Health Care Musings – Insurance Edition

Earlier this week I posted about the health care mess and talked about some of the causes.  In thinking about this a bit more, I feel the need to expand upon one particular group of participants.  Over time I may go over some of the others, but for right now, my ire is with the health insurance industry.

These are presented as separate musings, all related to the same topic.

Insurance is a funny thing.  Many people believe that insurance should cover all medical costs.  In my world view, this is playing with OPM – Other People’s Money.  If the insurance policy will pay for everything, where is my responsibility to evaluate the costs and benefits of my health care needs?  I firmly believe in high deductible medical policies — where the insured pays for the regular charges and uses the insurance to cover the risk of a costly medical event.  In this way, you can determine if you should go to the emergency room with that sprained ankle or whether it is better to wait to go to an urgent care center where the costs are less.  You need to take control of your health care and the best way to do that is through the lens of your wallet.

I read an interesting article from Nate Silver, from, the statistical blogger who correctly predicted the last presidential race.  He talks about a George Will opinion article that describes the President’s wish to include a public insurance option as a folly.  Nate (and I) believe that the addition of a public option will provide some competition to the ingrained insurance cabals.

One of George’s thoughts is that the government can undercut the insurance companies because it does not need to make a profit.  Nate brought a good point to the discussion – the fact that profits are not earned by providing better service, just by adding additional people to the pool.  Therefore, the government can provide serious competition to the insurance companies.  Last year, Aetna earned $1.3B in profits, UnitedHealthCare returned $2.977B and CIGNA had a bad year, only $297M in profits down from $1.1B the prior year.  We should not cry for these companies; we need to ask how they are going to help us address the health care crisis in our country.

In any case, the logic that the insurance companies use is flawed.  For example, let’s say that someone has an insurance policy through an employer.  No problem, the insurance company takes a history but, in general, accepts everyone in the group. All is fine until the employee loses his job.  Not a big deal, because there is COBRA, which allows the employee to continue coverage, by paying the entire premium.  Now, this is only the law for companies that have 20 or more employees, but let’s not pick on details.  So, the former employee is now paying the full premium, but is covered under the same terms and conditions as when he was employed.  But COBRA runs out 18 months (yes, there are some exceptions and temporary extensions, but bear with me…).  At this point, former employee needs to get other insurance.  Hopefully he will have gotten a new job that include health insurance benefits.  But let’s take the story one more step.  He is unable to get a new job.  He tries to get an individual policy that will cover his insurance needs.  So, he goes back to the company that provided his insurance coverage while he was employed and during his COBRA period.  Note that nothing has changed:  same company, same person, same health experience, no health changes. The company denies him insurance because of a medical issue.  They claim that his risk is too high.  But nothing has changed!  The risk is the same as when he was employed.  The insurance company claims that because the group is now small (1), they have different underwriting standards.  Instead of looking at their entire pool of policyholders, they focus on the risks associated with a single participant, which negates all of the reasons for having insurance in the first place.

There are many problems with the insurance system today.  George Will elaborated on some of them.  OPM even raises its head here because a significant portion of the employee’s insurance premium is paid for by the company with tax deductable dollars.  But as Nate Silver so adeptly points out, you can’t just start up a health insurance company anymore.  The only entity that has the ability to do so is the Federal Government and I sure would like to see some innovation that might be spurred on by new competition.

The one thing that the general public doesn’t have that all of the other constituencies have is a lobbyist.  The doctors and the AMA have one.  The insurance companies have one.  Big Pharma has one.  The hospitals have them.  Right now, the President has the responsibility for lobbying for the general public.  He has claimed that he wants bipartisan support for health care reform, but it is clear that the only way to get both parties to agree is to have no real change.  President Obama needs to use his bully pulpit and put together a program that will work to reform healthcare, despite the opposition party and the lobbyists.  This is his opportunity to put his stamp on ensuring the future of the American health care system.

The thing about this health care crisis is that no one is going to come out of this with the status quo.  Each constituent is going to have to make a change: it could be to their process, procedures, reimbursement, staffing, equipment, expectations etc. The insurance companies need to take the initiative to strive for new ways of doing business so that they have some say in how it all comes out.  Otherwise, they might just be forced by competition from the government and by force of law to react to a very different world view.

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