Exploiting the Market Under the Guise of Innovation

Although we pay more and more each year for health insurance (average premium for a family of four now over $12,000), we get less and less for it. Insurers continue to take high profits first, leaving enrollees more vulnerable to high out-of-pocket costs for health care.

A 2007 study of small-group and individual insurance markets in California, published by Health Affairs, shines a bright light on this problem. "Actuarial value" was defined as "the proportion of claims expenses for covered services paid by the insurance plan for a large standardized population." Between 2003 and 2006, the actuarial value in the small-group market held at 0.83 (83 percent of bills paid), but fell precipitously in the individual market from 75 to 55 percent. The investigators concluded that, without reform of the marketplace, people of average means will be faced with catastrophic health care bills.

As we saw in an earlier post, insurers try to avoid coverage of people at higher risk of illness and cherry pick the market for healthier enrollees. They pursue a goal to keep their medical-loss ratios (MLRs) below 80 percent if at all possible (ie., retain 20 percent or more for overhead and profits).

As the market for employer-sponsored health insurance continues to shrink, insurers are now targeting healthier people in the individual market, especially in the 20 to 30s and 50 to 64 age groups. These examples reveal how little coverage these new policies actually provide.

• Wellpoint and Aetna (the largest and third largest insurer in the country, respectively) are marketing individual insurance packages for young adults, the fastest growing population of uninsured Americans. They offer these policies in states where looser regulations don't get in the way of cherry picking enrollees. Wellpoint offers three Tonik plans with different deductibles (Thrill Seeker, with a $5,000 deductible; Part-time Daredevil, $3,000; and Calculated Risk Taker, $1,500). None of these plans cover maternity benefits, a leading expense during childbearing years, with average costs for normal pregnancy and delivery now $8,000 to $12,000. The MLR for these policies is about 70 percent.

• Aetna's new Affordable Health Choice plan caps hospital benefits at $2,000 and accident/ER benefits at $1,000.

• Limited benefit policies being sold to such large employers as Wall Mart and McDonalds often have annual caps as low as $1,000 to $2,000.

• Some early retirees are opting for high-deductible plans with deductibles as high as $7,500; a 50-year-old male nonsmoker living in Colorado could expect to pay $1,000 for such a policy.

These examples make a mockery of AHIP's stated goals to "expand access to
high quality, cost-effective health care", but they do succeed in meeting another of their goals -- "product flexibility and innovation". But at a high cost, much higher than public and not-for-profit programs. Investor-owned Blue Cross plans operate with overhead and profits exceeding 26 percent, in sharp contrast to traditional Medicare, which spends more than 97 percent of its budget on direct medical care, and Kaiser Permanente, which spent 96 percent of premium revenue on patient care in 2000.

Why do we put up with such an expensive industry that provides so little protection against the cost of necessary health care? Part of the answer is that we are constantly bombarded with the claimed advantages of "choice". We will look at just how much choice we really have in the next post.

Adapted from Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, forthcoming, August 2008 by John Geyman. With permission of the publisher, Common Courage Press.

Purchase book from Common Courage Press: http://www.commoncouragepress.com/index.cfm?action=book&bookid=396

Comments

[TrevorAlan]

We keep getting told that the magic of capitalism and free markets answers all needs and always creates solutions. This may be true in terms of soft drinks and personal electronics and luxury services, but it is not true in regards to necessary services like health-care and education. Government or church-based providers tend to focus on care while profit-based orgs tend to focus on getting money from you without giveing you anything in return.

We first need to emphasize we don't want a federal government takeover of direct patient care (although city and county-run hospitals occasionally make sense), but a nationally organized non-profit (like Blue Cross was originally), separate from the government but with certain mandates and financial contributions for the indigent who otherwise collapse emergency room care, could make a lot of sense. Not only will it help patients,it could free both large (GM, Ford) and small (self-employed) busineses.

[ouroborous]

"Although we pay more and more each year for health insurance (average premium for a family of four now over $12,000), we get less and less for it. Insurers continue to take high profits first, leaving enrollees more vulnerable to high out-of-pocket costs for health care."

To be precise, this is exactly what they SHOULD do. They are private businesses, after all, and the prime directive of business is to make a profit, not to make people happy.

I don't fault businesses for being businesses. I fault politicians and the populace for not understanding that health care is one of a few things that MUST be run by the government, since it is a compelling national interest. The "competitive" nature of business does not create better health care for consumers; it creates higher profits for shareholders.

Again -- this in itself is not evil, but it is a persuasive point for nationalized (read: single-payer) health care.

[To those who would claim that it's too expensive, I call B.S. The reduction in payroll-funded insurance premiums would likely balance out the increased tax share for all but the uber-rich (who would pay more) and the uber-poor (who would pay less, and/or actually GET health care for the first time, ever).]

[emerywood]

The higher the cost of health care, the more urgent it is for the public who can afford it to have insurance coverge or else, they might face bankruptcy in the event of a catastrophic illness.
That is why to cap the cost of health care is never the purpose or the intention of the insurance companies. On the contrary, the higher the cost of health care, the higher the number of subscribers and the higher the profitability and control of the system. It is their game plan. As for those who cannot afford insurance coverage, the insurance companies have no obligation to help them. HMO's are no less profitable nor cheaper to the subscribers because insurance companies get the same profit margin by squeezing the providers and the patients. But this relentless cycle of raising of prices for everything related to medicine also hurts Medicare and Medicaid and especially those without insurance coverage. High cost is the main reason why changing the system is so difficult.

[WorkingClass]

The greedy capitalist pigs (GCP's) that run America's health insurance scam are going to go broke. HA HA HA HA! Soon there will be less than 100 people in this country that can pay their stupid premiums. The GCP's that run the credit card scam will meet the same fate. People with no jobs or people who spent their entire pay for a bag of groceries, will not make their stupid credit card payments. Then the GCP's will get exactly what they deserve. Nothing. HA HA HA!