Sunday, September 20, 2009

Beyond Private Health Plan Attacks

It is a socialist idea that making a profit is a vice: I consider the real vice is making a loss.

Winston Churchill, 1874-1965

Profit is not the primary goal, but rather an essential condition for the company's continued existence.

Peter Drucker, 1909-2005

In the health reform debate, private health plans have become everybody’s whipping boy. Private health plans, it is alleged, are bad for your health and don’t offer a good return on your premium money. Besides, most of these plans are for-profit and are beholden to stockholders rather than patients.

Therefore, to reform the system – expand coverage, cut costs, and achieve fairness - one must reform private health plans, by, among other proposals.

• Ending the practice of excluding people with pre-existing illnesses.

• No longer allowing cancelling of policies for those with high-cost disease.

• Eliminating Medicare Advantage Plans, which are said to offer no advantages over traditional Medicare.

• Imposing a 35% excise tax on insurance companies that offer plans that cost more than $8000 for singles and $21,000 for families.
• Limiting tax deductible contributions to health savings accounts and other flexible plans, new and popular products of private health plans.

• Regulate all insurers and compelling them to negotiate with the government to set common payment rules for all.

• Setting up health exchanges so people can shop for the lowest premiums.

• Offering a government public option with lower premiums to insure competition and introduce choice into the equation, and to make private health plans “honest.”

Presumably, all of these proposals will decrease the monopoly or oligopathy powers of health plans, regulate their function, and decrease their “excessive” profits. Also the proposals will offset profits to be gained from bringing into the market new customers through individual, business, and Medicaid mandates.

But, as with anything designed to control health care markets, there are unintended consequences.

• Many with the so-called “Cadillac health plans” are union members, one of the bedrocks of the Democratic party.

• Health premiums are likely to soar, as they have in Massachusetts, because of increased “medical costs,” the main index by which the market judges the stock of health insurers.

• Health insurers, not government, employ most of the talent – executives, medical directors, actuaries, and others – who have been more efficient at controlling costs than Medicare.

One other point, According to Karen Ignagni, who leads America’s Health Insurance Plans (AHIP), the industry has been at the reform table since 2006 with proposals for coverage for all Americans, improving care quality, and bringing down the rate of increase in costs. In addition, AHIP has made these proposals (“Health Insurers at the Table – Industry Proposals for Regulation and Reform,” NEJM, September 17, 2009)
Guaranteed issue- insuring everyone regardless of health status with a guarantee that coverage not be taken away.

Access to essential benefits.

No medical underwriting – same premiums for others of same age with same policy.

• Greater transparency and improved choice.

Limiting the growth of costs.

The AHIP argument is: build on the strengths of the present public-private system rather than dismantling it and replacing it with a government system.

In the end, it comes down to a good cop-bad cop approach, leaving it to the public to decide who is good and how is bad, and who to trust, those proposing a government overhaul or those advocating retention of the best elements of the status quo.


steve said...

"• Health insurers, not government, employ most of the talent – executives, medical directors, actuaries, and others – who have been more efficient at controlling costs than Medicare."

You have said this before. It does not agree with the data I have seen. What is your source if you do not mind.

"• Limiting the growth of costs."

Ummm, How? Too much magical thinking in health care planning.


Richard L. Reece, MD said...

Steve, I may be guilty of an overstatement. But I do know this, Medicare will be broke by 2017 at its present expenditure pace and unfunded dedicated revenues of $38 trillion. Because of their structure, private plans are not going broke. They try to control thier "Medical Cost," which the stock market watches like a hawk. The low admininistrative costs of Medicare are a fantasy. If collection and other costs were included, its administrative costs would be twice what they are said to be. Also Medicare has no nursing or doctor hotlines, no marketing, no negotiation, and no taxes to pay. Finally, at present, it does not even have a chief administrator. Medicare is badly in need of reform, as are private plans. My source is "Medicare Is No Model for Health Reform" WSJ.September 11, 2009. I am no expert of the CMS Management Team. I am sure they are trying their damnest to control costs, but so far they have yet to bend the curve downward.

steve said...

Thank you. I use data from the tables published by the government showing that medicare has averaged an increase of 9.2% and private insurance 10.4% since 1970, as far back as I can find data. What this tells me is that neither system is good at holding down costs. Medicare mostly just passes through costs, with an occasional major effort to cut costs for specific areas like cataracts or CABGs.

I was surprised to find out that private insurance was doing a bit worse. I suspect part of this is some government interference. I also suspect there is no profit to be made in the long run in denying care, much better to manage risk and get rid of risky patients altogether. Refusing to pay for procedures risks getting on the news and explaining to some TV person why you denied care for some little telegenic child or ailing mother. That hurts business.

I am not trying to be too harsh, but I would prefer that we start with good data before looking for solutions. I have put a link to the data I use below. Table 13 has the per enrollee costs.