Tuesday, March 27, 2012

Why ObamaCare won't solve denied claims problem

Okay, let's say that you have a choice of two insurance policies, policy A and policy B. Policy A charges $500 a month, and policy B charges $600 a month. Which one are you going to buy?

But wait. Obamacare caps profit margin that an insurer can make. So how can insurer A sell insurance for cheaper than insurer B? Well, either insurer A has healthier people -- but because Obamacare allows you to pick a cheaper policy regardless of pre-existing conditions, so why wouldn't the sicker people decide to go to insurer A? -- or insurer A is doing something nasty and evil -- they're arbitrarily denying claims.

So why would they arbitrarily deny claims? Because that's the only way to make more profit if you're required to take everybody and your profit margin is capped. The way to make more profit is to have more customers. The way to have more customers is to have lower rates. The way to have lower rates is to deny claims. It's a vicious cycle because insurer B will then decide that *they* have to arbitrarily deny claims too, in order to get back the customers they're losing to insurer A... repeat all over the industry, and you get denied claims galore.

But wait, I hear you say. There is a medical review panel mandated by Obamacare too, they can't just deny claims arbitrarily! Well, you show me a government regulation, I'll show you a dozen lawyers rubbing their hands with glee figuring out some way to get around it. My guess is that they'll either dump so many people on these medical review panels that there's no way to review all those denied claims, or drag out the proceedings for so long that people die before their claims get reviewed, or they may not even do any of that -- they may simply hope that a percentage of the people whose claims they deny don't know about the medical review panel and won't appeal the denial of the claim. And before I hear you say, "but... but... that's unethical..."... bwahaha! Ethics? These people have only one ethic: Making money. The Almighty Dollar is their God. Their notion of ethics is "greed is good".

So what's going to happen? Well, what eventually happened in *other* nations that have tried this scheme is that the insurance companies were eventually either nationalized and became branches of the federal government (see: Germany, prior to recent re-privitizations), or they became heavily regulated utilities with rates and profit margins both set by the government, meaning no incentive structure to deny claims beyond what's necessary to preserve their profit margin (since they can't reduce rates to steal customers from other insurers). Well, actually, there's a third possibility: Medicare For All, with the insurers relegated to the role of Medi-gap providers. This is what Taiwan did. But this is usually the end game of heavily regulated insurers deciding that health insurance isn't profitable enough to be worth their time -- that's why Taiwan's insurers didn't fight Medicare For All there, they were already so heavily regulated that they could make more money selling Medi-Gap on the unregulated market than by selling the core insurance as heavily regulated insurers.

Because one thing is certain: A continued spiraling downward of the services paid for by insurers won't be tolerated by either the general public or by regulators. If Republicans try to push that mule harder, they're gonna end up with the imprint of a horseshoe on their forehead. Just sayin'.

- Badtux the Health Care Economics Penguin


  1. An insurance company could get a step up on the competition by improving their information handling. My experience is all from the consumer side, but from what I've seen, there's a lot of room for gaining efficiency.

    They would put the savings into executive salaries, not lower premiums, but that's OK.

  2. Joe, the "informational handling" problems you've seen are deliberate, and are part of the plan to deny as many claims as they can get away with without being cited by regulators. The insurers have been approached many times about creating a common claims form and common claims information clearinghouse -- indeed, there already is a model for one, the Medicare one, which has all the treatments and diagnoses on it that every other claims form has, because Medicare covers the disabled as well as the elderly and thus must have things on it like pregnancy tests and childbirth and so forth as well as old folks' diseases -- and every single time the medical claims processing folks approached insurers, the insurers acted as if they were cross-wieldin' garlic lovers approaching vampires.

    About the only thing you can say about Obamacare is that it doesn't make things *worse* than the current situation, where insurers compete for customers (businesses) by how many claims they can deny, but it ain't gonna improve that situation either, that's for sure. The incentives are just all wrong for that.

    - Badtux the Healthcare Economics Penguin

  3. I forgot to thank you for responding to my questions in your last post on healthcare and insurance. Thank you.

    One more thing, though...how did HMOs become exempt from antitrust regulations in the US?

    Also, if the Supreme court decides to void the "mandate" part of the Obomneycare bill that was passed, what would this mean for the future of the rest of the healthcare measure? Since the mandate was such an essential part of the bill, it seems that everything else would fall apart if it was removed. Is there any will or energy left in either Obama or Congress to try and repair the healthcare bill without the mandate or to pass any new legislation dealing with the healthcare problem?

    I am sorry if I am always asking you these rambling questions, it is just that the nature of medical coverage in the US seems to be needlessly complex, and it does not help the fact that there are many bad actors on all sides of the issue that are either completely ignorant or willfully misleading when they spout off various platitudes about medicine and its associated costs. I am no expert in this either, as my background is in the biological sciences, not in finance or administration. I prefer the rational world of research to the arcane and arbitrary abyss that characterizes political discourse in the US. Unfortunately, the douchebags that run our political structure are the ones that make the decisions and the decisions that they make affect all of us in our daily lives.

  4. Neurovore, the first HMO's were created by employers for their employees in order to reduce their labor costs and thus technically violated the anti-trust laws, which prohibit employers from conspiring with each other to reduce their labor costs (thus the little kerfuffle going on here in the Valley where it is alleged that several major employers did just that). Thus the need for an anti-trust exemption to make what they do legal.

    Regarding what happens if the Supremes *only* void the mandate part: I'm not seeing how they could void the individual mandate without voiding the employer and insurance company mandates also (the mandate that employers provide insurance and the mandates that insurers accept anybody who shows up). Otherwise the entire private health insurance industry collapses in a few years. At that point Medicare for All starts looking like the only thing that might pass muster, since Medicare has already been ruled as being constitutional multiple times and even this right-wing Supreme Court would have trouble creating a plausible ruling that it wasn't. One thing is certain, however: The current system will collapse shortly if something isn't done. Already 51% of the costs are being borne by the government, and that's only going to rise as employers drop coverage for their employees. So we'll see.

    - Badtux the Healthcare Economics Penguin


Ground rules: Comments that consist solely of insults, fact-free talking points, are off-topic, or simply spam the same argument over and over will be deleted. The penguin is the only one allowed to be an ass here. All viewpoints, however, are welcomed, even if I disagree vehemently with you.

WARNING: You are entitled to create your own arguments, but you are NOT entitled to create your own facts. If you spew scientific denialism, or insist that the sky is purple, or otherwise insist that your made-up universe of pink unicorns and cotton candy trees is "real", well -- expect the banhammer.

Note: Only a member of this blog may post a comment.