Rendering health insurance companies unnecessary.

by David Safier

Today I read a wonderful piece in last week's New Yorker by James Surowiecki on a topic I happened to be talking over with friends this weekend. The article is only a page long, so I actually read it from beginning to end. (Right, like you read entire, long-enough-to-be-a-short-book New Yorker articles!)

The basic thesis is, the health care bill which is close to being passed makes use of our current health care insurance providers, but it actually robs them of their reason to exist.

What do health insurance companies do now? At the basic level, they do three things, two reasonably simple, one very complicated.

1. They collect money. Individuals and businesses pay premiums, and the money rolls in. The insurers need the proper mechanisms and trained employees to deal with all that money accurately and efficiently, but that's what businesses enjoy doing. Nothing like watching the bucks roll in.
2. They pay for health care services and supplies. That part isn't nearly as much fun, and again, it has to be done carefully and well, but it's a fairly routine operation. Hospitals, doctors, pharmacies, medical supply companies, etc., submit bills for services, and the insurer looks them over, then writes, or doesn't write, checks.
3. They decide who to cover, how much to charge, when to deny services and when to tell someone who is currently insured to hit the road. This kind of work falls under the heading of risk evaluation, and it accounts for a great deal of insurers' time and effort. It's very complex work. A team of risk assessors create and recreate gigantic, intricate tables detailing the relative risks of insuring someone of a certain age, income level, geographical location, occupation, medical history and on and on. They decide how much every individual or business should be charged. Then they hire offices full of people whose job is to decide which medical procedures and supplies they're going to cover. (Bonus points are given to the employees most adept at figuring out ways to deny payment.)

The health care bill, if it resembles the current House and Senate versions, takes away most of the third item: the risk assessment duties of the insurance companies. They can no longer deny coverage for preexisting conditions. They can't charge someone higher premiums because he/she is more likely to need more health care. I suppose they can still decide what they will pay for, but even that will be more limited than now.

Question: Who is already doing numbers 1 and 2 quite effectively without having to deal with number 3?

Answer: Medicare.

So in a sense, the probable health care bill will be a version of Medicare for all, administered by private insurance companies.

Surowiecki doesn't think that's necessarily such a terrible thing. In fact, he says, it's already being used elsewhere.

Instead of replacing private insurance companies, the proposed reforms would, in theory, turn them into something like public utilities. That’s how it works in the Netherlands and Switzerland, with reasonably good results.