Rendering health insurance companies unnecessary.

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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.

1 COMMENT

  1. Calling me of “simple mind” or “dumbass” doesn’t make your post any more persuasive.

    My critical comments on the false benefits of government legislation and programs are indeed all of a sort – “one note” as you put it.

    As for hating government, I would just as well ignore it but given that government programs and regulations often refuse to leave alone those of us who just wish to be left alone to our otherwise peaceful pursuits, government makes it pretty hard to love these days.

    The day I can identify that government makes smarter choices than Joe America is the day I will start playing a different tune.

    I believe that forbidding profit in the insurance industry is a bad an idea as forbidding profit in any other industry. There are consequences to government prohibition that cannot be predicted. You think all will be better without taking into consideration that all might be worse.

    http://www.google.com/search?q=unintended+consequences

  2. The difference between health care and every other business is that health care trades in death – without access to health care, people die (45,000 per year according to a recent study). The real “death panels” are the insurance companies. They deny coverage for preexisting conditions, they deny coverage for procedures or treatments recommended by your personal physician, they terminate coverage when you reach a maximum annual or lifetime benefit. And the insurance companies are not even health care providers – they are middle-men who stand between you and your doctor and take their cut(est. 30%)off the top, and decide whether you live or die. Their profit motive is to abandon the sick and dying who only cut into their profits. It is insurance companies making these decisions for you dumbass, not the government. Your “I hates government” rant is really getting old and tiresome. You’re a regular Johnny-one-note.

    Health insurance companies used to operate as non-profits until the late 1960’s with the rise of HMO’s. This would simply return health insurance to an earlier model that worked and kept costs in check. And it would obviate any need for a government run heath insurance plan – something your simple mind should appreciate.

  3. The desire to abolish profit seeking businesses is an odd one. Profit seeking businesses manage to deliver food to a number of stores across Arizona through a number of locations some might call redundant (?excess overhead?). Should the government mandate that grocery stores operate as a non-profit? Would non-profit grocery stores operate as many locations as the current non-profit stores?

    Perhaps government should forbid for-profit car repair? That way only non-profit car repair would be permitted.

    Perhaps government should forbid for-profit pharmacies? I am sure there are far too many Walgreens, CVS and Wal-Mart pharmacies than are needed (not)?

    Presuming that for-profit businesses should be abolished by government mandate is another way of saying that only the government knows what should be done and that the choices made by any given American should be overruled by the folks in Washington, DC.

  4. Another way to end insurance companies’ reason to exist is to require that they operate as non-profit corporations. (At one time health insurance did operate this way). End their profit motive and they will leave the field.

  5. Health insurance is already regulated on the state and federal level. The proposals make health insurance a mandatory burden on individuals and businesses. With monopoly electrical utilities people can choose to use less (a small but real choice).

    The current so-called health care reform presumes that Americans don’t know best and must be forced to pay for insurance they (certainly I) don’t want. Presuming that only the federal government knows what health insurance people should get is awfully presumptuous in my book.