As Congress sleeps health insurance profits skyrocket –coverage plummets
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The numbers are in and 2009 has been very good year indeed for the nation’s health insurance companies.
Unfortunately, not so good for those in need of medical care coverage.
According to a report prepared by Health Care for America Now – based on annual reports filed with the Security and Exchange Commission – WellPoint Inc., UnitedHealth Group, Cigna Corp., Aetna Inc. and Humana Inc. posted combined profits of $12.2 billion, a 56% increase over calendar year 2008.
During the same period of time, the big five insurers covered 2.7 million fewer Americans.
Naturally, this will make a great many people angry.
Take a breath and set aside the indignation, politics and ideology for a moment so you can see this for what it actually is – the last, dying gasp of a business model that no longer works.
If I understand the basis of support for maintaining the private health insurance system, it’s all about protecting the free enterprise system. In America, we believe that the private markets are more efficient at bringing goods and services to the public than government can ever hope to be. Give the consumers the power to force pricing decisions by leaving them with control over their dollars, and the system will work correctly.
Yet, the free enterprise system is also supposed to be about selling more to earn more- not reducing customers in need in order to improve profits. I think most would agree that this is a particularly problematic practice when the commodity at issue is health care.
In responding to the Health Care For America report, Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, the industry’s Washington-based lobbying arm, said-
For every dollar spent on health care in America, less than one penny goes toward health plan profits. Health plan profits are well below other industries within the health care sector.
Via New York Times
While Mr. Zirkelbach is correct when he points out that the typical profit margin earned by health insurance companies is lower than most industries, (it is a bit more than the one penny per dollar he suggests) his comment only serves to highlight how the interests of the for-profit insurance companies are completely out of whack with the needs of the American public.
And nowhere is the point being made more clearly than in California where Wellpoint’s Anthem Blue Cross division has informed its individual policy holders to expect premium increases of up to 39%.
Not surprisingly, Wellpoint is getting a lot of heat over the price increases, particularly in view of the company having posted net income in 2009 of $4.4 billion.
In explaining why they found it necessary to dramatically increase these rates, Wellpoint executive Brian Sassi said that they lost a number of healthy customers due to the economic downturn and that the loss of these customers has left “an insured pool that utilizes significantly more services per individual than under better economic times.”
Translation – if we don’t have healthy customers to pay for the sick ones, we have to get rid of the sick people.
How do you do that? Raise prices so high the sick cannot afford to stay insured.
There is no arguing this point. When the insurance pool model falls out of balance, the insurance company either has to find a way to get more customers into the pool or balance it out by getting rid of the sick people who spend most of the money. Since the current business model does not survive if the health insurers lower their premium costs to attract more customers, all they have left is the choice of getting rid of the sick to protect their profits.
As public companies, these big five health insurers owe their primary obligation to the shareholders that own these companies – not the customers who depend upon them for their medical and financial security. Shareholders don’t think about sick people – they think about increasing profits, year in and year out. It’s the way the free enterprise system works.
And that is precisely why the private, for-profit health insurance model can no longer succeed.
It’s not about vilifying the executives and shareholders. Public companies are there to make money. While we are decry the large profits earned as they remove customers in need from their insurance pools, their shareholders are cheering on Wall Street. This may offend you, but in a free enterprise system, that’s not an immoral reaction. The investors put up their money to make money. Had they lost their investment, would any of us be crying the blues on their behalf? I don’t think so. So we can hardly blame them for being pleased when their investment pays off.
The problem is, the success of their business model is increasingly based on increased suffering for Americans in need of health care coverage who cannot afford it – and that is an unsustainable business model.
Clearly, individual health care policies will soon only be available to those wealthy enough to afford them – if the concept survives at all.
Equally clear is the fact that the only thing propping up the private health insurance business model is the continuation of group insurance programs where the risk is better spread. Yet, businesses – large and small – are seeing increases in their health care benefit costs that have placed the continuation of the employer provided system right on the edge of failure. While companies can continue to offer their employees health care benefits, the benefit programs continually raise the cost and contribution share of employees, making it difficult for the employed to cover the spread of what their company provides and what they are obligated to pay. This too will necessarily reach a breaking point where employees can no longer afford the spread.
The insurance companies are not raising prices because they are evil – they are raising prices because it is the only way they can make the profits required to satisfy their owners and management.
The longer Congress continues to play the game of casting our health care problem in terms of ideology and politics – the inevitable result of which is no action at all – the fewer their choices will be when the insurance model reaches its inevitable place in our society – coverage for the wealthy with responsibility falling to government to take care of everyone else. What other choice will there be?
When this happens, it may well come in the guise of a crash not unlike what we experienced with the banks. And just as in the case of the banking crisis, the health care system could well face a quick collapse failing the federal government’s willingness to step in and quickly protect millions of Americans, both patients and health care providers, who suddenly find themselves without access to health care or the ability to collect payment for providing these vital services.
The government can plan for this now – or they can do it in the heat of what will be a crisis. Which one do you think would be more efficient and cost the taxpayer less?
In seeking to cast the health insurers as immoral profit makers as we insist on casting the debate in terms of ideology, we are missing the point.
If you are looking for a villain, the finger should fall on elected officials who are more interested in short term political gain than preparing for what is an inevitable shift in how health care is provided in this country.
Ultimately, the private insurance companies will find their natural place in the system – providing policies for only those people who can afford them so that the wealthy can avoid some of the more negative aspects of government provided health care.
But what about everyone else? When the health insurance model completely fails as a mechanism for bringing health care to the majority of Americans, what then?
If you have an answer that does not involve the government, I’m listening. But if you find that there is no other rational answer, and if you find that government, with its massive bargaining power, may ultimately be the only way to accomplish health care for Americans, why not face the real issue and get going with it so we can plan a system that is more efficient while bringing quality medical care to everyone?
This is not about ideology. It’s about the natural expiration of a business model that no longer works.
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I’m with you. The for profit system is unsustainable…if our Senators and Representatives would see it like this, they might actually accomplish something.
And, as a side note, I live in CA, have an individual policy with Blue Cross. I was notified 2 weeks ago of a 37.5% increase in my premiums, or I could buy into a lesser plan for a mere 16% increase….ain’t they something?
http://www.thehamandlegsshow.com
sorry to hear you are an Anthem Blue Cross policy holder. It’s a nasty increase.
In response to another comment. See in context »There is no health business model. It evolved to meet the dysfunctional health structure of government dictates and over regulation. One cannot plan a revision of health care unless one fully understands the system.
There are four major problem areas. One is employer provided health care. Second is a small insurance market with each state having their own requirments. Third is government provided health care such as medicare, medicaid and scores of others. Fourth is disputes are heared in common courts rather than specialized courts. These four issues are caused by government, directly or indirectly. The private markets must function under these adverse conditions which cause higher health costs and lessor quality of service.
President Obama said health care cost reduction was more important the universal coverage. Yet none of the health care plans of our congress did more than brush on cost control and then only to tax it or force it down.
What health care needs is a rational evidence based plan; not a political plan.
Frankly, I’m not sure if I agree or disagree with you.
There is a health care system in this country- it just may not be one that you like. The system has always been built around the very things that you call out as problems. I don’t disagree that there are these problems in these categories, but you need to be clearer.
I think there are people that understand the system more than you may think – but let’s have a look at your understanding.
What is your problem with employer provided health care benefits? Are you troubled by the tax structure that surrounds the same? We need you to tell us more.
I have no idea what you mean by the ’small insurance market’with each state having its own requirements. All insurance is subject to state regulation as health is within the powers of state government to regulate. Are you suggesting that insurers should be permitted to sell the same policy across state lines? This is a popular conservative argument, but it is a false one. The big five insurance companies, which control the overwhelming majority of policies do sell across state lines – they simply organize in each state. Now, you could argue that standardizing regulations in each state, thereby allowing identical policies to be sold across the board, could lower the administrative costs of insurance. In fact, the public option created such a policy. However, there has been little evidence that administrative costs would be lowered if this were the case. Each state would still have to deal with some 800 different policies each with different codification and nomenclature systems. Until this is standardized, we are unlikely to see much administrative cost lowering.
You need to be clearer on what your problem is with government supplied health care and what you would offer up in its place.
Finally, there is a cost to the health care system as a result of specious malpractice suits. I happen to agree that we need specialized medical boards to approve litigation before it proceeds to courtrooms. However, it is not the cost you might think. Most estimates put it at about 2% of the health care system. Should we do better? Absolutely. Would I like to see us weed out inappropriate claims? Sure. But this is not the systemic repair you might think it is.
In response to another comment. See in context »Rick, Jon Stewart had an interesting Daily Show last night. It seems like Hawaii already has something approaching universal care. Is this true? Do you know how it works?
It is true. That’s why it was so funny that Rush Limbaugh made such a big fuss about how happy he was with his medical care in Hawaii when he had the heart problem while on vacation. The Hawaiian plan is very similar to Obamacare as is the Massachusetts plan.
In response to another comment. See in context »I was anticipating a post from you when I saw what Wellpoint did in CA. We saw it a few years ago here when Cigna raised rates about 50% to get rid of a lot of sick groups they had inherited and force them to pick up alternative coverage. I think you are absolutely correct about the potential for this to be like the banking crisis. The local public hospitals could soon be overwhelmed with patients in the ER’s without coveage at a time when local and state governments are already cutting back services to try and balance budget shortfalls. The taxpayers will pick up the tab for a while but it could bankrupt some communities setting off an ugly downward spiral for some states.
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“This is not about ideology. It’s about the natural expiration of a business model that no longer works.”
Well said, Rick.
I am with you…but the public is not supporting or at least our media claims that the country is not supporting the means of our own rescue.
I remember that during the Clinton Health Care effort Oprah held a debate on national TV and the Hawaii was held up as an example of universal insurance. It worked then, it works now and the facts were indisputable but lost in a stupid Louise and Fred ad or whatever their names were.
Recently I have been noticing that our acceptance of bullshit truth based on persistent advertising totally distorts our perception of reality. How many ads by oil companies seem to accept global warming and claim they are on the cutting edge of clean energy? At the same time they do whatever possible to kill clean energy. Coal companies talk about clean coal…a complete and absolute fiction that somehow made it into the State of the Union.
So now we have a health insurance company completely making Obama’s point that these companies are killing the middle class. How does the media react? Ho hum. Reason is lost in public relations voodoo.
sometimes I just sit back and think we’ve all gone mad…completely unable to distinguish between fact and fiction…we have succumbed to that requirement of all good science fiction and absurdist fiction: the willing suspension of disbelief.
There was and is a federal inquiry in this unreasonable rate increase: the result is that the insurance company is losing healthy customers…no mention that their healthy customers can no longer afford insurance…so rates have to go up…and next year up again…up and up to protect that profit.
It can’t continue but…
I now believe that we have to have the country fall apart around our ears…we have to have the federal government stop borrowing money as tea party nut want…and have good religious families out on the street wondering how their faith in liberty and freedom brought them to ruin.
Rick, how do you feel about the big profits
teacher retirement,CALSTRS in california makes?
And they pay zero taxes on the billions in profits because the government doesn’t pay taxes
CALSTRS investment funds now stand at $134,000,000,000($134 billion)…all invested in big wall street and big real estate, including thousands of big corporations world wide….these big health corporations are working day and night to churn out retiorement dollars for california’s retired teachers
http://www.calstrs.com/Investments/Invport.asp
CALSTRS services 833,343 total Members and
Beneficiaries…public education being the biggest business in california….and all california teachers are exempt from social security taxes
http://www.calstrs.com/About%20CalSTRS/fastfacts.aspx
Why would this bother me? All large unions have large pension funds. And, as I have to point out to you far too often, while teachers don’t pay into social security, they also don’t draw out from it so we are all at a loss why this is so troubling to you. What have you got against teachers anyway? Why the obsession with government employees? Do you think we could do without them?
In response to another comment. See in context »They aren’t union pension funds…these are government pension funds…..and they are invested in all the health insurance corporation you hate
You want to see the millions of private sector taxpayers who work for these insurance companies thrown out of work…..unlike teachers, who depend on other peoples’ taxes…
We could do without most government employees….do we need the 500,000 of overtime hrs put in by the police and fire of this local county? If you heard the highly paid employees of an insurance company were putting 500,000 overtime hrs per year….you would call for a congressional investigation
In response to another comment. See in context »Well, that’s it then! Let’s get rid of all the teachers! Who needs ‘em anyway!
In response to another comment. See in context »I mean with no teachers, we’ll have generation after generation of people..well, like you! I’m all for it.
No more teachers…lots more insurance adjusters and lawyers! Ah..what a paradise it will be.
And after that, we’ll continue with your program for a better America by getting rid of all the cops! How dare we pay them overtime to protect us!!! Never mind that we pay them overtime because our cities can’t afford to hire the police they need to do the job. That’s life, right? And, they are, as you say, simply a drain on the public. Especially the ones who are killed in action. Why, I hear that their pension programs actually have the nerve to support their families when they are killed protecting us. Now, that needs to end at once!
And buy the way, like ANY EMPLOYER BENEFIT PROGRAM, CALSTR is financed by membership contribution, employer contribution (in this case the employer is the state of California) and investment earnings which flow from the contribtutions.
You do realize that most large corporations on the private sector have very similar pension programs for employees don’t you?
Tell me, assuming you received an education, did you go to public school? The fact that they are ‘public’ might give you a clue that they are operated by localities and the state. Sadly, schools must have teachers. Why are teachers not entitled to a pension program that employees in corporate America are entitled to? How are people suppose to go to school?
In response to another comment. See in context »Even if teachers contributed $100,000 over the course of a 30 year teaching career…how will that finance their 60% pensions, based on an average ending $60,000 salary…and if the government employers kick in another $100,000…the numbers don’t compute
BTW…all 340,000 active duty public school teachers in california don’t pay a dime of social security taxes….if the private sector tried that, they would end up in jail
In response to another comment. See in context »Great post – my question is about moral hazard. We know that the banks that are too big to fail are risking the taxpayer’s money for their own massive bonuses. What is the analog in the health insurance business? Are the insurers happy to deny insurance to the sicker patients because they know that the taxpayers will step in and bail them out through emergency rooms, etc?
What kind of a system denies help to those who need it most? Clearly the system is backwards, and we need to prioritize health care for those with the worst disease rather than health care for those with the most money. But are we going to need a health care Katrina to open people’s eyes? I sincerely hope not.
misterb, if I could “fan” you, I would. This is such an interesting, good question.
In response to another comment. See in context »misterb – Rocky’s right. A very good question!
I suspect that the insurance companies don’t look at ER’s as a bail out – although if regulation takes hold they might begin too. But your question raises something else that is pretty interesting. When the model stops working completely, will the bailout come in the way of government payments to the insurance companies or will the government step in and take over the system? Given the way the banks have been treated by the government, ie. free to do as they will even though they continue to exist because of our money, I suppose it is highly possible that the government – in the name of free enterprise, anti-socialism or some other BS – could just write checks to the insurers and let them continue to run the health care system. That would truly be a mess but, you know, if very well could happen. Something to look out for.
As for ‘what kind of system denies help to those who need it most’, well, pretty much all systems and not just in health care. Reality is that money talks in this world. We aren’t going to change that, but we can come up with a system that will at least provide the basics for everyone. Actually, the Senate pretty much already has – all the House has to do is vote to approve it.
In response to another comment. See in context »[...] As Congress sleeps health insurance profits skyrocket –coverage plummets – Rick Ungar ̵… [...]
[...] As Congress sleeps health insurance profits skyrocket –coverage plummets – Rick Ungar ̵… [...]
[...] As Congress sleeps health insurance profits skyrocket –coverage plummets – Rick Ungar ̵… [...]
My comment was that any change in healthcare must be completely thought through and that changes should be upon evidence based decisions. I wasn’t pushing a particular program or condition.
Any large organization, business, not-for-profit or government, must be properly structured to provide customers with a good or service at reasonable value. With the wrong structure, an entity will produce choas, dissension and disorder.
That’s a reasonable point of view. Any suggestions?
In response to another comment. See in context »I’m an economist. Remember the joke, ask three economists a question and you’ll get four answers. And every economist knows that congress doesn’t make economic decisions; citizens make them.
In response to another comment. See in context »But I do have ideas on a structure for healthcare, but they haven’t been throughly thought out yet.
My suggestion is media discussions should focus on causes not symptoms and facts not opinions. For instance, medicare and other government healthcare programs short pay medical costs. The economic effect is that others pay higher healthcare bills to make up for the governmantal short payments. The uninsured population is reported by media to be between 35 and 41 million. However there is no basis for those figures. And we know that aliens are included in all figures as are people who could afford health insurance.
herb-
get busy thinking them through! We need all the help we can get!!
1. I agree that there needs to be more discussion on the causes versus symptoms. The problem is that the causes are, as I think you know, complicated and difficult to explain to a television audience. Further, most commentators don’t understand them particularly well themselves. I’ve written a book called ‘The Jack & Jill Guide to the Health Care Debate’ that endeavors to make the causes more understandable to the public.
2. You make an interesting point with respect to how government’s underpayment results in overcharging to those not yet a beneficiary of government provided healthcare. I hope sanjimoon, who has been commenting in this chain, reads what you have to say as he’s convinced that ‘government subsidies’ are the reason that health care costs are out of control.
3. It is true that there illegals included in the uninsured count. However, based on all the research I’ve done over the years, the numbers used are not all that far off..and they are rising and will continue to rise if the system does not pull in for repair.
In response to another comment. See in context »Rick, I agree with your analysis on this one completely. Smart Repbulicans would see that you are right, and if they were really interested in sustaining a long-term role for the private insurance carriers in health care, they would rush to endorse a health care reform plan that included a robust public option. This would still allow for a continued role in health care for private insurance carriers. It would be a “one last chance” type of thing for insurance carriers to prove that they still had a meaningful role in health care, and it might actually force them to come up with some new ideas that none of us have thought of that would allow them to continue to exist.
Given the continually sky-rocketing increases in health care premiums and the ever increasing number of those not covered by health insurance, enough Republican could, if they really wanted to, “sell” some type of meaningful health care reform to their constituents, keep their jobs, and help pass health care reform at the same time.
Agreed. It just doesn’t serve the GOP’s political interests at this time to do so. That’s a shame because they are complicit in a crisis that is coming sooner that I had originally anticipated.
In response to another comment. See in context »The reason why the health care industry costs are skyrocketing along with their profits is because the federal government subsidizes it directly and indirectly year after year in ever growing amounts. By Obama’s own budget tables, health programs took up only 0.4% of the GDP in 1962. It has steadily grown until it takes up 6% of GDP in FY2009 which comes to $852.9 bilion and is projected to go over $1 trillion in FY2013. When any industry is subsidized to this amount, of course costs are going to skyrocket. The government is in an economic death dance with the health industry where the government spends more to cover more health costs, but that in turn cause health costs to go up even more. This cycle needs to be broken by stopping the increase of and even decreasing government spending in health programs. Unfortunately, neither the Democrats nor the Republicans have the spine to do this. It has been long known that Social Security and Medicate/Medicaid will cause the next foreseeable economic armageddon when the bulk of the baby boomers retire, but neither party has the will to even face down these sacred cows. We need people in Congress who think with their brains instead of their hearts because thinking only with the heart will bring our country down to the point where it can no longer afford what the heart wants. Just look at California to see where this way of thinking leads.
No disrespect, sangjmoon, but you truly do not have a grip on what you are talking about.
Ask an insurance company, pharmaceutical company, doctor or hospital if government ’subsidies’ are the reason for the out of control costs of healthcare. What they will tell you is precisely the opposite. They will tell you that government has artificially DEPRESSED the price of healthcare through negotiating fees and procedure payments that make it hard for medical providers to stay in business.
I don’t know what your political philosophy might happen to be, but I doubt you would find anyone who actually understands the issue, on either side of the aisle, who would agree with you.
But – hey, I’m always willing to give someone a chance. Let’s pretend the government stopped participating in health care tomorrow. Tell us how their removal from the system would result in lowered health care costs.
By the way – government expenditures have little to do with GDP. While health care is indeed an ever increasing piece of GDP, this is an expression of what Americans pump into the health care system out of their own pockets, making your argument 180 degrees off point.
In response to another comment. See in context »Rick, where do you think the $852.9 billion for FY2009 in health care programs is going? It is going into the health care industry through Medicare/Medicaid and all those pet programs Congress has. Even money to pay for insurance eventually goes into the health care industry. Health care providers only are one part of the whole picture. When you get medical bills for a surgery, how much of it is from the doctor who actually operated on you? The government money that subsidizes all that bring the cost up by either inflating demand and/or allowing manufacturers and providers to charge higher prices because of the additional cushion the subsidization provides. It’s economics 101 but people can’t see the forest because of the trees. Also, I didn’t say the government should stop participating, but they need to scale back, or at least stop increasing the amount of federal money they pump into the industry. It would mean making hard choices which opposition politicians will use to pull at the heartstrings by claiming it would mean cutting somebody’s benefit, but if we continue at the current pace of thinking with our hearts instead of our brain, we won’t be able to afford what our heart wants. Take a look at California as an example.
In response to another comment. See in context »Well, maybe the reason that you’re the only one who can see the forest from the trees is because what you are suggesting is not only not Econ. 101 – it’s just blatantly wrong.
Total spending on health care in the US for 2009 is about $2.5 trillion. The government’s share of this is rougly 1/3. By the way, the actual percentage of GDP represented by health care is about 17.6% – not the 6% you suggested earlier- unless to intended to reference the government’s expenditures in the market.
Of the $2.5 trillion spent, it is absolute fact that the biggest bang for the buck is accomplished by government programs which spend dramatically less per service, procedure, etc. than any other participant in the system. That is not an opinion – that is a clear cut fact.
Further, you reference a surgery in your example, which is pretty much the worst possible example you could choose. Are you suggesting that if Medicare didn’t pay for a needed surgery, say heart bypass- that the beneficiary would simply elect not to have the surgery and die? Even you would agree that this is a preposterous notion. Yet, your entire point seems to be based on the concept that recipients of government health benefits would simply no longer use health services without the benefits, putting pressure on providers to bring down costs. All due respect, that’s just plain nuts.
Still further, you seem to be ignoring the fact that taxpayers pay into the government health care programs – thus, it is not subsidy money, it is paying off on an insurance policy.
I could go on and on. Let’s just say that there are any number of ways you can reasonably attack government health based entitlement programs. But, honestly, you could not have come up with a more ridiculous way to challenge these programs.
In response to another comment. See in context »Only the federal government portion is 1/3. The state and local governments provide at least the same amount as the federal government. In fact, much of the state expenditure is required matching for federal funds. If the federal government stopped increasing or even cut back on their funding, it would also impact the government funding on the state and local level as well. As for insurance, the reason why insurance cost is increase is because the greater demand for it because of the skyrocketing health care costs which is a result of the money being pumped into the health industry by the governments to “help” us. It’s a vicious cycle. All you have to do is look at the veterinarians to see what would have been if there wasn’t so much government “help”. They have no significant amount of government “help” and yet the pets are getting health care at affordable rates. There is no significant shortage of health care providers caused by government bureaucracy and inefficiency.
In response to another comment. See in context »There are two things I want to add here based on my experiences and observations. I processed group medical claims for Aetna for three years back in the 1980s, and this included handling claims where “coordination of benefits” was involved, including situations in which we were paying after Medicare had paid their part. The amount Medicare paid almost always left something to be desired in that it was often significantly below what a typical group policy would pay, which in many cases would be 80% of the “reasonable and customary” charge (based on the average charge for that service in that zip code). Medicare often paid about half, and the insured was stuck with paying the difference. For those who had supplemental insurance over Medicare, the insurance carrier would often pay 80% of the difference.
Back in the 1980s about 2/3rds of large companies provided supplemental Medicare coverage for their insureds in their retirement years. In the late 1990s this was down to about 1/3rd I believe. By now I am sure it is even lower. So when I hear talk about cutting Medicare even further, it just tells me that more individuals are going to get stuck with even more medical bills in their retirement years.
On the topic of who to believe on the number of uninsured persons, I have heard members of Congress tell people that some of the higher figures are not to believed. Often times these are the same people who seem to be oblivious to the fact that this country lost 6.5 million
manufacturing jobs over the last decade (many before the recession started) that provided medical insurance and that have not been replaced. So while I am open to learning more on the subject of how many uninsureds there actually are, I am much more likely to believe the higher numbers unless otherwise convinced.
I’d say you’ve pretty much got it right on both points.
In response to another comment. See in context »sangimoon-
1. No, City and State governments do not spend the same amount as the federal goverment. State governments do, in most instances, match the contributions of the federal government for their Medicaid programs. However, Medicaid has far less impact on the health care system than either Medicare or private insurance. Cities’ as a rule (there are a very few exceptions) do not impact on the system much beyond supporting a few public hospitals. So while there is some additional spending at these levels, the impact is not particularly profound.
2.”As for insurance, the reason why insurance cost is increase is because the greater demand for it because of the skyrocketing health care costs.”
Going back to your economics 101, this is precisely the opposite of correct. As demand increases, costs decrease. If you have any doubt about this, you might look into the 39% premium raise instituted on individual policies by Blue Cross in California. The company indicates that the reason for the increase is the result of the loss of healthy customers from the insurance pool, leaving an imbalance of sick customers. They, therefore, raise the premium charge for the remaining customers in the pool to either (a) force them out or (b) get them to pay more of the cost of their illnesses. So- all evidence reveals that you kind of have it backwards.
3. I just don’t know what to say about comparing the economics of health care to vetnerarians Are you kidding with me or being serious?
Sorry, but I really think – and the large body of evidence would agree – that you kind of have this backwards. I suspect I’m not going to convince you, but, since you are interested in the subject, maybe you’d like to read up on it a bit and see if you come to some different conclusions. There are, as you note, many problems in the system – and you can certainly make a defensible argument that the government play a role – but, respectfully, I don’t think you’re on the right track with this one.
Medicaid has a huge local effect being responsible for paying for the babies illegal aliens pump out in our hospitals….who then become instant citizens
In response to another comment. See in context »There are numerous causes to health care pricing It appears government pricing of it’s health benefits isn’t a major one.
The basis for the argument there aren’t 45 million uninsured requiring benefits to gain coverage is straight forward. It’s the number of insured citizens. Add the number of employer provided insurance with all of the government figures including all, federal, state, local, military and schools. And remember, about a third to half of the uninsured number would qualify for government benefits to obtain health insurance. The total uninsured number is around 22 million and between between 7 and 11 million would qualify for benefits.
My health care file has been lent to a friend who is working on a plan. I’m a macro and financial economist who got involved in the healthcare debate because it became controversial.
Health care is indeed complicated and difficult to discuss and understand. The failure of the congress to pass its health care bill was they tried to do too much. We may need to pass a simpler one or a even single issue bill. The cost factors should be addressed first. Medicare, medicade and the other health care entitlements are the issue in health care costs. The unfunded cost is more than 35 trillion dollars.
A single issue that effects costs is the insurance market. There are many impediments to market pricing of insurance policies. For instance, state mandated coverages and states with low populations.
I suspect a national insurance market would substantially bend the health care cost. With favorable experince, citizens may be willing to consider other changes.
Whenever I read an article like this, I start looking for the ways in which government is acting to suppress competition in the health insurance field. Without government collusion, price jumps like this would signal competitors to move into this attractive market and thereby drive prices down to their natural levels.
billstarr-
In response to another comment. See in context »If you want to look for government’s true role, you should be looking for the collusion that is propping up a health insurance industry that has, in its present form, reached its natural expiration date. This isn’t about government suppressing competition. All the competition in the world is not going to change the fact that the rising costs of health care are making it impossible for health insurers to profit. Wven the most conservative economists will tell you that government has bent over backwards to assist the health insurers. They have an anti-trust exemption and they are among one of the least regulated industries serving a public need in the nation.
Indeed, if you were to look at the health care reform bills that I strongly suspect you objected to, you would see that the government is bending over backwards -and then some – to support an industry whose time has passed. Note that in the Senate bill, employees participating in health benefit programs offered at work would not be permitted to participate in the public exchange market. This is for one reason – and one reason only. To help health insurance companies to survive in the group policy market which is, without question, the heart of their market.
There are many ways in which you can point the finger at government and blame them for so many things – and you would be right. This is absolutely not one of them. This is where the understanding of things like the public option fails so badly.
In many ways the public option would have been very helpful to the insurance companies. It would have cleaned their insurance pools of many of the customers who are costing them the most money, ie. the sick people. Understandably, the insurance companies liked that part. What they did not like it the corresponding ’shrinkage’ that would come with such a program. While they would losing problematic beneficiaries, they would also lose health customers. Thus, in the effort to stretch the business for as long as they can, they opted to avoid the public option as they view it as the first step to a single-payer system – and they are right.
Using the recent example of Anthem Blue Cross in CA, you can see this in action.
Blue Cross would very much like to get out of the individual insurance business. It doesn’t make money for them any longer. They can’t just shut it down as, to do so, supports the very reason why the country needs a public option. But the only way they can continue the model is to try and force out the sick. They have been honest in saying that their 39&% premium raise is the direct result of the loss of healthy customers who can no longer afford the policies and have dropped out. Therein is the difficulty.
When the top two officers of Anthem are earning about $10 million a year, they understandably are interested in keeping the business going as long as possible. Who can blame them? But this doesn’t change the fact that the business model is now doomed. As employees continue to pick up their portion of the employee benefit (which increases on averge 7-10% per annum), they will reach a point where they can no longer afford their part of the cost, even with employer contributions. When that happens, it’s over. Then what?
Thanks for the quick follow-up, Rick.
I still maintain that if the health insurance industry is offering a desirable product, then any supplier who overprices it is inviting a competitor to come in and undercut him, absent government regulations which inhibit a competitor from entering this under-served market (which sort of regulations are unfortunately quite prevalent).
If, as you suggest, the health insurance industry in its present form has reached a natural expiration date, then I agree it should be allowed to expire. But the consumer must determine if this is indeed the case, not government or anyone else. If no one is buying a product, then it is natural for the pool of suppliers to shrink to meet the reduced demand, and for costs to increase as well. It would be like shopping for some sort of Conestoga wagon part today versus when they were in their heyday.
I do object to the currently-proposed health care reform bills. If they include any element of government trying to prop up an industry, then I am certainly opposed to that.
I’d really prefer to see employers completely out of the health care business, leaving each employee to buy his own health care from his own paycheck just as he does other important things in life like food, clothing, shelter, and transportation. People being what they are, some would prefer a very inexpensive, high-deductible major medical policy, paying as they go for the costs of routine medical care. Others would prefer to pay a higher premium in exchange for lower costs of day-to-day care — sort of a budget billing approach, if you will.
Having the end-user of health care paying the supplier directly will help to keep health care costs in line through natural competition, just as we see with food, clothing, housing, or transportation, where there is generally less government interference in the workings of the free market than in health care.
If a person’s lifestyle choices or genetics predispose him to higher health care costs, I don’t see how it is moral to expect that his employer or coworkers or anyone else should be forced to chip in. If others can be convinced that his higher-than-average costs are a worthy voluntary charitable cause, that’s fine with me.
I am also opposed to any sort of government coercion that would force any insurance company to offer any particular type of coverage or insure any given individual. Health insurance companies should be free to compete with each other in both of these areas. If someone has to pay a higher premium because he appears to have a higher likelihood of high medical costs, that is exactly what ought to happen. Likewise, health insurance companies should be free to serve any niche in the market they determine to be profitable. Some will cover more things at a higher premium cost; some will cover fewer things, with a correspondingly lower premium. Each consumer should be free to choose which approach he likes best.
Each person should have no more or less protection from being dropped by an insurer than is spelled out in the contract he entered into with the insurance company when he purchased his policy.
If Blue Cross would like to get out of the individual insurance business, they should certainly be free to do so, as long as there is no government interference with some other company stepping up to serve that market if there is still demand for it.
The other thing that gets hidden in this whole debate is that uninsured people are not without health care coverage. They just have to pay the market rate for whatever services they decide they need. It’s sort of like leaving collision coverage off your automobile policy, as I do. I am taking a calculated risk that the money I save in premiums will exceed whatever I have to pay to repair (or replace) my vehicle if I should get into an accident which is my fault.
Once again, if anyone thinks that $10 million per year is more than the market should bear for whatever value the Anthem officers offer to their shareholders, then where are the competitors who will take a lower salary to offer a competitive product at lower cost. I think the government is helping keep Anthem competitors out of the market, in part by preventing sales of health insurance across state lines.
Bill Starr
In response to another comment. See in context »Columbus, Indiana
Mon, 15 Feb 2010, 4:10 pm EST
I agree with some of what you say. But I think that some of your consumer driven health care arguments beg some truths.
Note that some of your comparisons, which you suggest are free market enterprises, are not a ‘free market’ as you may think.
With the U.S. experiencing an alarming growth in starvation problems, without government programs such as food stamps, we know that millions of people, including children, would not receive proper nutrition. Are you suggesting that we leave these people to fend for themselves and starve? I suspect not. Further, prices in the food market for food staples (milk, bread, etc.) are greatly affected by government subsidies to producers in order to keep prices at a level Americans can afford. While there is a credible argument that government overdoes the subsidies, without them we would likely face a problem where many people would be able to afford these food staples.
Transportation is subsidized by the government in a big way–it’s call public transportation. If you were to remove these subsidies and leave it to individuals to sort out, we’d have another mess on our hands. Not everyone can afford a car. If they can’t afford a car, and their job is too far away for them to walk, how are they going to get there? Without public transportation, we would have a real employment mess on our hands. These are the people that are riding the bus everyday. By the way, throughout history, there have been efforts to privatize public transportation. It has never worked.
Certainly, Clothing is another matter. People can purchase clothing based on what they can afford, ranging from Salvation Army on the low end to high priced designer clothing on the other side. Certainly, free enterprise works here, just as it does for TVs, stereos and all sorts of other non-essential items.
Now, health care. It sounds great to allow the market to create competition. The problem is that health care is not something an individual can do without. It’s not like a tv where you can wait until next year to get that 60″ Hi Def you’ve been wanting or settle for an old, 32″ or not have one at all.
When someone, or their children, gets sick, they need health care. What happens to them if they cannot afford it? Do we let them die?
As for the consumer based model, I have studied it in great detail and I don’t believe it works. It can have an impact on ending unnecessary testing – and that is certainly desirable. But most testing is not unnecessary. And it is expensive. It your physician suspects you have cancer and you need a CT scan to confirm it, what happens if you cannot afford one? The price isn’t likely to come down as there is exceedingly little profit in performing CT’s. The result will be that people who need one won’t get one. Is this acceptable in a decent society?
Sometimes we do better leaving our competitive instincts aside and looking at what others do and experience. I always like to point out that every industrialized nation in the world, except the USA, health care is a right and gun ownership is a privilege. Only in the USA is gun ownership a right and health care a privilege. Is it possible there is something we can learn from everyone else?
While I would agree that health insurance companies do have a valuable product for many, they don’t have one for everyone – and the number of people who can benefit is going to continue to shrink in the years to come. What about them?
One final note – in the face of the problems with Anthem Blue Cross in CA, it is worth noting that nobody is rushing into the market to take advantage of the opportunity to pick up 800,000 customers who are seriously ticked off. Why? If its about competition, California should be swimming in insurance companies looking to take advantage of Blue Crosses problems to increase their market share. But it simply isn’t happening. Nobody wants this business because it is not a profitable business-even at the higher premium rates. So, if we allow the individual insurance market to disappear in CA, what happens to these 800,000 people? I agree that it should be allowed to disappear, but I don’t think we can just allow these people to face financial destruction should they get ill simply because no insurance company wants to grant them coverage. What happens to them? If the private insurers don’t want them, how can there be any other way than a public insurance program???
In response to another comment. See in context »Thanks for your comments and questions, Rick. They help me to better sort through and communicate my own thinking.
Actually, I don’t know that without government programs millions of U.S. residents would not receive proper nutrition. I’m not familiar with the studies that demonstrate that and I have no personal anecdotal evidence to support it either.
A very recent example of how people are gaming the food stamp system to buy items other than food was given this week on the Neal Boortz show.
Apparently, some levels of government disburse some or all of their food assistance with some kind of debit card that is only good for qualifying foods. People who have the card but actually don’t think using it for food is their highest priority use the card to purchase a qualifying fresh food item. Then they walk back in the store and ask to return it. Apparently, the debit card does not permit the store to put a credit back on the card, so the store must issue a store credit for the return. Then the person who is on the dole can use the store credit to make non-qualifying purchases.
If food were really the highest priority for these people, and this were really the best vehicle for assisting them with that need, and there were a closer link between the donor and the recipient, I don’t think we’d be hearing as many stories of people gaming the system like this.
I believe philosophically you and I probably see the role and legitimate limits of government differently. My view closely mirrors that of the Declaration of Independence.
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.”
I see the sole legitimate functions of government as helping individuals to secure their God-given rights. I see neither wealth distribution nor coerced “charity” as legitimate functions of government.
If your neighbor has a need for health care, I don’t believe he has any moral right to come into your house and help himself to as much of your money as he thinks he needs to help him pay for it. Neither do I believe he has any moral right to force medical personnel to provide him any sort of medical assistance against their will.
Like any other goods or services changing hands in a free society, it should always be a mutually-beneficial voluntary transaction. Other than voluntary charitable actions, the only reason I see for any medical professional to provide his services is because he values what he receives in return more than the time he gives up to perform the service.
If it is immoral for a person to forcibly take what does not belong to him or to force someone to unwillingly provide a service to him, then it is also immoral for him to elect or hire politicians or police to do what he is morally unable to do himself.
Although written about 1850, “The Law” by Frédéric Bastiat elaborates on this line of reasoning in quite a lucid fashion.
http://bastiat.org/en/the_law.html
I am suggesting that charity is more properly the role of voluntary individual and collective efforts of those in society than it is a government role. The closer the connection between the donor and the recipient, the more likely that the charity will be used to best effect by the recipient as intended by the donor.
The following article describes how people used mutual aid societies to meet charitable needs before government intervened in that area. It also describes a sound non-governmental approach to old-age care.
http://mises.org/story/2515
I believe all government subsidies should be ended. They have no net effect other than wealth distribution. Every dollar a consumer saves by buying a government-subsidized product either came out of his own pocket or his neighbor’s pocket before it could come back to him in the form of the saving on the subsidized price.
Government has no other source of funds for these things except the pockets of the very consumers they are purporting to help, and to add insult to the matter, the non-value-added bureaucrats who administer these transfer programs also pocket a percentage, so for each dollar taken from the taxpayer, less than a dollar comes back.
Pretending that some of this comes out of corporate profits is just a sleight of hand, because in the end every dollar the government takes from a corporation actually comes out of pocket of a shareholder, employee, or customer of the corporation.
Likewise, I am no fan of tax-subsidized transportation. One solution to transportation problems would be to repeal the zoning laws that serve to separate where people live from where they work. For those unable to afford to hire private transportation, many would opt to live within walking or bicycling distance of their place of employment if government didn’t make it illegal to do so through zoning laws and regulations.
Without tax-subsidized competition, and without government regulations that made starting and operating a private transportation business difficult or prohibitive, I am confident that free market transportation solutions would spring up wherever they make economic sense.
Actually with competition, and with people spending their own money for health care, and without burdensome government licensing requirements, I am confident that we would see a broader variety of options in the health care industry than we see today.
Every person facing illness faces trade-offs on if or when to see a doctor, based on the cost and anticipated benefit. That is how all scarce resource are most efficiently allocated. It is when the true cost of a service is partially or completely hidden from the end user that the demand for scarce resources exceeds supply, and prices are driven up, which is what we are seeing today.
The medical insurance I buy through my employer is structured much like a major medical policy, with high up-front out-of-pocket costs and deductibles for the employee. With that model, my family and I weigh carefully how quickly we might spend $100 on a doctor visit when a day or two of rest and liquids may bring about the same result with less cost.
I think it’s quite acceptable that some people may opt for a less-expensive testing option if they are going to see the difference in cost in their pocketbook. There are cost-benefit trade-offs in every decision we make to purchase a scarce resource and I see no reason why health care service should be an exception. It sounds as though you propose that some in society should be forced to subsidize others. As I mentioned earlier, I don’t see that as a legitimate function of government.
I guess it’s worth saying that to the extent that governments do get involved in wealth transfer activities, I believe the only legitimate level of government at which that may be done is at the state or local levels. The only things the federal government is authorized to do are those responsibilities explicitly listed in the Constitution and there are no wealth transfer responsibilities listed there, including the field of health care.
What I see as unacceptable in a decent society is some who would use the force of government to do what they are not morally permitted to do as an individual
I have not researched it, but I suspect that California legislators have colluded with the large insurance companies to put roadblocks in the path of start-up companies who might compete with the big companies for market share. To the extent this business is unprofitable for competitors, I would be surprised if that is not due to government restrictions on what health insurance coverages must be offered and to whom they must be offered and at what price they must be offered.
Mon, 15 Feb 2010, 8:00 pm EST
In response to another comment. See in context »billstarr- a few responses–
1. While you are not wrong in pointing out that there are people who will game the system, and I certainly do not think that this is right, it is kind of off-topic. The fact that some people behave badly doesn’t really speak to whether or not government should provide a given service to those in need.
With respect to the level of hunger in the USA, you might take a look at:
trueslant.com/rickungar/2009/11/16/one-in-six-going-hungry-in-america/
If you additionally interested, take a look at the reports referenced in that column and see what you think.
2. I don’t disagree with you that charitable approaches to helping those in need is the best expression of society. The problem is that it doesn’t happen. A recent example. As you know, California is in serious distress. As a result, a number of social programs have been either severely cut back or cut out entirely- programs like sending someone to an elderly participants home to assist with oxygen tank needs, changing bed sheets, etc. Certainly, this is something we’d like to see families taking care of, but many of these people either don’t have families or their families don’t care enough.
When this program was cut, I said that this would provide an excellent opportunity for both conservatives and liberals to show if they really mean what they say. Conservatives have always argued that we can take care of ourselves and each other without government intervention (a fair representation of your perspective, I think) and liberals always want to help the poor and needy. Thus, we could expect that conservatives would show up in droves to help these old folks and fill in the gap for a government that isn’t doing it. Likewise, I figured liberals would step away from the Rachel Maddow Show a few times a week to volunteer to help those in need.
Nobody did anything and these people are in severe distress. Why? Because while people like to identify with an ideological point of view, when it’s push to shove, nobody actually gets off their butt to do anything.
2. I don’t really buy your premise that every dollar government spends is coming out the pocket of the consumer who is paying for the product. I agree that every dollar is coming out of someone’s pocket – but keep in mind the poorest among us don’t pay the taxes. I know that this speaks to your point, but this comes down to having a society that leaves those who don’t have in the dust to fend for themselves or not.
3. While I accept your point that having more interest in how your money is spent at the doctor will lower the amount of testing done, answer me this — When you need chemotherapy, do you really want to be purchasing those drugs based on price? When you need a triple-bypass, do you really want to hire your surgeon based on which one cost less? I think it is not as simple as you suggest.
4. I appreciate that with a high deductible policy you get at work, you are careful with your choices. However, what happens when you can no longer afford what it costs to pay your share of premiums for the policy you receive at work? What will you do then? And this is most certainly not an academic question. This problem is already hitting many employees and, I promise you without a shred of doubt, that this problem will get worse. Also, consider this. I don’t know the size of the deductible on your policy. I do know that the size of deductibles for the average employee is rising dramatically – so much so that were an employee to have a serious medical problem, they would be ruined financially. Does that seem fair? In my own experience, I had to receive chemotherapy. Even with very good insurance, and no problems with the insurance company, my share of the bill was about $50,000. I’m very fortunate. I could afford this without it messing with my life. But what about the guy who can’t? Should our system destroy people financially- or worse, cause them to be unable to get life saving treatment because they can’t afford it?
While I understand your philosophy and, in a perfect world it might work, this is not a perfect world. Thus, and with no disrespect intended, your approach strikes me as an ‘every man for himself’ scenario. I don’t think that is moral or even workable in today’s world. Imagine what would happen if we simply abandoned everyone in need who benefits from these government subsidies. Not a pretty picture.
Finally, as for zoning – I don’t disagree that it’s smart to allow housing to be close to work. Indeed, it absolutely used to be that way – before our cities spread out into huge areas to accomodate our booming population. It isn’t as simple as forcing everyone to find a home close to work when they change jobs even if we do have open zoning. People can’t just sell their houses because they got a new job across town and buy one closer to the job. This is just unrealistic in the nature of the country today. It did work in the old days. But even if we were to remove all zoning, it wouldn’t work today.
By the way, while I do, for the most part, disagree with your position, you argue it very well. Keep it up! And I hope we’ll see you here more often. Your the kind of commenters we like as this type of back and forth really helps readers see both sides of issues.
You’re welcome. I also appreciate your civil approach to the areas in which we disagree as well, Rick.
Again, you raise a number of good points, but I am out of time and energy for another thorough reply yet this evening.
But I do see one common thread running through a couple of your ideas to which I’d like to make a quick initial reply.
That has to do with the chicken-and-egg problem of implementing a shift from governmental back to private approaches to some of the problems we have discussed, even if there were a general will to try to do so.
I think Albert Jay Nock (1873-1945) expressed the issue quite well.
“Once we might have been inclined to give a quarter to a beggar. Now, however… we might tell him that the State has confiscated our quarter for his benefit, and that he might as well go to the State about it.”
http://www.neoperspectives.com/quotes.htm
http://en.wikipedia.org/wiki/Albert_Jay_Nock
Best regards, Bill Starr
In response to another comment. See in context »http://twitter.com/bill_starr
http://bill-starr.blogspot.com/
http://www.facebook.com/bill.starr
Mon, 15 Feb 2010, 8:49 pm EST
No problem. And I will go read the site your suggested. And a I said, I hope you’ll comment on future columns here as I like your style! I promise you’ll have lots of opportunitIes to disagree with me!
In response to another comment. See in context »[...] Now AFL-CIO NOW BLOG | Health Insurance Profits Soar as Industry Mergers Create Near-Monopoly As Congress sleeps health insurance profits skyrocket ?coverage plummets – Rick Ungar – The Policy P… Obama calls for taxing big oil windfall profits; send $500 to needy individuals. – Lynn Sweet The [...]
Great article,
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http://www.NationalHealthInsurance.info
[...] As Congress sleeps health insurance profits skyrocket –coverage plummets – Rick Ungar ̵… [...]
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