Why Market-Based Health Insurance Doesn't Work

For economic and market commentary and analysis, go to the Bonddad Blog

Market-based solutions are usually a good way to solve economic problems.  Competition and the profit motive usually provide a strong incentive to market participants to provide what the consumer wants.  However, there are some economic areas where the profit motive especially prevents the consumer from getting what that person needs.  

Health insurance is a prime example.

First, let's remember we are trying to provide a solution to people's health problems.  This is a unique market.  We're not trying to build a product more efficiently with better parts.  We're focusing on peoples lives.  A delayed decision or a cost-cutting treatment may prevent someone from having a high quality of life or actually lead to someone's premature death.  

Let's flesh out the above statement.  The insured (I) has a policy with health insurance company (X).  I has a complicated medical situation and seeks treatment.  I sees 2 doctors.  One prescribes a cheaper treatment that is less effective while the other prescribes a more expensive treatment that is more effective.  X says it will only pay for the cheaper treatment.  I starts and completes the this treatment and it is ineffective.  

At this point, notice what has happened.  

1.) Time has elapsed and I is not better.  In fact, I could be in worse condition because the ineffective treatment has now allowed the medical problem to become worse.

2.) I's quality of life has decreased because he is still sick.  Personal and family level stress have increased because I is not at 100%.  I is probably less productive at work because he is still sick.

3.) However, X has saved money.  Because the company is profit oriented the company has increased shareholder value which is a prime motivator in a market based system.  In other words, the company has operated exactly how it should in a market-based economy.

Let's look at another situation.  I has a life-long medical condition that can be treated but only with an expensive prescription drug regimen.  If I doesn't have medical insurance the entire expense may be too much for him to pay.  This may lead to a premature death.  If I does have insurance, it may be cheaper for the company to continually deny coverage instead of paying the claim.  

Here's the end result.

1.) Time has elapsed and I is not better.  In fact, I could be in worse condition because the ineffective treatment has now allowed the medical problem to become worse.

2.) I's quality of life has decreased because he is still sick.  Personal and family level stress have increased because I is not at 100%.  I is probably less productive at work because he is still sick.

3.) However, X has saved money.  Because the company is profit oriented the company has increased shareholder value which is a prime motivator in a market based system.  In other words, the company has operated exactly how it should in a market-based economy.

Let's look at a situation from the company's perspective.  They want to increase profit to increase shareholder value.  This means they want to pay as little in claims as possible.  That means the only insurance risk they want is a low risk -- a policy holder who will not make a claim.  To increase profits, X will deny coverage to anyone with a potential medical problem.  

Here's the end result.

1.) Time has elapsed and I is not better.  In fact, I could be in worse condition because the ineffective treatment has now allowed the medical problem to become worse.

2.) I's quality of life has decreased because he is still sick.  Personal and family level stress have increased because I is not at 100%.  I is probably less productive at work because he is still sick.

3.) However, X has saved money.  Because the company is profit oriented the company has increased shareholder value which is a prime motivator in a market based system.  In other words, the company has operated exactly how it should in a market-based economy.

The above situation clearly illustrates the divided loyalties of profit-motivated health insurance companies.  On one hand, they have customers who must be given services they paid for.  However, the profit motive prevents the company from actually delivering service to its customers. And by denying service, the insureds are no better.

Apply this on an economy-wide scale, and you have an entire population with untreated medical problems but with an insurance industry that is financially healthy.

Is this really the way to help people stay healthy?

Update [2007-2-24 8:46:12 by bonddad]:: LIMike makes the following great observation:

In other market arenas choice is readily available. I don't like my GM product, I buy a Toyota. Or, If I live in a city with good mass transit, I ditch my car. I don't really have a choice to ignore my health problem. So I need to get my illness cured. Can I get another health insurance product if the current one is not meeting my needs. Well, maybe, if your company has a reopening period to choose from a menu of other insurers, thus delaying my treatment.  But, will those other insurers act much differently in their drive for profit. Not likely. Definitely a sellers market.

•  Factor in

  the fact that in the US system the purchaser is frequently not the consumer and the entire market model collapses.

  Nice diary, bonddad. Rec'd!

  by Clem Yeobright on Sat Feb 24, 2007 at 05:27:51 AM PDT

  •  Purchaser is NEVER the Consumer

    The purchaser of the major health services is the insurer not the patient.

    The imposition of co-pays is a fudge for relatively cheap and elective services, but it's massively regressive.

    If the payer (ins co) gets a bad result (patient dies) he (since businesses are people) can always choose better for a future client.

    It works market-wise in some ways but of course in terms of humanity it's sociopathic.

    by Gooserock on Sat Feb 24, 2007 at 08:50:46 AM PDT

    •  I refer, of course, to the insurance purchaser

      Your comment, while incisive, addresses a completely different question.

      by Clem Yeobright on Sat Feb 24, 2007 at 09:04:10 AM PDT

      •  who supports this?

        integrity

        by carlos oaxaca on Sat Feb 24, 2007 at 03:16:15 PM PDT

      •  Purchaser usually not the patient, either

        I scrolled through all the comments, and didn't find anyone pointing out that the purchaser is usually the employer, and their main concern is  reducing the premium.  

        Like jd in nyc below, I also work for a health insurance corp (not for profit, and boy we sure make a lot of no-profit lately).  We can get praised out the wazoo for our innovative preventive and disease management programs, and then the employers carve them out rather than pay for them in their premiums.  The employer's calculation is strictly about current costs, and prevention won't pay off for a labor force with any kind of turnover.  The biggest growth is actually in self-insured plans, with the insurance company charging only for the admin expense, and the employer choosing what to cover or not, where the copay levels should be, etc.  

        On the other side, we face increasing consolidation of providers--a quarter of our local market's doctors and hospitals are one big conglomerate, and they get the fees that they ask for, negotiate as we will.  Not a lot of wiggle room between the payers and the providers left for the outrageous profits we're supposedly getting.  

        Folks downthread are pissed that the patients are supposed to turn into a consumer and do it all themselves.  Well, in the original HMO model the primary care doc was enlisted to be the knowledgeable "decider" for the patient who might not know enough to shop around, but that model is dead now, partly due to all the whining about the damn HMOs.  The current system is definitely broken, but slapping single-payer on top of the mess we have now, that doesn't control costs or insure quality care, will just make things expensive, not better.

        by lahke on Sat Feb 24, 2007 at 05:32:17 PM PDT

    •  the purchaser under single payer

      is the government.

      Look at Walter Reed, and see how well they are doing.

      by jimsaco on Sat Feb 24, 2007 at 10:05:24 AM PDT

      •  Walter Reed is a different issue

        One advantage of single-payer universal coverage over government provided health care is that the consumer has a choice of providers. The war veterans that the Department of Defense treated so shabbily didn't have a choice to go to a different hospital (still until recently, the VA had been getting extremely high marks from consumers and watchdogs).

        by freelunch on Sat Feb 24, 2007 at 10:24:29 AM PDT

        •  To make something perfectly clear

          Walter Reed is a US Army facility, not a VA hospital.

          Florida Kossacks Rock

          by gatordem on Sat Feb 24, 2007 at 02:49:26 PM PDT

          •  Yes

            I didn't realize that I wasn't clear on that when I wrote it, but I can see how it might be confusing.

            by freelunch on Sun Feb 25, 2007 at 11:46:06 AM PDT

    •  And...

      The reality is, to the insurance company a bad result isn't the patient dying.  The patient hanging on for years and years getting endless treatments it their worst case scenario.  

      One of the worst problems is that what I just described is a best case scenario for a pharmaceutical company.  If the drug company can make a pill that cures your ailment, then they only make one sale and then it's done.  But if they can sell a maintenance therapy that keeps you alive but also keeps you dependent on the medication, that's perfect for them.

      In the end though the fundamental flaw with our health care system is a simple reality: nobody competes for the sick.  Market solutions will always fail when there's no competition.  If you're young and healthy, everybody wants your dollars, but the moment you turn up with a chronic, expensive ailment, they want to be done with you.

      by sterno on Sat Feb 24, 2007 at 10:34:01 AM PDT

      •  Dermatology

        That's why dermatology is a dream specialty for many doctors and pharmaceutical companies. Most dermatological conditions (think acne) aren't fatal, they don't go away easily, and the patient has to spend several months trying different creams and ointments and soaps to see what works. Then when they finally get something that works, they stay on it for years. The doctors and pharamaceuticals love dermatology. And as long as they can keep the overall cost low and the co-pays high, so do the insurance companies.

        by RogueStage on Sat Feb 24, 2007 at 02:47:16 PM PDT

        •  **snicker**

          I used to work with a lot of med students/docs, and the running joke was that the people at the bottom of the class in med school tended to go into dermatology, because their patients never die, never get better, and never call them in the middle of the night with emergencies.

          But joking aside, the point about drug companies' preference for ongoing treatments is a serious symptom of all that's wrong with our for-profit health care system. When I was young, most med research was funded by the government and was focused on disease prevention and cures. Now that most research is left to Big Pharma, it rarely looks for prevention and cures  -- not enough profit. The goal is to find an expensive pill that the patient has to take for the rest of his/her life. With the sole exception of Merck's HPV vaccine, when was the last time you heard of something actually being PREVENTED or CURED by big pharma. And the only reason we have this HPV vaccine is because it requires multiple expensive shots, and has a HUGE client base.

          by vulcangrrl on Sat Feb 24, 2007 at 03:51:44 PM PDT

          •  Welll...

            their patients never die

            Melanoma.

            Other than that though, yeah.

            by sterno on Sun Feb 25, 2007 at 10:53:11 AM PDT

            •  Melanoma is treated by oncologists

              not dermatologists.

              by vulcangrrl on Sun Feb 25, 2007 at 03:59:22 PM PDT

    •  Therein lies the problem with the conversative's

      desire to remove all regulation from corporations, allowing the free market to fix itself.

      Corporations, seen as individual entities, are FAR more likely than individual people to show sociopathic tendancies.

      If we ever went to total corporate anarchy, which is what some conversatives want, do they really believe that the free market would fix itself to the betterment of mankind?

      Without the EPA, would the corps ever be stopped, by market forces, from poisoning people or polluting the people's environment?

      Would the tobacco companies have ever admitted that their products kill people without the government's interference?

      Corporations are more likely to act in their own (and stockholders) best interest than they are in the peoples'.

      by rage on Sat Feb 24, 2007 at 10:48:00 AM PDT

      •  I'm happy to pay $12,268/yr for health insurance

        Because there's no law in California that would prevent Cigna from charging me $50,000 a year, or a minute.

        The free market allowed them to raise their rates for Teigit patients up to 245% this January.

        Perfectly legal to make their insurance un-affordable, and murder by spreadsheet.

        http://www.dailykos.com/...

        by judybrowni on Sat Feb 24, 2007 at 11:18:24 AM PDT

•  This is NYC eve's "murder by spreadsheet"

  For profit health insurance just does not work. We need universal, high quality health care.

  by blue jersey mom on Sat Feb 24, 2007 at 05:28:14 AM PDT

  •  Say it again, mom

    We nee universal, high quality healh care.

    Not universal health insurance.  

    We don't need no stinkin' insurance companies.

    by tle on Sat Feb 24, 2007 at 06:50:23 AM PDT

  •  Thanks bjm,

    But all credit for the Murder by Spreadsheet concept goes to Matt Stoller.

    He's the father of MBS, but he did allow me to adopt his precious child.

    by nyceve on Sat Feb 24, 2007 at 06:51:33 AM PDT

    •  Murder by numbers

      I'm thinking, a series of pro-universal-care commercials featuring the Police's "Murder by Numbers" where the murder by spreadsheet concept is demonstrated.

      Never underestimate the power of a catchy tune.

      by McJulie on Sat Feb 24, 2007 at 07:52:03 AM PDT

      •  brilliant

        though I wonder if you could get permission from the Stingman for use.

        by madaprn on Sat Feb 24, 2007 at 07:58:03 AM PDT

        •  Given his devotion to many good causes,

          I would imagine permission could be forthcoming. it would be worth a try.

          Good karma in being someone who helped bring about universal health care for an entire country!

          by means are the ends on Sat Feb 24, 2007 at 08:34:34 AM PDT

  •  along with universal

    health care, what we also need is single payer, if the insurance approach to health care is to be sudeccessful.  The "competition" model in the for-profit sector will by definition, always leave someone out.  There's no way that a competitive market can ever be universal, as some people are just "too expensive" to be covered.  The risk can only be covered with one universal, single payer.  

    And I love nyceve's diaries.

    by a gilas girl on Sat Feb 24, 2007 at 09:29:21 AM PDT

•  The business model of most for-profit health

  insurance is deny and delay. Anyone who has tried to get a claim paid is aware of this. As a result, the overhead costs of for-profit insurance are far higher than the overhead for medicare.

  by blue jersey mom on Sat Feb 24, 2007 at 05:30:10 AM PDT

  •  Deny and delay,

    and those who are persistant enough or healthy enough to complain and fight get their costs paid; while those who are working too many hours to spend the time on the phone or make the remediation meetings end up being denied and paying the costs themselves.

    My family has had a few claims over the years that were denied, but because I have a home-based business I was able to spend the time on hold or playing phone tag that a lot of 9-5 people can't afford. I know of others with the same insurance, with very similar claims, who ended up paying.

    by cathy b on Sat Feb 24, 2007 at 06:11:46 AM PDT

    •  Yes, I went to graduate

      school with someone who worked at an HMO for awhile. She said that while they advertised the consumers ability to access healthcare, privately they referred to consumer access as penetration.

      by PLS on Sat Feb 24, 2007 at 07:37:06 AM PDT

      •  And every claim paid out is like a rape

        of potential profit.

        by madaprn on Sat Feb 24, 2007 at 07:59:09 AM PDT

      •  heh

        Goes along with the CC companies.. they call the people who pay on time and don't carry debt 'deadbeats'.

        by Politburo on Sat Feb 24, 2007 at 09:03:05 AM PDT

    •  Also important: expedite VIP coverage

      for the rich, influential, and the Political Class, so that they don't see what's going on.

      The tiered, class-determined access to actual care is the elephant in the room, which makes it possible for the privileged to remain completely clueless and/or uncaring about what is happening to the rest of us.

      Kind of like that economic "boom" that's going on for the rich investor 2% class right now. Somehow pundits can't figure out why Americans aren't happy about that, either!

      by means are the ends on Sat Feb 24, 2007 at 08:38:53 AM PDT

      •  The Political class needs to . . .

        go into the private market like the rest of us with only a number for identification so they don't receive special treatment.

        Then they'll get shit on, like the rest of us as well.

        by nyceve on Sat Feb 24, 2007 at 11:10:10 AM PDT

        •  I can't agree more. Great idea! n/t

          by means are the ends on Sat Feb 24, 2007 at 08:17:00 PM PDT

  •  Particularly troubling in situations like

    brain cancer.  From the time it is discovered there is an average life expectancy of six months - that is an average not a finite number.  But the frightening thing is the stark terms in which the HMO's discuss the treatment after an emergency surgery - that is how is unfolds normally - someone collapses and the next thing they know they wake up a few days later having had brain surgery.  HMO's often argue that further treatment is too expensive just to protect or extend that six month life expectancy.  I know people who have survived eight years.  But even still if you can even double the six months that is a whole extra lifetime to patients and their families.

    We could probably beat the disease if all of the patients who have the disease received treatments beyond that emergency surgery because the more we treat and experiment the better we do.  But the HMO's have no incentive to participate in that higher minded goal - they've already lost a bundle on a major surgery and they have a patient they think won't be paying premiums much longer.  They're trying to get out of their contract by letting the patient die.  Nice huh?

    by inclusiveheart on Sat Feb 24, 2007 at 06:34:43 AM PDT

    •  this scenario should be presented to Mr. Bush....

      EVERY time he brings up market based solutions to the health care crisis.  Rub his nose in it.  Maybe he'll behave better afterward regarding this issue.

      by billlaurelMD on Sat Feb 24, 2007 at 06:46:42 AM PDT

      •  I am under the distinct impression that he

        could care less about the patients.  It is all about the premiums and maximizing the profits off of those premiums in his mind.

        We are all just a herd of cattle that either yields a profit at the marketplace in his mind.  If he can't get a good profit on any one of us, he'll just let us starve.

        by inclusiveheart on Sat Feb 24, 2007 at 06:55:07 AM PDT

        •  well, then ...

          we add that impression (which has a lot of truth to it, I'm sure) to the postscript of the story. Call him out. That's language religious conservatives understand ... call him out on his sin! ;-)

          Actually, I see this as an issue that Jesus spoke to, many times, in his ministry ... so this just might be an issue where not only Mr. Bush, but the entire Republican party (and conservative Dems) are vulnerable.

          by billlaurelMD on Sat Feb 24, 2007 at 07:00:17 AM PDT

          •  The better example would probably be breast

            in the black female population.  Often when they are diagnosed the simply die with no treatment.  Or the fact that minorities and women are tragically underserved compared to white males after they have been diagnosed with heart disease.

            There are countless examples of how the for-profit model undermines the medical mission of saving and preserving lives.  I just don't think Bush cares though.  He agrees with the HMO's business model of only taking on business that is profitable and leaving the rest to fend for themselves.  He is also unwilling to put life and health over profit for his precious HMO buddies because that is what it is going to take to fix healthcare delivery in America.  We have to go back to a not-for-profit model.  Anything less will just be more of the same old shell game.

            by inclusiveheart on Sat Feb 24, 2007 at 07:47:07 AM PDT

            •  He doesn't care because

              I doubt he's experienced it (other than as an investor).  When you got dough, you get treated.

              by Hard to Port on Sat Feb 24, 2007 at 08:37:05 AM PDT

              •  Saw Lance Armstrong on the Daily Show

                discussing his support of cancer treatment. His point was that 600,000 people in America die of cancer every year, and that if we gave appropriate treatment immediately, 200,000 of those people would live.
                I laughed and cried at the same time as he talked, because I was yelling at the screen that no-one is going to get that treatment to the third of folks who could live, because it would cost too much money! Bush said so in his Presidential debate; you could look it up.

                So we aren't getting treatment we have to the people who need it.

                That is a complete disgrace: 200,000 people dieing unnecessarily every year from cancer alone.

                Every year. I am ashamed of my country.

                by means are the ends on Sat Feb 24, 2007 at 08:44:35 AM PDT

            •  My uncle died young of prostate cancer

              because his HMO just simply refused to give him any treatment, whatsover.

              Although my uncle was a fairly wealthy man, he'd signed up for the HMO because "I get my glasses for free!"

              My father less well off, always looked a gift horse in the mouth, so paid extra for the PPO suppliment to Medicare.

              My father's family tends to live into their late '80s with few health problems -- my father is 83, and still pretty hale.

              His brother died in his late '60s at the hands of the HMO.

              My father realized that his brother didn't see to be getting treatment (for what I've since been told is an easily treatable condition) so flew down to Miami to confront his brother's doctor.

              To establish that he knew what he had some back to be asking specific questions my father introduced himself by saying, "My daughter is a doctor, a gynecologist."

              "Oh, really?" the doctor answered, "That was my speciality in Costa Rica, too."

              The HMO had assigned a gynecologist to be my uncle's oncologist, apparently with the cost-saving idea that he'd wouldn't know which treatments to request.

              And no matter my father's nagging, my uncle couldn't believe that either the HMO or the doctor would be venal enough to kill him, when they could cure.

              "He seems like such a nice guy," said my uncle of his doctor, and so died at least 20 years early, for being too nice a guy himself.

              My father and his brother planned to travel across the country in their retirement years -- which never happened because my uncle's HMO budgeted for a murder by spreadspeet.

              by judybrowni on Sat Feb 24, 2007 at 11:35:17 AM PDT

      •  Who's gonna present it to him?

        He doesn't interact with the proles.  At any press conference, he just stammers and smirks and spits out sentence fragments.  Maybe Laura?  Maybe Barney?

        Dealing with Bush is a waste of time.  Better to focus on getting a candidate who will get this ball rolling from day 1.

        by aztecraingod on Sat Feb 24, 2007 at 07:03:34 AM PDT

        •  so, you don't deal directly with Bush

          You deal with the arguments and positions of the Bush Administration.  You'll notice Bush does come out and speak when his platitudes are revealed to be that by the press and the public.

          by a gilas girl on Sat Feb 24, 2007 at 09:32:41 AM PDT

      •  Rub his nose in it.

        You'd better spread newspapers on the floor, just to be safe. ;-)

        by unclejohn on Sat Feb 24, 2007 at 07:23:47 AM PDT

        •  I picture Chimpy...

          ...as more the type to cower in a corner and fling his feces at anyone who comes too close.

          by dsteffen on Sat Feb 24, 2007 at 08:01:53 AM PDT

          •  The problem is

            his feces are our lives.

            by a gilas girl on Sat Feb 24, 2007 at 09:33:11 AM PDT

      •  Waste of time pleading with Bush

        The first and last person he listens to is the lobbyist's contact in his inner circle.  Your facts, anecdotes or logic about helping millions of Americans humanely and effectively is simply irrelevant and of no interest to him.

         The scandal around the treatment debacle for vets at Walter Reed: Is it worse that he has no comment or answer because: 1) he was unaware, or 2) he was aware and has other priorities?

        I believe it was #1, and now it is become #2.  

        Don't clutter up his mind with problems of ordinary Americans when there is the survival of Saudi royals  and the American superrich to be concerned about.

         Every single blasted item in domestic politics gets reduced to "tax incentives" for his richest patrons regardless of what it is. He is a class warrior on behalf of the rulers and worst elements in our land.

           Vetoing scientific research like the stem cell bill was a sop to the religious crazies.
         
          There is his misleadership on display in all its inglorious splendor.

        by Pete Rock on Sat Feb 24, 2007 at 08:25:52 AM PDT

        •  So we don't talk TO Bush

          we talk TO the public ABOUT Bush, always.

          by a gilas girl on Sat Feb 24, 2007 at 09:33:56 AM PDT

      •  Pfff

        Mr. Bush has an MBA, and probably paid just enough attention in Microeconomics to hear that "markets are more efficient at processing information" and "taxes result in deadweight losses."

        Missing the bit about "Assuming the market consists of rational actors"  (when life and death get put on the line, nobody is rational) interacting "with no transaction costs" (like, say, determining what is actually wrong and what is the best treatment).

        And all the rest that entails.

        RV

        by RanxeroxVox on Sat Feb 24, 2007 at 10:21:09 AM PDT

      •  Rubbing his nose in it

        won't make him pay any more attention, unfortunately.  What I'd like to do is beat him upside the head with it.  Not that I think he'd pay attention even then, but I'd get enormous satisfaction out of smacking the shit out of him.

        by Heiuan on Sat Feb 24, 2007 at 12:38:52 PM PDT

    •  My husbands cousin had brain cancer

      He was told that operating would cause it to spread and he would die sooner. He died 6 weeks later.

      by relentless on Sat Feb 24, 2007 at 08:45:38 AM PDT

      •  There are a couple of different types.

        Both are pretty deadly, but there is one that effectively infests the brain and is for all intents and purposes inoperable.  That tumor wraps the equivalent of tentacles throughout the brain.  One wonders if every person had things like MRI's as part of their regular check up, we might catch these things before they got that far.  As I noted most people don't find out until they pass out and wake up in a hospital with their life completely changed.  The government are probably going to spend millions of dollars on installing that airport security screening machine that images every body part so we can fly, but they won't cough up the cash to screen us with any regularity for deadly diseases.  There is something wrong with that.

        I am very sorry for your loss.

        by inclusiveheart on Sat Feb 24, 2007 at 08:55:27 AM PDT

  •  There is lots of misunderstanding here

    I work for a health insurance company, and I think there is a lot of confusion in this statement.

    First, let me say that I want universal healthcare; I want to get rid of underwriting and the rejection of applicants on the basis of health status; I'm not bothered by getting rid of for-profit insurance because it doesn't add very much to the system (but neither does it need to detract much...with a well-designed system it is a wash).

    That said, here are things to keep in mind:

    1. Health insurance companies do not have high profit margins, and never have. It is not like the drug industry. The hospital industry and insurance industry both have roughly the same profit margin (5%), while the drug industry has had net margins closer to 20%. With thin margins, being stingy about claims is not about greed so much as it is about survivial. Yes, the current system is less efficient than it could be and government should intervene to change that. But no, insurance companies are not in general robbing people blind. The only area where that is generally true is individual insurance (about 8% of the commercial market), particularly high-deductible policies.

    2. It is not true that denials and delays are intended to stop paying legitimate claims that are needed for medical reasons. Yes, sometimes that happens. But there are really two goals: (I) They want to stop providers from gaming the system and submitting claims for things that are not medically necessary, or medically productive, as well as things that are just plain fraud; insurers are not nearly as concerned about fraud on the part of patients.(II) They want to pay for only those things that they were obligated to pay according to the contract. The reason for this is that the premium is priced based on actuarial projections of what a given level of benefits will cost. If the insurer starts paying claims for things that are not

    An insurer denying a claim that was not part of the contract is the same thing as denying a service that was not paid for. It is equivalent to a hospital saying that you can't get operation X if you don't pay for it. When hospitals know someone can't pay for a service they provide, they either refuse to treat them, or if they must, pass the cost on to everybody else who pays in the form of higher rates. And since government fixes its rates by fiat, private insurers take up the slack. Without private insurance, most hospitals in America would be losing money because the rates Medicaid and Medicare pay do not permit them to profit at current levels. I am not saying that the government should pay more (in fact hospitals need to get more efficient and focus more on providing value than providing billable procedures). What I am saying is that all this focus on "evil" insurers is ridiculous. It shows deep ignorance of the place of private insurance in today's marketplace.

    The use of denials has almost nothing to do with whether an insurer is for-profit or non-profit. Non-profits need to stay solvent and price their insurance at a level that others will buy it just as much as for-profits, so they use many of the same strategies.

    Finally, overhead costs for private insurers are actually 5-6% of total healthcare costs in the US. This is because private insurers pay for about 37% of total healthcare costs, and they have an administrative expense ratio of about 15%. 37%x15% is about 5.6%. You will not be able to save more than this be eliminating private insurance, because some of that money will still have to be spent paying claims and dealing with customer service in a single payer system.

    Moreover, Medicare spends less than 15% on administration primarily because medical spending per member is about twice as high for those above 65 as those below 65. The private companies in the Medicare Advantage program have administrative expenses between 5 and 10%. This is still higher than traditional Medicare, but one more thing really must be kept in mind:

    You can't just look at the ratio of money spent on administration vs. medical care to determine how just a system is. Take a system that pays 5% for admin and 95% for medical care. Compare it to a system that spends 15% on admin and 85% on medical care. Which is more just? You can't answer until you know the total money spent on healthcare, and how it is spent. If system 1 has $2 trillion in expenses and system 2 has $1 trillion in expenses, and demographics, life expectancy and quality of life are the same in the two systems, then system 2 is actually more just. System 1 has tons of waste and fraud in it, and everyone else has to pay for it.

    So is our system more like system 1 or system 2? Sadly, we get the worst of both worlds. We have more than 15% admin costs when you count provider admin and over $2 trillion in expenses. As you can see, I am not at all arguing that we don't need big reforms. But I want to point out that the large majority of waste in our system is on the medical side, not the insurance side. Going to single payer is not going to solve that. You need to create new cost controls, quality controls and fraud controls on providers. This needs to be done regardless of what role, if any, private insurers play in a universal care system.

    by jd in nyc on Sat Feb 24, 2007 at 10:13:11 AM PDT

    •  Kill yourself.

      By the way, if anyone here is in for-profit health insurance, kill yourself.

      Just a little thought. I'm just trying to plant seeds. Maybe one day, they'll take root. I don't know. You try. You do what you can. Kill yourself.

      Seriously, though. If you are, do. No, really. There's no rationalisation for what you do, and you are Satan's little helpers, okay? Kill yourself. Seriously. You are the ruiner of all things good, seriously. No, this is not a joke, if you're going: "There's going to be a joke coming." There's no fucking joke coming. You are Satan's spawn, filling the world with bile and garbage. You are fucked, and you are fucking us. Kill yourself, it's the only way to save your fucking soul. Kill yourself. Planting seeds.

      I know all the insurance people are going: "He's doing a joke." There's no joke here whatsoever. Suck a tail-pipe, fucking hang yourself, borrow a gun from a friend – I don't care how you do it. Rid the world of your evil fucking machinations.

      (credit to Bill Hicks)

      by Swampfoot on Sat Feb 24, 2007 at 11:21:16 AM PDT

      •  although I understand the sentiment

        I really don't think that's a productive response.

        by elfling on Sat Feb 24, 2007 at 12:38:55 PM PDT

      •  Staggering

        First, I'm not in for-profit insurance. I'm in non-profit, though I suspect this doesn't make a difference to you.

        Second, I'm not sure whether your arrogant ignorance or your disdain for human life is more repulsive. Why you would want to emulate George Bush, I have no idea.

        Third, you almost got your wish. I just had time to glance at this comment before jumping in the car. I was so distracted by your death wish that I cut off another car and almost caused an accident. Maybe if you keep wishing death upon people you will one day succeed. And no, I'm not joking either.

        by jd in nyc on Sat Feb 24, 2007 at 08:19:05 PM PDT

    •  I have a number of problems with this, but

      let's start with the issue of profits and huge CEO salaries. The money that is paid to shareholders and to corporate moguls is money that is not going to pay for my treatment. Medicare does not have to pay stockholders. It could probably cover much of our population at a reasonable cost, since most children and younger adults have fewer health problems than those who are over 65.

      And while you may argue that the deny and delay model is simply a business's way of keeping me from getting something for free, in my experience (with several different insurers' programs) it usually takes several months, several ignores letters, and several phone calls (while spending hours on hold to try to speak to a real person) to get my insurance to pay for costs that they are contracted to pay for. It is far more difficult to get a health care company to pay for covered treatment than it is to get my car insurance company to pay for covered repairs.

      by blue jersey mom on Sat Feb 24, 2007 at 11:46:54 AM PDT

      •  agreed

        I see that I really stirred up a hornet's nest here, but I don't disagree on principles so much as a few economic facts.

        If you look at CEO pay among insurance executives, you'll find that the grand total of everyone combined is under 1% of total healthcare expenditures. I completely agree that this is a ridiculously high amount. Note that almost all of the "damage" comes from a very small number of publicly traded companies (United, WellPoint, Aetna, Coventry, Sierra, Humana, CIGNA). There are literally hundreds of other insurance companies whose CEOs make nowhere near the same amount of money...what they make is comparable to what CEOs of hospitals make. When you look at the fact that CEOs of hospitals (especially hospital systems) often make more than $1 million and there are thousands of hospitals compared to hundreds of insurers, I think you can put this in perspective. Yes, pay is too high for the big shots at public companies. But there is massive overpayment on the provider side as well, and I bet when you run the numbers it has a bigger net drain on the system.

        My goal is not to say everything is great in insurance-land. It is not. My goal is instead to get the left to stop scapegoating private insurance as the source of all our problems, and to stop pretending that just by getting rid of them we will go from spending 16% of GDP on healthcare to a normal nation that spends 9-10%. We will not, because the direct savings from getting rid of private insurance will maybe get us from 16% of GDP to 14%. If we insure everybody, the cost will even go up past 16%. The rest of the savings will have to come from the cost controls and fraud controls on providers. That's what they do in every other nation. It will be no different here.

        As a final note, very few nations have eliminated private insurance. In some cases, such as France, private insurance pays for almost as much healthcare as it does here. This is despite the fact that they have universal coverage and total healthcare expenditures around 10% of GDP.

        In the end, based on looking at other nations, I can say with confidence that in the long run it simply doesn't matter whether we go with a single-payer nationalized system, or a multi-payer system. Both systems work in other nations. It is only our system that stinks.

        by jd in nyc on Sat Feb 24, 2007 at 06:45:54 PM PDT

    •  Baloney.

      And since government fixes its rates by fiat, private insurers take up the slack.

      Bullshit. No difference there. Private insurers set their rates by fiat all the time, every day. The only option providers have is to stop accepting that plan, same as choice they have to stop accepting Medicare.

      Without private insurance, most hospitals in America would be losing money because the rates Medicaid and Medicare pay do not permit them to profit at current levels.

      More bullshit. The vast majority of insurers pay no better than Medicare, and in fact quite openly tie their reimbursement rates to Medicare, all the while costing more and imposing more conditions on procedures, etc than Medicare ever does.

      But I want to point out that the large majority of waste in our system is on the medical side, not the insurance side.

      Pure crap.  I'm not saying some unscrupilous providers don't order unecessary things. But most often they are fighting to order things that in their medical opinion, having TREATED AND EXAMINED the patient, are necessary.  Their opinion is based on reality, looking at the individual patient in front of them - not looking at an algorythm sitting at a call center in Birmingham, making what amount to life and death decisions having NEVER EXAMINED that patient.  

      Until you can show me average physicians making what insurance executives make, or find some convenient denial of the RECORD PROFITS raked in by the likes of BCBS and UHC while care goes downhill, you're going to have a hard sell convincing me that all those billions and billions of dollars are going to doctors who ordered an MRI just for shits and giggles.

      by SaneSoutherner on Sat Feb 24, 2007 at 12:48:35 PM PDT

      •  some sanity

        You make some good points, so I'll elaborate where we agree and disagree:

        When talking about insurers setting rates by fiat, we need to distinguish between rates for individual physicians, for physician groups, and for hospitals. You're right that private insurers do routinely set a rate that providers have to accept or reject when dealing with individual physicians or small groups. But large physician groups and hospitals engage in direct negotiations with insurers in almost every case. this is in contrast to Medicare, which doesn't negotiate with any hospital or provider group.

        I know that you're wrong, though, when you make the follow up point that insurers pay the Medicare rate. They do not. Almost every hospital loses money on Medicaid, roughly breaks even on Medicare, and makes money on private insurance. Private insurers do often "peg" their rates to Medicare, but what they pay is Medicare plus 10%, plus 20%, etc. You sound like someone who knows the industry, so you know that I'm right on this or can easily confirm it. Here's some data that's a little old, but nothing much has changed since then.

        I think I take most exception, though, to the following statement of yours

        Pure crap.  I'm not saying some unscrupilous providers don't order unecessary things. But most often they are fighting to order things that in their medical opinion, having TREATED AND EXAMINED the patient, are necessary.  Their opinion is based on reality, looking at the individual patient in front of them - not looking at an algorythm sitting at a call center in Birmingham, making what amount to life and death decisions having NEVER EXAMINED that patient.

        First, it's not just unscrupulous individual providers who order unnecessary things. It's also unscrupulous systems (hospitals) who commit fraud by the billions of dollars every year. It's hard to know how much fraud is out there, but conservative estimates put it at around 5% of total expenditures.  So, outright fraud by providers is roughly equal to the total cost of private health insurance administration. Fraud costs over $100 million per day.

        On top of all the fraud (in the form of trumped-up billing, bills for unperformed services or medically inadvisable care) there is defensive medicine, offensive medicine, and passive medicine. Defensive medicine is when physicians order extra tests to avoid lawsuits. Offensive medicine is when they order extra tests and procedures of questionable or minimal medical value in order to make more money (which they do in a fee for service system). Passive medicine is when providers order tests, procedures or drugs for people even when they don't believe they will work, simply in order to make the patient happy. If you're a physician, you know that patients frequently ask for something they've seen on TV or the internet, and if the doctor questions it they say "what do you care? Insurance will pay for it." They want to make their patient happy, so they do it if they don't think it will harm them. And the rest of us pay for it.

        So when I talk about insurers trying to control costs, I don't just mean fraud but all this other stuff as well. And yes, insurers do use algorithms to try to catch this stuff. I know it can be crude and heavy-handed, and insurers often act like assholes about it. At the same time, in a system where every extra thing a provider does is a new billable code, someone had damn well better be keeping tabs on who is billing what, and whether it makes sense. You can't seriously be demanding that there be no quality and cost controls on the system by anyone who hasn't directly seen the patients. You also can't seriously demand that whoever is paying for the service shouldn't be reviewing to make sure they're paying for the right thing. The government should do this just as much as private insurers...and increasingly it is.

        As for record insurer profits, here's why: almost every segment of the healthcare industry makes record profits almost every year. The reason is that the total costs are going up by 6% or so a year. Costs to those outside the industry are revenues inside it. Hospitals, drug companies, device makers, specialist physicians and insurance companies have all been rising with the tide. The only people not riding the gravy train in the last 10 years have been general practitioners/PCPs/family doctors.

        Final note: the total net income (profit) of all private health insurance companies combined is about 1-2% of total health expenditures in the US. I think the number for hospitals is also 1-2%. Add drug companies in the mix and you get roughly another 2-3%. If you remove all the profit from the system, we still spend way more per capita than every other nation. Why? because of all the fraud, defensive, offensive and passive medicine. Oh, and we pay too much for drugs and services.

        Do you still think I'm full of crap, or do you think I just might know what I'm talking about?

        by jd in nyc on Sat Feb 24, 2007 at 07:45:42 PM PDT

    •  Blame the Docs and Yourselves

      jd brings up an important point- gaming by providers, that points to a major issue. Insurers are often Scum Sucking Shysters, but the truth is even if you eliminate them, medical costs are  outrageous. Moving to self insured can save a nice slice off of costs- but that's it. Single Payer can save much more administrative overhead- because of the costs to docs to run down payments.

      But providers often game the system to increase utilization. Medicine is Big Business- not just insurance companies. And physicians have ignored costs for so long; it has been considered bad medicine to take cost into consideration between 2 different procedures- a new one costs twice as much and is 20% more effective- well the new procedure is always adopted. For me personally, if the cost difference is still small overall, or the bad outcome is death, well sure.

      But we often pay gobs more for very marginal improvements in care. And assume every condition should be treated if it is possible. This attitude drives up the costs for all. IMHO the worst is that as much as 35% of our health is spent in the last year of life. Rationing of care does occur in other countries as part of the philosophy of medical training. This lack in our system is a huge part of why we have to pay and pay and pay. And there is a huge medical industry taking full advantage of that attitude.

      I prefer good basic health for as many as possible, and to try to fix what we can with reasonable resource usage. Those resources may often greatly exceed the amount an individual can afford, and we should do what we can to help. But modern practice often elevates certain cases to incredible expenditure levels. Is this really what we want for everyone? If so, get used to putting all your money into health care under any system.

      by Mesquite on Sat Feb 24, 2007 at 01:46:45 PM PDT

      •  thanks, and I fully agree (n/t)

        by jd in nyc on Sun Feb 25, 2007 at 07:19:23 AM PDT

    •  wrong, wrong, wrong

      But I want to point out that the large majority of waste in our system is on the medical side, not the insurance side. Going to single payer is not going to solve that.

      A lot of the waste on the medical side is caused by insurance, and single-payer would indeed change that. Under current incentives, private insurers have little reason to spend money on preventive care or active management of chronic illnesses. Why? Because the savings that would result might not come to fruition for a very long time. By then the patient would likely be under the care of a different insurer and they would get the bottom line benefit, not the insurer who paid up front. I don't know what other people have experienced but I have had three different insurers in 7 years...and that's all at the same job.

      Under a single-payer system, the single-payer is responsible for patients from cradle to grave. Ergo, they would be in a much better position to realize the benefits of preventive care and intensive disease management and spend accordingly.

      by Joe Bob on Sat Feb 24, 2007 at 02:36:35 PM PDT

      •  That's a good point

        You're absolutely right that this is a problem with our current system. I think we can solve most of our problems on the insurance side by mandating coverage (with subsidies for the poor), standardizing basic benefits, and getting rid of individual underwriting and the ability of insurers to reject people. But one thing I don't see how to solve is this issue of the return on investment of preventive care. Some of it does pay off even given turnover, but much of it does not. Or at least, it hasn't been shown how to make it work financially yet.

        Sadly, the fact that in principle a single payer system should pay more attention to preventive care doesn't mean it does. Many aren't much better than the US. To the extent that their disease rates are lower than ours it can be attributed in good measure to things like better diet and more exercise, not preventive clinical care like physicals, cholesterol tests, etc.

        FYI, by "waste" I didn't mean costs associated with unnecessary sickness, but unnecessary costs associated with a given health condition. I agree that the notion of waste can be expanded.

        by jd in nyc on Sat Feb 24, 2007 at 08:06:35 PM PDT

    •  admin costs

      I don't think your admin cost numbers are correct. The industry historically has a 30% expense ratio.  Marketing costs alone are around 15%.  

      Disclaimer: I have nothing at my disposal to legitimize my numbers, but this has inspired me to go do some research.

      The deny-delay approach to maximizing profit is also apparent in the property-casualty insurance business according to a recent CNN special report.

      by Mensor on Sat Feb 24, 2007 at 04:10:37 PM PDT

      •  Not so

        I know for certain that admin costs are about 15%, while profits are about 5%. Marketing costs for insurers are nowhere near 15% on average. Even when you count broker fees as marketing, Sales & Marketing costs are less than 10% for every insurance company I've seen.

        Here is data up to 2003 on admin costs. That $421 in admin was for about $3,500 in average yearly premiums in 2003. (I'm estimating based on 2005 premiums.)

        By the way, Kaiser Family Foundation is an excellent source for statistics with a progressive bent.

        by jd in nyc on Sat Feb 24, 2007 at 08:34:22 PM PDT

•  Some Health providers...

  ...claim that the consumer needs to be brought into the cost equation. As it is now, consumers aren't faced with a cost bennifit decision. I don't think people should be confronted with a decision to sacrifice thier health for cheaper treatment, but there should be some reward for the consumer saving money while purchasing health care.

  by roastedcoyote on Sat Feb 24, 2007 at 05:32:41 AM PDT

  •  But, realistically, how do you do this?

    When you pruchase a TV, you have the opportunity to visit several stores, look on-line, and choose the best value. Medical care is often the result of accidents and emergencies. While you are having a stroke or bleeding, you don't have the opportunity to check the prices of various surgeons. the market-based business model is just not appropriate here.

    by blue jersey mom on Sat Feb 24, 2007 at 05:38:19 AM PDT

    •  are emergencies really the normal case

      for people with insurance?

      What I see when I go to the Dr. is a clinical practice that is optimized to get every $ of coverage.  I will be tested to the limits of my coverage.  I will be prescribed the latest, most expensive treatments.

      Having been prescribed Vioxx and then Bextra and now having problems with Lipitor, I had a 'sit down' with my Dr. and told him I want to use the most time tested treatments that are available.  This simple approach can cut pharmacy costs dramatically.  But on the surface, it didn't matter to me, because while the older treatment cost less, it was roughly equivalent to my co-pay, so there was no 'out of pocket' advantage to me, but there was a big advantage to pharma and a big increase to the cost the system incurred.

      When I did my own research, I found that I really didn't have indications for the arthritis meds or the Lipitor.  The indications for the arthritis meds were that older treatments had been ineffective or had produced gastric problems--we hadn't even tried older treatments.  Re: Lipitor, the indications for Lipitor are 2 or more risk factors for heart disease and I only have one risk factor.

      If I was paying the full cost for the new drugs or some of the questionably useful diagnostics I get out of pocket, I can guarantee you that my behavior would be different.

      Making the insured ante some of the initial costs and covering the big ones on the back end is one method of containing costs that's worth study.

      by Mosquito Pilot on Sat Feb 24, 2007 at 05:58:42 AM PDT

      •  I am not a doctor

        and I am not comfortable diagnosing myself based on "research".  When I found my anti depressant to be what I consider addictive, I "did some research" and found I could take any number of other medications, based on my indications.  However, after two years of headaches, paranoia, depression and constant nausea, I had to admit that the expensive drug was the best.  Had I not had the support of my husband and my doctor (who did support my efforts to save money) I am sure I would have committed suicide during this little exploration.  Every case is different.  Would Mosquito Pilot feel the same if he absolutely could not afford a life saving treatment out of pocket?  Covering the big ones on the back end is more expensive than preventing the big costs.  And if a patient dies before the insurer pays the "big ones on the back end" it is a real money saver, but not one I would recommend.

        by dazed in pa on Sat Feb 24, 2007 at 06:33:45 AM PDT

        •  After reading that the brand named drugs

          pay some of the generics not to come on the market, it makes me wonder if some of your side affects were not because of something put in the generics that would cause the symptoms you had, on purpose.

          We need a better drug check. Why would a generic having the same ingredients have worse side effects?

          Our health and our money is not theirs to take and do with what they will.

          by relentless on Sat Feb 24, 2007 at 09:04:58 AM PDT

      •  I raised three sons. Two are now adults and the

        third is a teenager in high school. the short answer is YES emergencies are the normal case for many parents. We had our share of cuts, concussions, broken bones, etc. Mercifully, two of the worst happened while my kids were in school, so no one could accuse us of negligent parenting. One son broke his hand playing football in PE (and he is a flautist, not an athlete). Another ran into the book cases in the school library and needed 23 stitches in his head.

        by blue jersey mom on Sat Feb 24, 2007 at 06:39:54 AM PDT

        •  Is the hand okay for music?

          We went through the same things; after three years of getting nowhere I finally paid a bill for a broken wrist (snowboarding, a required school sport) because our insurance refused to pay it and the outstandings were ruining our credit.

          Now, we've got a high deductable policy. We have to pay all our costs up to $10,000, but at least we have the luxury of deciding on our own expenses instead of an insurer deciding that things like "that broken arm isn't legitimate."