COMMENTARY:

Empty Threats to the Health Insurance Industry

The health insurance industry’s double cross of Obama has created a storm of controversy. But it probably won’t amount to much. There’s been a lot of talk about punishing the industry for its actions: through a barely conceivable threat to remove the industry’s antitrust exemption or by resurrecting the public option. Neither seems very likely.

Historically, with solid support in Congress—most especially from the Dodd family (father Thomas and son Christopher)–the insurance industry has avoided federal regulation. Instead, insurance companies are regulated by the states which, lacking the money and political nerve, have been a pushover. Under Obama there is little change in the offing. So there won’t likely be any threat to the incredible monopolies the insurance companies hold in many areas.

As for the the public option, it is fraught with all sorts of vagaries that ought to reassure the industry, that–even in the unlikely event of passage–it won’t hurt them and could even make them more, not less, money. That is because a public option won’t create a new federal insurance program but rather a contract apparatus whereby the government in effect would buy policies from private companies and even let existing insurance entities—Blue Cross-Blue Shield, for example– run the “public” option system. That’s more like an outsourcing scheme. Hardly socialism.

The same thing holds true of the newly fashionable coop scheme. It would most likely involve the local health insurance coop contracting out the insurance function to private companies or Blue Cross-Blue Shield systems.
Drs. David Himmelstein and Steffie Woolhandler of Physicians for a National Health Plan point out that the public option won’t fix the health care system:

It foregoes at least 84% of the administrative savings available through single payer. The public plan option would do nothing to streamline the administrative tasks (and costs) of hospitals, physicians offices, and nursing homes. They would still contend with multiple payers, and hence still need the complex cost tracking and billing apparatus that drives administrative costs. These unnecessary provider administrative costs account for the vast majority of bureaucratic waste. Hence, even if 95% of Americans who are currently privately insured were to join a public plan (and it had overhead costs at current Medicare levels), the savings on insurance overhead would amount to only 16% of the roughly $400 billion annually achievable through single payer.

Those who think a public option might provide beneficial competition might consider what’s happened to the Medicare Part D drug insurance program. I, for example, am a participant. I don’t buy drugs from the government or even at prices set by the government. I must buy my drugs through a private insurance company—in my case AARP–which then negotiates the price of the drugs with pharmaceutical companies. This arrangement is one of the reasons why Medicare Part D is so expensive. It is not because old farts are stealing from the young. It’s because old farts are being yanked around by the insurance and pharmaceutical industries who have free reign within the Medicare system.

Finally, those who worry insurance companies are getting a raw deal might want to consider just how one of these big companies work. Dr. Jeoffry B. Gordon provided this excellent description of the United Health Group, first poublished in Daily Kos:

First, let me dwell on the track record of an individual insurance company, specifically United Health Plans. United Health Group is America’s largest health insurance company. According to their 2008 annual report United has 75,000 employees, insure 29.1 million Americans directly and cover up to 78 million people, contract with 650,000 doctors and 5200 hospitals. Their insurance programs include: a government subsidized Medicare Advantage program called Secure Horizons, a Medicare Part D prescription program called Prescription Solutions, and they have an exclusive arrangement with AARP to offer a Medicare supplement. The company has a subsidiary, Ingenix (remember this name) which provides “actuarial data, claims management services, and health intelligence” in 56 countries and in the USA to 6000 hospitals, 240,000 MDs, 1500 health plans, and 250 government agencies.

In 2008 United Health had total revenues of approximately $81.2 billion ($75.9 billion from health insurance and $1.6 billion from Ingenix) and their 2008 net revenue was $5.2 billion from health insurance. (This profit was in essence moneys diverted from health insurance premiums paid by government, individuals and employees to obtain medical care even after the company’s huge administrative costs are deducted.) They had an additional $229 million profit from Ingenix. According to SEC filings during our current economic and health care crisis their 2009 first quarter total revenue went up 8% to $22 billion and their net profit was $984 million. According to the company’s own report they have a medical loss ratio of about 80 per cent – that is, of collected premiums they spend only about 80 % on actual medical care, that is we loose 20 per cent of the money we pay them to their overhead and profit.