmetric information, free riders, huge barriers to entry, inelastic demand among many others, but also in the financial markets?

As for socialism vs. capitalism, the key question is whether you believe a person’s health should be strictly treated as a commodity which is available only on the basis of ability to pay, or whether you believe that it is a basic right necessary for life, liberty and the pursuit of happiness. For those things which are more accurately classified as the latter, socialism is the superior system. For those more suitable to allocation based on ability to pay, capitalism is.

We already have *socialized* military, police, fire, roads etc. Do you think we should abandon those in favor of personally-funded individual protection of our lives, property and safety? If so, there is a wonderful free-market paradise of non-socialized protections such as these in Somalia, just a 10 hour or so plane ride away. You’re welcome to move there.

Posted by Lewis Carroll | Report as abusive
 

Richard, more than half of all insured Americans are in “for profit” health insurance plans.

Common sense: If the market could have solved the health care problem, there was nothing preventing it from doing so by this time. The fact that it remains a problem should be your first clue.

Elementary economics: In order for a free market to work, all in the market must have all available information (per Milton Friedman and his disciples). Not having a medical degree, I don’t have “all available information”, and cannot get it. When I need treatment, I have no choice but to go to a doctor I trust and do what he says. At the price he charges, which is not posted anywhere for me to do comparison shopping. If there’s time, I can get a second opinion, which most of the time agrees with the first. In an emergency situation, there’s no time for shopping. Free market? In health care, it does not exist (per Milton Friedman, inventor of the “market solves all problems” theory).

Posted by CN | Report as abusive
 

In the column, Berry quotes Reid “that on average, U.S. health insurance companies pay out in claims only about 80 percent of what they collect in premiums.” That is an important and little-known fact. First commenter Richard tries to confuse matters with the advertised profits margins, say 6%.That (profits)is the wrong metric, the correct one is the 20%+ of premiums taken out as overhead to achieve these 6% profit; the administration (so as to weed out the potentially sick from the applicants, and deny payment to the sick insured), CEO salaries… all what does not go to actual health care; and this does not yet count the inefficiencies born by hospitals, doctors, labs, pharmacies who have to deal with numerous confusing insurance plans, different pre-approvals of treatment, delays in pay. (E.g. my major insurer once didn’t pay a small lab bill until after 3 billings [if ever], every time asking the lab to fax again my insurance card, apparently their business model was that eventually the cost of billing would exceed the money possibly collected, some $14.)
Then there’s the overhead to consumers/patients:
Once a year my colleague’s reimbursement request (for diabetes treatment/ supplies) will be rejected with a terse explanation that it is not covered by his plan. He spends then a morning on the phone talking to polite service reps who repeat this message to him, and he points out that it was covered under the same plan last quarter; 2 hours later, some supervisor finally agrees that indeed it is covered. As it happens so regularly, it must be their business model (to randomly reject a few claims, and hope most people cannot spend half a work day to complain about it).
So, if you are afraid of government bureaucracies, you haven’t called your private insurer yet.(And a government bureaucrat might not get a bonus for rejecting your claim.)
The 20+% overhead is also believable; in a quarrel with a local hospital (after birth of my daughter) about a bill of about $800(for which I had paid all co-pay, and the insurance ‘EOB’ claimed to have paid theit part [after big rebate]) the hospital faxed me a copy of the check they had received, indeed it was about $100 less than what the insurance co. had claimed; I called the phone number printed on the check and someone at company answered; their business is writing the checks and bundling the payments from out-of-state insurers; they said, by cashing the check the hospital agreed to the ~8% fee they took out of the payment; I shouldn’t pay the hospital more than I already had. So if a single step in the payment chain can take out 8% of the hospital’s hide, no wonder they all have to overbill just to collect anything. (And have 200 accountants on staff, where a similar-sized Canadian hospital has 2 or 3).

I hope that the 20% overhead cost will become more known. But I fear American journalism isn’t up to spreading actual numbers, or facts; all is opinion, and the misleading diversions by interested parties are given more weight than actually relevant facts.

Posted by A | Report as abusive
 

Beyond the 20+% overhead cost, the other little-known facts relevant for the health care debate are:
1. The enormous disparity in health-care expenditures between developed countries (mentioned in the post, in passing),
2. For some (especially small businesses, self-insured entrepreneurs) insurance may not be there, when you need it.

(Detail follows here:)
1. Total spending on health care, per person, 2007:
- United States: $7290,
- Switzerland $4417 (has most private, but regulated insurance, also more expensive)
- Canada: $3895 (single-payer)
- France: $3601 (highest rating in survey)
- Germany $3588,
- United Kingdom: $2992 (single-payer)
- Italy: $2686 Spain: $2671
- Japan: $2581 (2006)(And the Japanese are older, go to doctors 3x as often as Americans,
get more MRI scans, get instant appointments,
and it’s not that its twice as much in the U.S., it’s about 3x! ( see http://www.dailyhowler.com/dh090809.shtm l
Survey data from http://www.photius.com/rankings/healthra nks.html , cost data at
http://www.irdes.fr/EcoSante/DownLoad/OE CDHealthData_FrequentlyRequestedData.xls
, last column of 3rd spread sheet )

These data seem to be the best-kept secret in the U.S., no paper ever seems to report these unadulterated.
What do these countries have that the U.S. cannot do? (Or what does the U.S. have, that it cannot…? [Hint: Unregulated 'free' market.]

2. Private insurance may not be there when you need it: See http://tauntermedia.com/2009/07/28/uncon scionable-math/ on recissions of insurance. (Affects ‘only’ 0.5% of insured in a year; hmm, with only ~10% of insured making a claim, or <5% making a substantial claim any year, perhaps you have a 0.5%/5% chance of denial, or 1 in 10 when you have a substantial claim. Your insurance is not rescinded when you are healthy.)

With the current system, if you are a small-business owner or partner, and only a few employees, you get screwed when you want to provide health insurance. More so if any of your employees has a ‘preexisting condition.’ (Can’t hire anybody with Diabetes, can you?).

Posted by A | Report as abusive
 

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