There were a couple of stories this week coming from Congressional work on health care reform that didn't find wide distribution in the public debate, but need to be heard.
The first came from Wendell Potter, a former head of corporate communications for CIGNA, the country’s fourth-largest insurer. Mr. Potter did conduct a lengthy and important interview with CJR, but his story hasn't been widely circulated. What he talked about in this interview, and in his testimony before Sen. Jay Rockefeller's Commerce Committee, (provided here by Ezra, pdf) is how and why insurance companies do business. Here's Ezra's summation:
What drove Potter from the health insurance business was, well, the health insurance business. The industry, Potter says, is driven by "two key figures: earnings per share and the medical-loss ratio, or medical-benefit ratio, as the industry now terms it. That is the ratio between what the company actually pays out in claims and what it has left over to cover sales, marketing, underwriting and other administrative expenses and, of course, profits."
Think about that term for a moment: The industry literally has a term for how much money it "loses" paying for health care.
The best way to drive down "medical-loss," explains Potter, is to stop insuring unhealthy people. You won't, after all, have to spend very much of a healthy person's dollar on medical care because he or she won't need much medical care. And the insurance industry accomplishes this through two main policies. "One is policy rescission," says Potter. "They look carefully to see if a sick policyholder may have omitted a minor illness, a pre-existing condition, when applying for coverage, and then they use that as justification to cancel the policy, even if the enrollee has never missed a premium payment."
And don't be fooled: rescission is important to the business model. Last week, at a hearing before the House Subcommittee on Oversight and Investigation, Rep. Bart Stupak, the committee chairman, asked three insurance industry executives if they would commit to ending rescission except in cases of intentional fraud. "No," they each said.
Potter also emphasized the practice known as "purging." This is where insurers rid themselves of unprofitable accounts by slapping them with "intentionally unrealistic rate increases." One famous example came when Cigna decided to drive the Entertainment Industry Group Insurance Trust in California and New Jersey off of its books. It hit them with a rate increase that would have left some family plans costing more than $44,000 a year, and it gave them three months to come up with the cash.
Which is precisely the problem with having no alternative for the majority of consumers but a for-profit insurance option. They have every incentive NOT to insure at precisely the time you need it the most. It's only logical, just as it's only logical that insurance companies will play fair only when they have serious competition from a provider big enough to compete with them--a government sponsored public plan.
The other fascinating testimony came from Mike Draper, owner of SMASH of Des Moines, IA, before the House Ways and Means Committee. Draper makes the case for small business--asking the federal government to tax his business to provide a rational health care system, one that he can plan for financially. Knowing how much he has to pay in taxes every year would be much simpler than having the wild fluctuation in premiums he's experienced, trying to provide benefits to his growing staff.
[Starting at 2:55] Now when I hear "public option" I don't hear "free option." I am not here asking for free health care, a government handout. I am asking for rational health care. As a business owner, I would gladly pay 8 percent of my payroll into a public option since that would give me two things. One, peace of mind that my employees would be covered by something backed by the government, and two, more importantly, an ability to accurately budget per year for my company's health care expenses. Right now my premiums and bills will fluctuate between 6 percent and 22 percent of payroll in any given year. An expense that large and unpredictable is what drives companies out of business, not a tax that they know they have to pay at the beginning of the year.
Now it may sound strange that I would be willing to pay a new tax, but rest assured, I am not a socialist. I am not here trying to undermine capitalism. Rather, the small mountain of money I send to you guys several times a year does not make me clamor for more government, but the unsustainable costs of my current health care, the one thing that could probably ruin the company, makes me clamor for an actual option.
Something tells me that Draper isn't a member of the NFIB. But he speaks for small business everywhere who are particularly squeezed by the current system. Draper might not be able to send his employees over to the public option, depending on how this all pans out, but what a strong public option would do is to make his private insurer have to play fair. It would bring some rationality and consistency to his health care spending.