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The problem is that people do not understand the problem. People don’t understand the modern business model of health insurance corporations, even the "non-profit" (cough cough choke choke) ones.

As I am new, I will keep repeating I am an economist and health care provider. Strange combination but I studied micro-econ and game theory before I became a therapist. I live in Pittsburgh, and look up and see the Highmark sign every day. The first paragraph of a report on PA’s insurance system says a great deal.

Thirteen Pennsylvania not-for-profit organizations and trade unions and the national Consumers Union of the U.S., along with the City of Philadelphia,2 concerned about the impact on policyholders, the uninsured and the general public of the buildup of $4 billion of surplus on the balance sheets of the nonprofit Blue Cross Plans (the Plans), retained IMR Health Economics, LLC, to conduct an independent analysis of the applications filed with the Department in this proceeding

4 BILLION!!!  more....

The firm’s argument is that surpluses of this level are needed to pay out claims. They will tell you they pay out xxx million a month so they need the surplus and try to avoid mentioning how much they take in a month and how fast they pay it out.

Definition ACL stands for "authorized control level". It is the level of surplus below which state insurance departments are authorized to take whatever action is necessary to protect the interests of policyholders and creditors including liquidation or rehabilitation of the insurer. At 200% ACL or greater, surplus is deemed sufficient to permit insurance companies to operate without special regulatory monitoring or supervision.

It is my understanding that each of the Plans has recommended a minimum threshold
target of 375% ACL consistent with the Blue Cross Blue Shield Association membership and trademark standard.16 None has provided specific justification for that level of surplus.17 A 375% ACL minimum standard is excessive. The 200% ACL (NAIC) standard adopted by the NAIC and the Commonwealth18 provides a more than adequate level of "early warning" protection in today’s environment. In fact, it probably provides considerably more protection than its designers and the NAIC had anticipated when the model was first developed and adopted in the early 1990's. In large measure, this comes about as a result of significant changes in the health insurance business and financial environment which have caused the baseline modeling assumptions to become overly conservative....

The Plans report that as of December 31, 2003 they held (on a parent company-only basis)accumulated capital and surplus totaling $3.96 billion, up $500 million from the prior year. Highmark’s 2003 surplus of $2.2 billion was equivalent to 645% ACL; IBC’s surplus of $841million represented 391% ACL; BCNEPA’s surplus, $405 million was equal to 1006% ACL and CBC’s surplus of $515 million represented 929% ACL.

You can read the report if you want, but the question is what is going on here that they can have huge increases in assets (surpluses) and why would management want to run it like this?

Hugely important point to show the game. Insurers can "lose money" and increase surpluses.

The charts demonstrate that for virtually all of the Plans, surplus has increased steadily over the period 1990-2003 with only a few momentary and minor declines. Even when Plans experienced substantial annual losses (e.g. Highmark, $311 million in 1996) and/or multi-year losses (e.g. Highmark, $568 million of underwriting losses from 1995-1999), surplus has not been eroded. Indeed, in the case of Highmark, surplus grew by $341 million (1995-1999) notwithstanding the substantial, concurrent five-year loss.25 Similarly, in the instance of CBC, the company experienced a cumulative loss over the six-year period, 1997-2002, of $161 million; during the same period, surplus increased by $51 million. These data do not support the thesis that surplus (currently on the order of $4 billion in the aggregate) is justified as protection against reasonably projected risks.

The answer is simple, they are hedge funds. Their goal is to maximize surpluses and investment income. They say this is altruistic so they can provide the underwriting but how they do it matters.

They do it with what can be called the float, much like banks do with the 3 day holds on a check. The Firm takes in maximum premiums and the goal is to delay payment for as long as possible. (Every wonder why there are so many hoops and voice mail trees?) I call for a $1000 MRI approval, I am going to get it for my patient, but it might take me a couple hours over a few days, I might also give up. The Firm is investing that $1000 while we wait so while they are making money, I am wasting money time and the health of my patient.  

Even if they paid out 1-1 premium to claim but making our lives hell, they get to freely invest our money and the better they do it, the bigger the profits/salaries/bonuses.

Which leads me to Government as a Single payer as the solution. As we know, the US Government runs on debt not surplus backed by the full faith and credit and government bonds. The single payer, ie government, eg society has incentive for cost control and quality but has no incentive to screw around with everyone on a daily basis. Trust me the people on the other end of Medicare phones, while dealing with horrible paperwork issues, are nothing like the privates’ trained stonewallers.

This then dovetails in why insurance does nothing for prevention and as little screening as they can get away with. It is simple, they do not really care if they have to pay claims; they expect it and it is mandated in the claims/premium ratios.  Prevention and screening is payable now, pre disease and pre treatment. If prevention reduces claims, oh shit, it also reduces premiums over the long term.

The model is to maximize premiums and delay claims, invest the float, pad the surplus, repeat repeat repeat. Higher health care costs, creates higher claims, creates higher premiums, more float more investment more profit.

The ugly truth is more disease, more medicine, higher claims.... Higher profit.

It is a great game because heads they win, tails they win, the coin lands on the side and stays there and they win.

It is the business model that is keeping us sick and creating a system that promotes disease not health.

This is the truth, but you won’t here it anywhere in the media or campaign trail. You listening, Hillary et al? You can't fix the problem with the current model because the model is the problem.

If anyone's campaign wants to really talk about it, I can point them in the right direction.

Originally posted to Just This on Wed Sep 19, 2007 at 08:01 AM PDT.

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Comment Preferences

  •  Just like Las Vegas (8+ / 0-)

    the house always wins.  

    Never thought about it like this before, but I think you're exactly right.

  •  Exactly - (13+ / 0-)

    Insurance companies are cash ATMs for the super-rich investors who own or control most of the stock.  They are cost+profit machines, not at-risk investments.  It used to be based on their actuarial tables, which minimized risk, but now they use additional tactics of exclusion and delay to absolutely assure profit.

    Your discussion of the ACL shows that they have tightened the harness another notch.

    This is precisely why the health insurance schemes being promoted now are just another wealth transfer device from the great majority to the super-rich.

  •  Insurers can "lose money" and increase surpluses (9+ / 0-)

    This is the game med-mal insurers were also playing in 2004, to push through med-mal reform which severely limited pay-outs to injured people, who were victims of med-mal.

    Sad part is the doctors helped them play their game,......and who wouldn't trust the friendly doctor in a white coat.

    I saw them in the halls of our state legialature building wearing their white coats to inspire trust in them, while victims of medmal were being screwed for the benefit of the med-mal insurance industry.

    Immigrants don't come from an American cultural background -- which means they have attention spans longer than the average hyperactive two-year old.

    by fayeforcure on Wed Sep 19, 2007 at 08:18:28 AM PDT

  •  good essay. (10+ / 0-)

    thanks for stepping up. beats hell out of inviting readers to annual reports, where the grift is clear in the financial statement.

    thanks especially for the link to pennpirg. it's nice to know someone else is paying attention to the insurance "busines model."

    somehow reproducing charts of historical aggregate spending (PPP) on health care by nation just doesn't explain anything, which i suppose, was the point of the exercise.

    pls keep pounding the table.

    Diversity is the key to economic and political evolution.

    by MarketTrustee on Wed Sep 19, 2007 at 08:48:23 AM PDT

  •  We all know what needs to be done. (3+ / 0-)
    Recommended by:
    gogol, fayeforcure, Pris from LA

    As predicted, our best, otherwise A+ Democratic field of candidates are realistically not embracing the idealistic solution for health care so the baton is officially in the hands of activists. Will we see our way to a huge popular Democratic take over of the Presidency and Congress? Will we wait till then to barge through the gates demanding hearings on 676? I'm in.

    Still uncommitted, undecided...enjoying the dates; not ready for the ring or uhaul.

    by kck on Wed Sep 19, 2007 at 08:55:22 PM PDT

  •  But thanks for this diary. (1+ / 0-)
    Recommended by:
    Pris from LA

    Couldn't you approach one of the candidates
    with suggestions to change the damn model? ....

    I've always imagined a Nurses Hospital.

    •  It really is simple in Theory (2+ / 0-)
      Recommended by:
      Bernie68, wilderness voice

      Medicare and negotiated contracts (which are based on Medicare) basically fix prices. They also control medicine because I work in clinics focused on wellness and prevention which are not covered. So nothing changes there except you will choose how you spend your health care dollars.

      It would not be "socialized medicine" because medical centers and private providers would still be private either for profit or not. Nothing would change.

      The government doesn't need to have a reserve fund it just needs to float "Health Bonds" If you take 3% from both sides of the transaction the government takes in 6% of multiple trillion dollars which covers the interest on the bonds and expenses.

      I will elaborate on this when I get a chance. The idea is to create a Federal Health System based on something more like the Federal Reserve, where you leave the markets alone but act as the market maker and regulator.

      The only groups that can argue this, and would fail, are insurers and drug companies (there would have to be some controls on both purchase and sales, the government shouldn't believe that many people have ED, Viva Viagra would have to stop)

      Our lives are more important than money, yet we treat money better than people

      •  I don't understand this stuff, (0+ / 0-)

        but thank you for your response.
        Please do elaborate on this for the dailykos, though.
        nyceve is also very tuned in to this.  

        On a lighter note, anything to stop those smarmy viva viagra commercials.

  •  insurance for all is not the same as care for all (2+ / 0-)
    Recommended by:
    Pris from LA, smellybeast

    we have to keep repeating this.

    Politics is like driving. To go backward, put it in R. To go forward, put it in D.

    by TrueBlueMajority on Wed Sep 19, 2007 at 09:15:59 PM PDT

  •  Another excellent read. (2+ / 0-)
    Recommended by:
    gogol, Pris from LA

    Very important. Hope for more of Just This...

    Still uncommitted, undecided...enjoying the dates; not ready for the ring or uhaul.

    by kck on Wed Sep 19, 2007 at 09:19:38 PM PDT

  •  Thank you, again another enlightening angle! (1+ / 0-)
    Recommended by:

    My bit, I sound like a broken record, but just what part of "a health care program/policy/system for everyone, one that doesn't bankrupt people and otherwise destroy or serioiusly damange lives?" doesn't our polity and leadership understand?

    The people who are going to be put out of work when a socialist system is put in place can be outsourced to other companies, other industries. The Japanese do it routinely. (and I've had health care in Japan, and it is excellent, and yes there is a deduction from your paycheck. It's the same for everyone. Is that also hard to understand?)

    And the nurses (in our hospitals especially) can stop filling out insurance forms and get back to the work they chose and were trained to do.

    "wrong" it's the new Right.

    by Green Queen on Wed Sep 19, 2007 at 11:13:39 PM PDT

  •  and if I may - the companion piece to your diary (2+ / 0-)
    Recommended by:
    313to212, fayeforcure

    Video: The Shock Doctrine: The Rise Of Disaster Capitalism - -  Shocking USA Into Obedience Reject The Republican Power Grab in California

    by pollwatch on Thu Sep 20, 2007 at 05:16:18 AM PDT

    •  Thank you. This is essential reading (2+ / 0-)
      Recommended by:
      pollwatch, Dr A

      if we want to change anything in the US.

      Extreme capitalism and it's destructive results in healthcare is so ingrained in US society that we don't even blink when we are forced to buy into Individual healthcare mandates ( a republican concept), which only helps insurance companies grow even larger, thus only increasing their choke hold on our healthcare system.

      This diary correctly points to the cause of our healthcare problem, which rather simply is: For Profit Insurance companies and Investors

      This understanding is the best starting point toward solutions.

      Immigrants don't come from an American cultural background -- which means they have attention spans longer than the average hyperactive two-year old.

      by fayeforcure on Thu Sep 20, 2007 at 06:08:38 AM PDT

      [ Parent ]

      •  fight is on in CA: special session (1+ / 0-)
        Recommended by:

        Arnold's vetoed the people's resolution passed by both state house - senate for real universal singlepayer health care (only one in nation) ; he is trying to ram his own bad bill that makes bait & switch health insurance mandated;  Ca. nurses lead movement to join with AFL-CIO in  national nurses organization for universal healthcare;

        Arnold Schwarzenegger called a special session of the state Legislature to deal with health care and water;

        nurses swarmed the hallways of the Capitol to demonstrate against the Democrats' bill
        (bad bluedog democrats with bad Arnold bill ) Reject The Republican Power Grab in California

        by pollwatch on Thu Sep 20, 2007 at 06:53:06 AM PDT

        [ Parent ]

        •  Oh, Senator Sheila Kuehl is GOOD!! (1+ / 0-)
          Recommended by:

          I love this excerpt off her letter, which you provided the link to:

          This year, as I watched leadership and the administration try to craft a plan different from SB 840, an alternative health reform plan that might expand coverage this year, while preserving the role of insurance companies, the experience taught me why health reform has actually been so difficult to do over the past few years, and why every proposed solution just seems to bring out new and often even bigger problems.

          The attempts fail because, until we squarely face the fact that premiums imposed by the insurance companies are rising 3-4 times faster than wages every year, all the reforms that keep those insurance companies firmly in place are doomed to failure.  The same is true of AB 8, which we are considering today.

          As currently drafted, it doesn’t pencil out in terms of money, it doesn’t pencil out in terms of who’s paying what, and, frankly, it definitely doesn’t pencil out for consumers.

          Our failing health care system has often been compared to the Titanic, and I’ve said in the past that attempts at reform are nothing but attempts to rearrange the deck chairs.  AB 8, for a change, is actually trying to turn the boat.

          But some of you may know that, in fact, had the Titanic faced the iceberg head on, it would have survived, at least long enough to save most of its passengers.  Turning the ship only partially was actually its downfall.  It’s clear to me that that is also the problem with AB 8.

          Immigrants don't come from an American cultural background -- which means they have attention spans longer than the average hyperactive two-year old.

          by fayeforcure on Thu Sep 20, 2007 at 07:26:48 AM PDT

          [ Parent ]

  •  Great diary (1+ / 0-)
    Recommended by:

    If you will be doing a lot of writing on health care issues, you may want to join our Daily Kos Health Care Google Group.

    With over 100 members right now, the only purpose is for sharing links to the healthcare diaries, so that those interested in health care issues can find them a bit more easily among the hundreds of diaries written here every day.  

    It also allows those who get the alerts immediately via email to jump in with a recommend for the good diaries - often allowing them to stay on the front page a bit longer.

    It isn't for discussion - just an alerting system like the environmental group; you simply email the group a link to your diary when you post it – or someone else’s diary when you see it first.

    You can sign up here.  After that, you just keep the email address for the group in your address book so you can email the links to everyone.

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  •  thank you for your post (0+ / 0-)

    If Hillary can try to convince us that the problem is the solution, I think she could convince a lot of us that the truth might actually work better, if she only wanted to try that as a tactic.  It seems she understands the truth of campaign finance comes first.

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