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Gray Matters: Health Insurance Companies

SaulFriedman75x75 Pulitzer Prize-winning journalist Saul Friedman (bio) writes the weekly Gray Matters column which appears here each Saturday. His Reflections column, in which he comments on news, politics and social issues from his perspective as one of the younger members of the greatest generation, appears here at Time Goes By twice each month.

Now that we’ve heard all the horror stories of coverage denials and soaring profits, I propose that we stop beating up on the health insurance companies and consider a more fundamental issue: Do we need health insurance companies at all?

This is a rhetorical question, of course, to which you can guess my reply, but bear with me.

The United States is unique in that we have a for-profit health insurance industry which has not done very well in providing health care. In France and Switzerland, such insurance companies are non-profit and tightly regulated. But almost everywhere else where there is a form of national health insurance, there are no such things as companies that make profits based on a person’s health – and no one is without access to health care.

I am not opposed to profit-making insurance. But the insurance we take for granted suggests what’s wrong with health insurance. Homeowners’ insurance works well because people tend to take care of their homes and the risk for the insurer is reasonable. But some companies won’t cover a house a few miles from the shore because of hurricane possibilities. They won’t insure homes that really need protection.

Similarly, most states mandate auto insurance coverage and even subsidize it with “no fault” coverage for people who can’t pay. But the prices of policies generally reflect risk factors that protect most careful drivers as well as the companies from excessive losses.

Life insurance may no longer be a good investment, but the companies' actuaries are pretty good at figuring life spans and take a modest risk that not every policy holder will die at the same time.

Here is my point: Life span is generally predictable; cars and homes may be replaced, and not everyone is in an accident or suffers a home fire or burglary. But everyone one gets sick, many seriously, even catastrophically. And our health and that of our families is unpredictable, out of anyone’s control, and may be a matter of life or death.

But health insurers can stay in business (without the present government subsidies) only if

  1. we don’t get sick, or

  2. if we do, they can avoid and minimize coverage, or

  3. we die quickly

Perhaps that’s harsh. But health insurance is an absurd conflict of interests, the patient’s versus the insurance company’s bottom line; this is a market system, after all. This essential problem with private health insurance was first pointed out to me by one of my heroes in the health reform battles – Dr. Marcia Angell, a pathologist who ten years ago became the first woman editor-in-chief of the prestigious New England Journal of Medicine.

In that position, she guided the journal towards critically examining the American health care system along with its papers and studies on medical advances. She analyzed the inherent conflicts in employer-based health insurance in which one’s health coverage is dependent on the employer’s financial health. And she was among the first to suggest gradually opening Medicare to persons of all ages – a belief she still holds.

In 2003, after she became a senior lecturer at Harvard’s medical school, Angell co-authored a paper which was a breakthrough for the staid and conservative Journal of the American Medical Association. The paper, endorsed by 7,800 doctors and medical students, was entitled a “Proposal of the Physicians’ Working Group for Single-Payer National Health Insurance.” The other writers were Drs. Steffie Woolhandler and David Himmelstein, both of Harvard’s Cambridge Hospital, and Dr. Quentin Young, a founder of Physicians for a National Health Program.

Critics of the current health reform proposals say health care is best left to the market system, but that’s where it has been for decades. Here’s how Angell characterized private health insurance:

“The United States alone treats health care as a commodity distributed according to ability to pay, rather than as a social service to be distributed according to medical need. In this market driven system, insurers and providers compete not so much by increasing quality or lowering costs, but by avoiding unprofitable patients and shifting costs back to patients or other payers.

“This creates the paradox of a health care system based on avoiding the sick. It generates huge administrative costs that along with profits, divert resources from clinical care to the demands of business. In addition, burgeoning satellite businesses such as consulting firms and marketing companies, consume an increasing fraction of the health care dollar.”

Each of these satellite businesses, with their telephone answering bureaucrats to explain health coverage denials, add not one pill to a patient’s well-being. And by the very nature of our market system, insurance companies, which pay their executives multi-million dollar salaries, are beholden less to patients than to shareholders and Wall Street analysts who demand higher profits for each quarter. (Humana just reported a 65 percent rise in profits in the third quarter of this year on top of a 37 percent increase in the second quarter.)

Angell said on another occasion,

“We are the only nation in the world with a health care system based on dodging sick people. These practices add greatly to overhead costs because they require a mountain of paperwork...Private insurers regularly skim off the top a substantial fraction of the premium – from 10 to 25 percent – for their administrative costs, marketing and profits.

The remainder is then passed along a veritable gauntlet of satellite businesses that feed off the health industry, including brokers...disease management companies, drug-management companies, legal services, marketing companies, billing agencies...”

Congressional analysts estimate the five largest health insurers spend 73 to 84 percent of premiums on health care claims. The rest, as Angell says, goes to marketing, administration and profits.

According to The New York Times, a Commonwealth Fund survey found, not surprisingly, that

“73 percent of adults who tried to buy insurance on the open market over three-year period never bought a plan because they could not afford it, could not find a plan that met their needs, or were turned down.”

Angell was asked recently in a New York Times interview what would happen to the insurance companies and their employees and satellites if a single-payer, Medicare-for-All program was adopted. She was frank:

“It would lead to job losses in this sector, which constitutes 17 percent of the economy,” she said. “But what about the other 83 percent of the economy? They’re being bled to death.”

She is skeptical of the current health reform proposals because they depend on private health insurance and drug companies which, she maintains, will not change their behavior.

“These are investor-owned companies. Their fiduciary responsibility is to maximize profits...If you keep health coverage in the hands of for-profit companies, you can do one or the other – increase coverage by putting more money into the system or control costs by decreasing coverage. You cannot do both unless you change the basic structure of the system.”

That’s not about to happen. Lawmakers are still fighting about costs and how many Americans can be covered and when. The conflicts of interest will go on. But Marcia Angell is worth listening to and one day we’ll turn to her rather straightforward solution – Medicare for Everyone.

Write to saulfriedmanATcomcastDOTnet


Thank you, Saul, for stating this so clearly. I only wish this were required reading for every one of those legislators in Foggy Bottom.

It is so obvious that the single payer system is far superior to our fractured crazy quilt system of health care that I fail to see why anyone other than the 'for profit' health care industry would oppose it.

Whew! You are hard hitting! You socialist you! LOL

In Canada, with a single payer system, there's no such thing as a "pre-existing condition". It horrifies me how that one concept can mess up so many lives.

You summed up everything I agree with in one post. Why can't we just gradually lower the age for Medicare and have a sliding scale of payment that decreases with age. And we could also have means testing for Medicare with a sliding payment scale.
As my insurance agent said, all of us self employed types (who are called the creative economy, the ones who will supposedly restart the economy with our small businesses and innovation), well, we're swimming with the sharks as far as insurance is concerned. All of my friends are either struggling to pay increasing fees with higher deductibles, or walking the tightrope of no insurance at all.
I just don't get the people who are battling to stop reform. Either they think they have fantastic insurance that will protect them or no one in their family has ever had a major illness.

Saul (& Ronni, at whose insistence you post here!)--I have long thought and said that the health care availability crisis is not being brought about by the health care industry so much as by the insurance industry.

The insurance industry is like a bunch of leeches. In a few instances, when propery applied, insurance can be helpful to a person with a medical problem; but, in the great preponderance of cases, insurance companies are nothing but non-value-added parasites. Health insurance should be outlawed!

Our citizens don't need insurance...they need health care!

I listened to our Congressman talk on a telephone forum the other night. He kept repeating the same old same old: he's for reform, but people will get to keep their insurance if they want to. Those satisfied people don't understand how vulnerable they are to the insurance company, to their employer, to their own health and financial situation. Medicare is a much more reasonable system, and it does allow insurance companies a role - supplemental rather than controlling.

I couldn't agree more. Calling it health insurance is an abuse of terminology. It's coverage. Like education.

I've thought sometimes that health insurance actually impedes the function of a free market. If we banned health insurance altogether--not advocating this, just speculating--what would happen to prices?

A. I hate the concept of health insurance--I gamble that something bad will happen to me while the insurance company gambles that nothing bad will happen (within your 3 conditions for profitibility). Either way, it's lose-lose for me.
B. I remember when my family of four could all go to the dentist for 6 month check-ups and cleaning at a cost that we could well afford. Once we were offered dental insurance from my employer, the cost of dental care skyrocketed. Now my husband and I struggle to pay for routine preventive care, and god forbid something major should come up. I don't believe the cost escalation and the availability of insurance are not related.

Olga--Medicare doesn't cover dental work (well...perhaps if it comes to surgery, there is some coverage) and I don't think that the reforms are addressing it. Can anyone answer that question, for sure? (As sure as anything can be at this stage of the game.)

Went to get my H1N1 flu shot downtown Montreal yesterday. The whole thing took 40 minutes. No long lineup. Handed over my medicare card, got the information, filled in a short form, got poked, no pain, waited 15 minutes and went to the movies.

Zero problems.

Thank you for your post Saul. As a former small busines owner, I confess my greatest frustration was trying to get medical insurance for my staff. Each time our group was denied, the response was "to start coverage, have only your healthy employees submit applications". Simply on the face of it, this mandate posed insurrmontable logistical and ethical problems for me. One point you did not mention is that of preventative care and wellness. Half of the medical bill in this country is for conditions that are preventable.

D Goetz
San Antonio, Texas

I've noted since encountering health maintenance organizations, insurers, when they were first established, that they were just one more layer siphoning off part of each health care dollar. Glad to see you hammering home on that topic, listing so many composing that "middle group" profiting from who to insurance companies as I keep doing too. Can't understand why more people don't seem to realize what's happening in that regard as their rational logically thinking seems to get distracted from the facts.

At least the Senate bill can be debated more. I'm anxious about the end result that will be submitted for actual vote having been twisted and turned so much only the bill's name will be recognizable as a viable health care change.

Cop Car: I believe you're correct that Medicare provides selected dental coverage only if related to certain types of medical, possibly surgically related, causes.

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