Is There a Future for Private Health Insurers?

In my brief experience in the blogosphere, my first lesson has been that writing the words "insurance companies" reliably prompts the largest number of R-rated responses. This is not surprising, since people are so regularly provoked by the inhumanity and perfidity of our private insurance system. In the past week, for example, the Washington Post described how privately insured amputees can't get needed prosthetic limbs. The Los Angeles Times includes the unsurprising line: "The state's largest for-profit health insurer is asking California physicians to look for conditions it can use to cancel their new patients' medical coverage." Not to be outdone, the New York Times included its own accounts of insurance billing. Next week will surely bring similar stories.

Ezra Klein, a creative wonkish writer from American Prospect recently wrote about this, in a bluntly titled essay "Why Insurers Suck, And Five Ways to Fix Them."

If anything, Ezra understates the issue.

Increasingly, I and others scratch our heads to wonder: Why do we have this industry again? I understand that history and politics make this industry hard to replace, but what social value does it really create? I don't ask this question about the oil industry, the pharmaceutical industry, or computer software giants. Whatever the misdeeds of particular firms and the pressing needs for public regulation in these latter industries, we understand why it's good to have firms competing to find new energy sources, new drugs, new operating systems. I don't believe private insurers are less ethical, as a whole, than soft drink manufacturers or manufacturers of plush carpet. I just can't explain what we are getting here.

In the case of private health insurance, firms have expertise administering claims and designing wellness programs. Yet to the extent that their business relies upon avoiding high-cost patients their activities are social wasteful. In so many ways, their incentives are poorly aligned with the public good.

Even if we could correct these misplaced incentives, it seems as though anything beneficial insurers can do could be accomplished better and cheaper by government. Private insurers are too fragmented to promote needed efficiencies such as electronic medical records. A Chicago provider dealing with 20 payers is hardly swayed by the pay-for-performance standard of any one of them. In general, private payers are too fragmented to exert powerful market discipline on providers. The embarrassing history of Medicare managed care provides one of many embarrassments for those who assert the inherent superiority of the private sector.

Private insurers do have two advantages: They are more nimble than government is. More important, they can take the political heat for saying "no" when patients want some desirable but unjustified service, drug, or therapy. This is hard for government to do, and "no" should sometimes be said even when this is painful.

But maybe we have this backwards. It seems to me that even when insurers are justified in saying no -- as Cigna might have been in the liver transplant case promoted by John Edwards, and as insurers sometimes are regarding potentially useless or harmful experimental therapies -- profit-making firms lack the legitimacy to deny anyone a desperately wanted treatment that provides some plausible benefit. Denying important treatments is an inherently political question. A transparent process, by financially disinterested parties, is required to secure public legitimacy.

If this is so, private insurers themselves have a strong stake in government assuming a larger role in scrutinizing costly therapies. And they have a strong stake in some larger regulatory structure to constrain the more predatory aspects of current market practice.

I write this as (by HuffPo standards) a politically moderate free-trade policy wonk who instinctively favors market solutions for most economic concerns. If people like me feel this way -- and many of us do -- the industry should be worried.

Ironically, then, insurers themselves have a stake in the success of the Democrats' proposed health reforms. If health reform dies -- particularly if private insurers have their fingerprints on the murder weapon -- millions more Americans will stop scratching their heads and will support a single-payer plan.

I myself haven't given up on less radical reforms. I support Barack Obama, who seems the most promising figure to get elected and to get this done. Single-payer would require a huge Democratic majority, and we just don't have that time to wait.

Someday, the sun and moon might align to permit a single-payer. To enact such a change, we might have to find WPA contract jobs for the industry spinning datatapes and processing forms within a fundamentally different financing system. Boy, this would be a price worth paying.

Postscript: Blogging inspires a valuable sharpness that easily shades into self-righteousness. Obviously the problem is the overall market structure and not the individual men and women working in the industry, many of whom do an admirable job. I do not believe it is nice, correct, or productive to demonize individuals when the problem is much larger.

Comments

[research]

Do the math: 3% overhead Medicare, 20-30% overhead private health insurance. The USA pays twice per person for the 37th ranked health care to the Scandinavians ranked #1. If you want to avoid plagues, health care for all is a smart social investment.

[ProudNeoCon]

Accross my extended family of 300, we do not have anyone who is uninsured. Why? Because people take health care in the account when they are looking for a job and/or getting education. Before people decide to be a "free artists" they make sure that they can afford it and/or that their significant other can support them.

My grandparents are on Medicare and we helped them to choose the program which fits them the best. My mom runs the business, so my dad made sure that his health care is good enought for both of them. My mother-in-law chose a goverment job over higher paying private job, because her husband works in the industry which traditionally does not provide health insurance..

Yes, there are people who trully can not afford health care. However, majority of the people CHOOSE not to have it. They rather have DVD players, cell phones, new car...

[dbredes]

What planet do you live on?

Wa State
Husband and wife (53,54 yrs old) - own small mom and pop computer shop

440.00 a month cost of insurance - deductible 8000.00 per year/per person - no prescription coverage - Covers 80% on 6 doctor visits a year (which is unusual and helpful -if you get the flu or something)

We make about 42000.00 a year...

That's more than a fancy car payment..and we're still afraid to go to the doctor.

Three months after buying insurance..My husband went to doctor because his feet hurt..Doctor took xrays..told him to go to gi joes and get shoe inserts.

Insurance denies claim...feet are pre-existing feet..

We appear to only have coverage on any new body parts we grow...

My doctor wants me to get a physical...it's been 10 years or so...but, I'm afraid to get a physical - what if they find something wrong.. I can't afford to get anything done about it anyway.

The truth is...we didn't buy health insurance we bought house insurance...the only thing we can hope is that we won't lose our home...if one of us gets really sick.

My healthcare plan...Don't get treatment...If you get sick...put things in order...I'll just have to die...Only the rich or the very poor get medical care in America.

[dbredes]

Oh and by the way neocon...let's just take a few talking points from the republicans here...

I'm tired of paying for your 300+ family's medical insurance... That one with the government job...can you spell taxes...Cut my taxes..cancel her health insurance

I pay for your families health insurance every time I buy a gallon of milk, buy gas..truckers, union jobs...large businesses...even software companies... Guess what that welfare you call a benefit... is paid for by me....and since I can't have real health insurance...neither should you and your freeloader family.

Do you think stockholders,ceo's, top management or boards... absorb the cost of your welfare....

No we all do...

So what's good for the goose...is good for the gander..

Quit freeloading baby...

[Lemastre]

NeoCon boasts that his big family is all insured, saying
". . . Because people take health care in the account when they are looking for a job and/or getting education." This family sounds like the poster family for single-payer national healthcare. Their lives seem to revolve around finding occupations that provide insurance. Have they found a university major in "follow the insurance gourd"? The differnece between them and most of us is that they seem to think that's what a czreer should be all about. They may have achieved total accommodation to the system, but I think it's a hell of a way to have to decide on your career.

[mpgarr]

This whole argument about "socialized medicine" is yet one more strawman agrugments that get thrown up by those on the right. The thing with health care being provided by corporations--it is a total contradiction in terms that we mix providing health care with the profit motive--most of the big private insurance companies are publicly traded companies and as such---they have two fundamental primary purposes--to make a maximum profit and return value to shareholder--since the insurance companies do not make anything like the proverbial "widgets"---they make money by selling more insurance plans and maximize what they make by cutting costs at every turn. What does get me about private health insurance---they will not pay a rather modest amount for preventative programs like weight loss and excercise programs--a particular one designed by doctors and run at hospitals around the nation--but they will pay-at least for a time to cover the care of a person who has a heart attack the program could have prevented.
The thing with health care--you either pay one way or you pay another---how much are we really spending in the economy thanks to so many people getting heart disease or diabetes??
I think that it is well past time that we sit down as a nation and get real--the only way we are going to get true health coverage for all is to put in a governemnt provided plan--it can be done--what it takes is the will--the will to decide this is going to happen and the will to determine the most effective way to make this possible.

[Mormondude]

And when the VA decides they're spending too much money, they just arbitrarily cut their reimbursement levels. It doesn't matter if the quality of care suffers, because the bureaucrats balancing the books aren't doctors. They don't know what effect their cuts may have.

I was watching a PBS panel style interview of undecided voters about a month ago. A Hillary supporter kept talking about single payer and how she didn't want her health care being decided by an insurance adjuster. Thankfully a more conservative person pointed out that under a single payer you swap the insurance adjuster for a government bureaucrat. Not much of an improvement, eh?

And as nice as preventative care programs are in theory, I believe it would end up being just another 'underutilized' government program. I got a mailer last week from some Democrat incumbent running for state representative that talked about how much more money he had obtained for 'underutilized programs'. When a program is underutilized, should we be CUTTING the funding to match the level of utilization? The liberal thought process truly boggles the mind.

[Lemastre]

There is little doubt that a federally run insurance program would have glitches that might sometimes impact quality of care, especially at the outset. But switching to the single-payer federal system would accomplish perhaps the most essential thing required of any reform in healthcare delivery -- eliminating the profit-at-all-costs mentality that dominates our current system and that dictates who can get insurance, what it costs, and what claims will be paid. Until that feature is eliminated, we cannot have a sense of security in our healthcare, and trying to keep insured will continue to be the ongoing crapshoot it has become for our employers and ourselves.

At the moment, the exact features offered by such a single-payer plan are not as important as are the advantages of no longer having to carry the enormous overhead imposed by the for-profit insurance industry.

In fact, if any insurance firm would be willing to abandon its profit-driven scheme and provide a proper universal system, it might well be the most economical way to accomplish the needed reform.

[Mormondude]

Why are liberals so suspicious of every free market capitalist, and so trusting of every closet Marxist?

A single payer health insurance system would be a HUGE, ENORMOUS boon to WalMart. Just think, they haven't been paying for health insurance for decades now, and suddenly the feds are going to step in and foot the bill on their behalf. They will be able to drop their wages immediately, since workers will be less susceptible to health care costs.

And who sat on the board of WalMart? That's right, Hillary Clinton, the main proponent of a single payer system.

Coincidence?

[Lemastre]

No one should be suspicious of free-market capitalists at all. We all know exactly what they're up to -- making the greatest profit possible. And in areas where the public need for their products is greatest is where they will extort the greatest profit. Health insurers, along with household utilities and purveyors of gasoline, are currently notable examples. Health insurers, however, differ significantly from the others in enjoying the right to withhold their products from large numbers of people willing to pay for them and in being allowed to reward those whose premium payments they do choose to accept with no service when it is needed. This is considered wise and efficient business practice in the health insurance industry. So is it any wonder that many of us recognize and seek a better way?

[Mormondude]

Why is it that Socialism can only 'succeed' in a total monopoly?

There are countless examples where the free market can provide better solutions at lower prices than government bureaucracies.

Look at prescription drugs, for instance. Some people point to Medicare and decry the fact that they do not negotiate their own prescription drug prices. They point to the VA system, where they do, and say that we are paying too much for Medicare drugs. And in some cases, that is true.

But the private system allows some individuals to cater their insurance to their own needs. If you need drugs X, Y, and Z, then insurance plan A may give steep discounts on those 3 drugs while plan B gives a more modest discount on all drugs, you should be choosing plan A.

But beyond the ability to match insurance plans to the needs of individuals, there are glaring examples of where the private sector is beating the VA system hands down.

My father goes to the VA, and if he gets a prescription for Tylenol, he can only fill the prescription at the VA pharmacy. He can't take the prescription down to WalMart and get it filled there, because the VA has a monopoly on their prescriptions and doesn't allow that to happen. Of course, the drug at the VA may cost $40 for a month's supply, while it only costs $4 at WalMart.

There are literally hundreds of prescription drugs that fall into this same category. The VA forces you to buy your drugs from their pharmacy, when they're 5 or 10 times cheaper down the street at WalMart.

So much for the unquestioned superiority and cost savings of socialized medicine...

[cuthbertallgood]

Mr Pollack,
I am not an expert in Insurance by any means, but I really don't understand how a private company is of any use at all. Is not the role of a private insurer to create a large pool of money and is their profit not based on the fact that they risk losing their own money?
If it is our money, and our risk, I don't see why they have any role at all. They stand to lose nothing, correct? Then where is the reason for profit? They should profit for pushing paper around? With a risk carried by others?
If anyone can clear this up I'd love to hear it.

[Cathexis]

IMO, the only "benefit" they provide is in keeping costs down for employer-supplied "healthcare." Unfortunately, between this mandate and the profit motive, facilitating actual healthcare tends to be forgotten.

[happytrails]

We need leaders (Presidents) who are willing to EDUCATE the public about the needs of society and the most efficient and cost-effective manner of fulfilling those needs.

We need leaders who are willing to LEAD.

[TRex86]

Insurance is intended to spread risk over large populations. In this country it avoids risk. Initially, health insurers were non-profit, public benefit agencies. Now they are rapacious frauds that sit on our money. No wonder the USA spends 50% more per capita for health care than the next highest country (Switzerland).
The only successful HMO is Kaiser, which is non-profit. Managed care is a failure even by its own terms of cost management. Only in America are bad ideas immortal.
The truth is that health care is a public trust, which should be regulated as a public utility. It would be complicated (Maryland does this with hospitals), but it is worth the effort. Anybody that doesn't want a government run system has to accept a government-regulated system whose highest priority is to cover everyone. We could do this in two days.
1. Merge Medicare and Medicaid as one means-tested (general revenue financed) safety net for people of all ages in need (300% of poverty level and catastrophic illness).
2. Issue coverage (credit cards) at the initial point-of-service. (Prove eligibility later).
3. Outlaw for-profit entities in health care.
4. Establish a national regulatory commission with broad authority to set rates, minimum benefits, etc. while preserving some degree of competition amongst insurers.
5. Mandate employment-based coverage BUT have a state-by-state "pay or play" system where employers that opt out contribute (a payroll tax) to an insurance pool for uncovered employees.
6. Make private insurance tax deductible.
7. Ultimately phase out employment based insurance when the uncovered pool exceeds the covered employees.
The net result will be a three-tiered system. The base will be government assured coverage. The middle tier will be employment based (eventually state managed) insurance coverage. The top tier will be anything anyone wants to pay out of pocket.

[CCommander]

I worked in the health insurance industry from 1996 until 2004, when I could not take it anymore. I started working for a independent, single state, not for profit Blue. The Blue was taken public a year later, and promptly bought out by Wellpoint. After a move, I went to work for United Healthcare. With every step away from the independent, locally managed and community based company, the job became less palatable.

In the beginning, a customer with a questionable denial could be helped with a walk up a set of stairs and a simple request. In the end, as senior management, I was unable to get a $200 mistake rectified, and I knew the Ingenix fee schedules were just 103% of Medicare and not representative of UCR, that claims processors were totally unaccountable, customer service was utterly useless after being outsourced to Jamaica and Pakistan, and I could not go into a negotiation and give my word that reimbursements would remotely reflect the contract I was presenting to the providers.

I left and went to work for a surgery practice that attracted patients from around the country. The difference between the access to care and coverage someone from Florida or Massachusetts received as compared to those from Kansas or California was appalling.

The best solution is the market, but because consumers are removed from purchasing decisions (they are made by employer groups) the market has not worked. Companies that were to lean to respond to problems or correct mistakes underbid better companies, and weakened those companies so that they could be gobbled up by one of the big three. There are few markets where insurance companies really try to compete with one another. State Insurance Commissioners are powerless to regulate these mega-insurers, who will simply threaten to pull out of a market and leave thousands of people uninsured or create a monopoly for one other insurer.

Markets require regulation, especially when third parties are both the consumers and the payors.

[Danny]

Health care is not a commodity. Health care is a moral imperative. The system we have here is immoral.

[Lemastre]

If you believe that democracy can exist in Iraq -- whose citizens have no experience of it -- surely you can see universal, single-payer healthcare in the U.S., whose citizens have never experienced that, either. Surely we'd like to rid ourselves of all the angst stemming from the pleading and nail-biting uncertainties that characterize our relationship with whatever private healthcare insurer deigns to permit us to pay its bloated premiums. But apparently, the security of simply not having to worry about healthcare is just not yet imaginable to large segments of the populace. Someone mentioned the "60 Minutes" segment on Denmark, whose citizens are quite contented for several reasons, not least of which is not having to worry about their healthcare, along with education and elder care. This system is also found in other Scandinavian countries. And I find it a very pleasant thought -- being able to get on with your life without having to try to follow a career path based not on your talents and desires, but on which occupations offer the best chance of providing essential services for your family and yourself. We may never see it, but perhaps when the U.S. is as mature as Denmark, it too will have wised up.

[researcher]

if we cant make big profits off the sick and needy what good is capitalism.

if I went to a home and told an american we need universal health care and they were covered by insurance they would run me out of town.

now let me go back in one year to that same house the worker has been laid off does not have insurance could not afford cobra and then had a major illness now has to lose their home now they are whineing like babies for universal health care.

moral of story most americans only care for themselves not other's medical problems.

selfish self centered society and all about me not we. and they look for socialists under their beds each night like their parents looked for commies.

check out the euro against the dollar. what the socialist euro is worth more? cant be we all know capitalism is the best in the world.

it is called brainwashed by the have mores and corp america and corp media and it works very well on a dumbed downed society.

[Herrington]

researcher, did you see the 60 Minutes story on the Happiest Nation tonight? Denmark. Socialist, craddle to grave security, Denmark. Fifty percent marginal tax rate Denmark.

What a surprise.

[realitytrumpsbull]

30 dollar aspirin?

[JPE33180]

I'm tired of hearing about the $30 aspirin. I've worked in hostials since 1980 and have never seen anyone pay $30 dollars for the pill.

Don't get me on my soap-box...

[Herrington]

Pollack, you are beating the wrong dog. If government took over health insurance tomorrow, it would reduce healthcare costs by 10%. Useful but not dramatic, and not undoing the 12% per anum inflation of healthcare over the last twenty years, nor preventing further inflation.

It is universally understood the monopoly is not in the interest of the public in any business sector. The fact that local and regional monopolies in healthcare have arisen in the last two decades seems to have completely evaded the radar of lawmakers. Merger and acquisition activity among non-profit health facilities, that"s right non-profit, has risen in perfect correlation with increasing healthcare costs. Over these years, as investigations by the California AG have discovered, healthcare non-profits have merged and competition has been eliminated in markets as large as multiple states. The effects on local markets has not been the standard rationale of mergers, to lower costs and increase efficiency. The effect has been to raise prices in deliberate contravention of the publicly stated purpose, by blackmailing insurers on the threat of locking them out of regional markets.

Why would a non-profit adopt a business strategy that increases profits? The answer is simple. Today"s hospitals, clinics and healthcare networks are non-profit in name only. Through loopholes in corporate tax law you can make as much money as you want and still be a non-profit, if you can show accounting that disposes of the profit as expense. Expense includes executive compensation, unwarranted capital construction, inflated charges for materials and equipment and any other arguable expense including the costs of mergers. The corruption potential of this tax model is huge, and has been maximized by American healthcare. To be succinct, this business model not only does not motivate to control costs, it encourages waste on any scale that can be justified. Private healthcare is a government onto itself and is answerable to no one.

[darthmaul]

Most of the republicans rant and rave about "socialized medicine" all the while they and their families have great medical insurance coverage courtesy of the US Taxpayer. Has anyone done a study as to the total economic cost of our health care system? I have heard that we pay the most and get the least in health care. I wonder about the total cost including the time wasted by company's and individuals fighting with insurance company's. I wonder what benefits could be accrued from having the people in the health insurance business actually do some useful work.