Thursday, December 31, 2009

Demonizing insurers

Private health insurers provide under 40% of healthcare funding in the US today. Their average medical loss ratio is 90% -- that is, out of every $1 in ratepayer money, 90 cents goes out to pay claims. What that means is that if they had $0 profit and 0% overhead, we as a nation would save a whole whopping 4% of our national health care costs.

So it's not insurers that are causing your 20% rate increases every year. It's providers -- the people who say, literally, "your money or your life", and refuse to provide life-saving procedures until you agree to pay them enough for a third or fourth home and a private jet of their own. Providers have no -- zero -- incentive to contain costs, because they know they're holding a loaded gun to your head. Either you pay what they demand that you pay, or you die. (This, BTW, is why primary care physicians are *not* paid very much -- you don't die if you don't get a physical, so they don't have that deadly force available to force you to pay outrageous amounts of money for medical procedures).

We need to deal with the way that insurers are handling the problem of rapidly escalating health care costs -- i.e., by kicking people out of the system and arbitrarily denying approvals for expensive procedures in hopes that the sick people will die before they have to pay out -- and handle the issue of people who can't afford insurance for whatever reason. So insurers are evil, but they're not the evil that's causing your 20% rate increases every year. To handle the rate increase problem we have to go to the core: the people who are literally saying, "your money or your life" and hijacking us all at gunpoint so that they can have the same gleaming under-used medical diagnostics equipment as the hospital across the street or otherwise provide healthcare services in an inefficient manner. Because those are the people who are causing your rate increases -- *not* the insurers. The insurers aren't good guys here, but unless you identify the correct culprit in the costs escalation problem, you haven't a hope in hell of solving it. Hint: Demonizing the insurers and accusing them of causing the costs escalation is about as idiotic as blaming President Obama for the Bush recession...

To summarize: We solve the costs issue by adopting the French system of government-mandated rates for every provider who accepts government-regulated insurance, we don't need to go to single-payer for that. (France is not exactly single-payer -- various guilds have their own insurance funds separate from the overall public fund). Blasting the German/Swiss amalgam set up by the current healthcare reform bills as "can't contain costs" because it's not single-payer simply isn't a reasonable criticism, because it's not the payers that's the problem with costs -- it's the providers. And demonizing the payers doesn't do shit about that.

-- Badtux the Healthcare Penguin


  1. I wish you a happy and prosperous new year.

  2. Hi BadTux,
    Good point! Even worse, though, I suspect that 95% of the medical industry are quacks and thieves. I trust God before I'd trust a doctor, and I'm a non-believer. Mrs. UC has standing orders, in the event I'm not able to respond--Do not resuscitate this man. A person barely clinging to life in a hospital bed is an invitation for every doctor in the building to gang-rape you.
    Happy New Year. Keep on rockin' the snark.


  3. Granted, insurers play only a minor role in rising healthcare costs, but they are complicit in denying healthcare coverage to millions. Single payer solves that.

    While healthcare providers deserve much of the blame for driving healthcare costs beyond the exosphere and into a nearby galaxy, let's not ignore how medical R&D (and new technologies and products emerging from it) also exert upward pressure on healthcare costs. Single payer can help solve that, too.

    The reality is that no single strategy, no single tactic, and no single method is going to sort out the dilemma that healthcare in America has become, and single payer is not the be-all, do-all and end-all of healthcare reform, but it is a beginning.

    Best wishes for a better year, 'Tux, and for many better tomorrows.

  4. Medical R&D as a cause of the cost escalation is a non-starter. Private medical R&D worldwide -- in the entire world -- is less than 1% of the $2.2 trillion dollars the U.S. spent on healthcare in 2007. In 2003, U.S. research and development expenditures were approximately $95 billion with $40 billion coming from public sources and $55 billion coming from private sources. Europe spends approximately the same amount of private money as the U.S. on medical research, though slightly more government money. Nobody else does a significant amount of medical research. In other words, *total* U.S. expenditures on medical research were under 0.5% of total healthcare spending in 2007 (assuming R&D inflated at the same rate as the overall inflation rate), and total *worldwide* expenditures on R&D were not a significant factor in healthcare costs.

    So you're back to drug companies and providers as the drivers of costs. Drug companies have been singled out as a huge demon. But prescription drugs accounted for only 10% of U.S. healthcare spending in 2007. Granted, half of that is marketing expense, but drug prices alone do not explain why U.S. health care is so expensive.

    Oh yeah -- tort. For the last year I have statistics (2005), malpractice insurance premiums accounted for less than 0.3% of U.S. healthcare expenses, and malpractice payouts accounted for less than 0.15% of U.S. healthcare expenses. Trivial.

    So anyhow, back to the point: The insurers are doing evil shit and we need to stop them from doing it. But causing the healthcare costs escalation isn't one of them. The cause of the healthcare costs escalation lies in the power discrepancy between providers (and to lesser extent drug vendors) who say, "your money or your life", and consumers who are held up at gunpoint. There is inherently no free market involved in healthcare -- healthcare inevitably devolves into something more akin to a mugging than to anything resembling a free market where two parties with equal power dicker over price. Yes, you can "choose" to die rather than hand over your money. But what kind of choice is that?

    -- Badtux the Medical Penguin

  5. I have no disagreement that the providers have blame in the mess. If you want to look deeper you can put some of that blame on the schools for the astronomical price tag. It really is a hydra. I always thought that reform has to happen at all levels of the industry including the patients.

    The source of my angst is that the insurance companies are seemingly just passing the costs to the consumer while finding ways to deny claims. I do not see what can keep them from just passing on the costs. Especially now there is going to be a higher demand of the providers but the supply will remain the same.

  6. Interesting insights Tux. I appreciate somebody who helps me learn the facts.

    Happy New Year.


  7. Upon further review, though the Ins. Cos. are only responsible for a small fraction of costs, they are also responsible for a lot of coverage denial, horrible mistreatment of helpless insurees, and cancellations when they are most needed.

    Evil deamons, IMHO.



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