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The Reason Health Care Is So Expensive: Insurance Companies
Last edited Fri Apr 12, 2013, 10:27 PM - Edit history (1)
http://www.businessweek.com/articles/2013-04-10/the-reason-health-care-is-so-expensive-insurance-companiesMore than 20 years ago, two Harvard professors published an article in the prestigious New England Journal of Medicine showing that health-care administration cost somewhere between 19 percent and 24 percent of total spending on health care and that this administrative burden helped explain why health care costs so much in the U.S. compared, for instance, with Canada or the United Kingdom. An update of that analysis more than a decade later, after the diffusion of managed care and the widespread adoption of computerization, found that administration constituted some 30 percent of U.S. health-care costs and that the share of the health-care labor force comprising administrative (as opposed to care delivery) workers had grown 50 percent to constitute more than one of every four health-sector employees.
What remains missing even in the discussion of the enormous administrative burden is not just how large, both in absolute dollars and as a percentage of health costs, it is, but also how few incentives there are for insurance companies to stop wasting their and everyone else’s time. Most large employers, including mine, Stanford University, are self-insured, which means they pay for their own medical claims. These large employers invariably hire health insurance companies to “administer” their health-care dollars, doing things such as paying claims. Employers typically reimburse the insurers the amount of money they pay out to health-care providers plus a percentage of these costs. In Stanford’s case, we pay Blue Shield 3 percent of the amount, about $3 million a year. (Note that the overhead costs of Medicare are less than one-third as much at slightly less than 1 percent.)
Because insurers are paid a fixed percentage of the claims they administer, they have no incentive to hold down costs. Worse than that, they have no incentives to do their jobs with even a modicum of competence. To take one small personal example, I have reached the age of Medicare eligibility but, because I continue to work full time, have primary health insurance coverage through my employer. Blue Shield, of course, wants to be sure it doesn’t pay for any claim it doesn’t have to, so I was asked to attest to the fact that I have no other insurance. No problem there, except such attestations seem to be required on almost a monthly basis—requiring my time on the phone (and on hold) with Blue Shield’s customer service, an oxymoronic term if there ever was one, and also requiring my doctor and laboratory to call me, call Blue Shield, or both, and thus also waste their time and resources.
What remains missing even in the discussion of the enormous administrative burden is not just how large, both in absolute dollars and as a percentage of health costs, it is, but also how few incentives there are for insurance companies to stop wasting their and everyone else’s time. Most large employers, including mine, Stanford University, are self-insured, which means they pay for their own medical claims. These large employers invariably hire health insurance companies to “administer” their health-care dollars, doing things such as paying claims. Employers typically reimburse the insurers the amount of money they pay out to health-care providers plus a percentage of these costs. In Stanford’s case, we pay Blue Shield 3 percent of the amount, about $3 million a year. (Note that the overhead costs of Medicare are less than one-third as much at slightly less than 1 percent.)
Because insurers are paid a fixed percentage of the claims they administer, they have no incentive to hold down costs. Worse than that, they have no incentives to do their jobs with even a modicum of competence. To take one small personal example, I have reached the age of Medicare eligibility but, because I continue to work full time, have primary health insurance coverage through my employer. Blue Shield, of course, wants to be sure it doesn’t pay for any claim it doesn’t have to, so I was asked to attest to the fact that I have no other insurance. No problem there, except such attestations seem to be required on almost a monthly basis—requiring my time on the phone (and on hold) with Blue Shield’s customer service, an oxymoronic term if there ever was one, and also requiring my doctor and laboratory to call me, call Blue Shield, or both, and thus also waste their time and resources.
I went to look for my book "Free Lunch" by David Cay Johnston. He has a section in the book that explains how the insurance companies went from being not-for-profit to being for-profit and how that added to our healthcare costs. I couldn't find the book but I found a link to an interview with him.
http://www.truth-out.org/buzzflash/commentary/item/3812-david-cay-johnston-shows-that-the-rich-are-getting-a-free-lunch--and-guess-whos-picking-up-the-tab
"Twenty-some years ago in California, this idea came under assault in the health care field, and there was a court ruling that allowed a conversion to take place where the assets were acquired through a note with less than half the market interest, actually, payable fifteen years in the future. For a fraction of a penny on the dollar, these assets were sold, and they made the owners fabulously wealthy. This has gone on with Blue Cross-Blue Shield plans all across America, and with all sorts of other health care plans. It has created a whole series of health care billionaires."
-snip-
"Here's the important second aspect. Once you've acquired these nonprofit assets for pennies on the dollar or less, the first thing that a newly converted for-profit health care company does is they spend a smaller portion of your health care premium payment, of your insurance payment, on health care. Instead, they take about an additional dime out of that premium dollar and spend it on executive salaries and money flowing to the shareholders.
So previously, you paid a dollar, they had maybe a ten percent overhead cost for management. And ninety cents out of your dollar went to your health care. When these conversions take place, it's eighty percent. And I show in the book that they boast to their investors about this. It's called reducing your medical premium loss ratio.
So why do we want to have a system where you pay more and get less? That's what it is. It is a system to pay more and get less back.It makes no sense."
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Baucus’s Raucous Caucus: Doctors, Nurses and Activists Arrested Again for Protesting Exclusion of Single-Payer Advocates at Senate Hearing on Healthcare
http://www.democracynow.org/2009/5/13/baucus_raucus_caucus_doctors_nurses_and
Advocates of single-payer universal healthcare — the system favored by most Americans — continue to protest their exclusion from discussions on healthcare reform. On Tuesday, five doctors, nurses and single-payer advocates were arrested at a Senate Finance Committee hearing, bringing the total number of arrests in less than a week to thirteen. We speak with two of those arrested: Single Payer Action founder Russell Mokhiber and Dr. Margaret Flowers of Physicians for a National Health Program. [includes rush transcript]MORE--
Here's Max at work-skip to 2:40
History in the Making: Watch a Democrat have Single Payer Doctors and Nurses Arrested at a Hearing:
*THE* most shameful thing Democrats have EVER DONE
Who could blame any Democrat for forgetting this.
It's disgusting.
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