Wednesday, June 17, 2009

Here's a big part of what's wrong with private health insurers

The LA Times has a good article about a Congressional Hearing on health insurers that should have happened years ago. The health insurers are running a deadly and very expensive scam that would make the Mafia proud. They are collecting premiums, but when severe and expensive cases happen, they cancel just those policies, allegedly for fraud. As the story points out, in a large number of cases there was NO FRAUD *. The real reason for canceling is that they don't want to pay the medical bills that are higher than what the insured has paid in. That is, they want to sell insurance but not pay it. From the LA Times:
Executives of three of the nation's largest health insurers told federal lawmakers in Washington on Tuesday that they would continue canceling medical coverage for some sick policyholders, despite withering criticism from Republican and Democratic members of Congress who decried the practice as unfair and abusive.

The hearing on the controversial action known as rescission, which has left thousands of Americans burdened with costly medical bills despite paying insurance premiums, began a day after President Obama outlined his proposals for revamping the nation's healthcare system.

An investigation by the House Subcommittee on Oversight and Investigations showed that health insurers WellPoint Inc., UnitedHealth Group and Assurant Inc. canceled the coverage of more than 20,000 people, allowing the companies to avoid paying more than $300 million in medical claims over a five-year period.

It also found that policyholders with breast cancer, lymphoma and more than 1,000 other conditions were targeted for rescission and that employees were praised in performance reviews for terminating the policies of customers with expensive illnesses.
[highlighting mine - Editor WTF-o]
Go read the full article and you'll be disgusted. You will see why no private insurance company can be trusted to deliver what they promised - and the customer paid for. But there is a cure.

Universal health care with a single insurance pool that covers everyone prevents this. (It doesn't matter who is paying. That's a very different issue.) Health insurers would have to accept anyone, and preexisting conditions would not matter. (This too can be gamed, but not like the clear fraud the insurance companies have just testified to Congress that they are conducting.)

With a single universal health insurance pool covering everyone, there would be no "fraud" of the type the health care executives testified to. There would be no excuse for health insurers to cancel a policy when someone threatened to file a claim on it. The possible fraud is for someone who is not in an insured pool to try to join a health insurance pool once they are sick (called "adverse selection"), and raise its costs. Everyone would pay the same price, sick or well. An insurance company that found a patient who they took on who was extremely expensive should have reinsured everyone they covered for catastrophic health costs, and with a universal health insurance pool reinsurance would be predictable and profitable.

But of course, a company that was big enough to reinsure itself would not have to pay for reinsurance - you know, a company like Blue Cross or and an organization like the government. More profit for Blue Cross -- or lower costs for the government by not buying reinsurance. The statistical Law of Large Numbers rewards big insurance pools with predictable costs.

Who is paying for the profits the health insurers use to pay the exorbitant salaries of their CEO's and pay dividends to their stock holders? Sick people who get their insurance canceled because they submit claims for what they are paying for. And everyone else whose premiums are jacked up when those canceled people go into public health care. The public health care system pays for treatment without the benefit of the insurance payments made by the policy holders of the insurance company who canceled the policy.

One last thing to consider. My analysis is not based on secret insurance information. Any semi-competent insurance agent will understand it, and the health insurance executives know it clearly because it is what they depend on to pretend to innovate their products. They are really innovating in new ways to cancel expensive clients. But if the health insurance system were managed and supervised, their methods of "innovation" would disappear along with the wasted money the policy holders who don't get sick are throwing away. (Insurance means that everyone pays in and those who are sick get covered beyond what they could pay for themselves.) Along with the exposure that what they are calling "innovation" is, in fact, fraud, the excuses for high executive payouts disappear. Health insurance would become what it should be - a predictable utility. Executives would be paid what civil servants get paid because their jobs would become routine as the excess costs of avoiding payment are washed out of the system. That's pretty much what has happened in every nation that has been sensible to establish universal health care.

That excess wasted money would either be paid back in lower premiums or in coverage of the many uninsured. The predictability provided by the single universal health insurance pool would make health care planning much easier. Low income city districts and rural areas that don't currently get adequate health care coverage could be covered with health care providers because they could expect to get paid for their services. In addition, a lot of the increases in price of health care could be removed from the system.

But the executives and their stockholders wouldn't get what economists call "rent payments" - in economics, a payment to a factor of production in excess of that which is needed to keep it employed in its current use. More than 20,000 people that we can document are paying those "economic rent payments." So are the rest of us, through taxes to support the tax-supported health care those people were thrown onto when the insurers canceled their policies and refunded their payments.

If you aren't disgusted at the scam the private health insurers are running, you should be. It makes Bernie Madoff look like a relative piker.

* "Fraud only occurs when three elements come together - motivation, opportunity, and rationalisation" See Flat Rock. Either motivation or rationalization was missing in many of the cases described. The insurance companies canceled the policies anyway. The real problem was that the company was on the hook for more money than the premiums they had received.

No comments: