Monday, March 15, 2010

Are Insurers the real Bad Guys?

"In 2009, the largest 14 insurers had profits of roughly $9 billion; that approached 0.4 percent of total health spending of $2.472 trillion. This hardly explains high health costs." -- Robert J. Samuelson, Washington Post.

"the five largest health-insurance companies racked up combined profits of $12.2 billion, up 56 percent over 2008" -- Noam N. Levey, The Seattle Times.

Which is right? But then again... who cares? Either value is small compared to the total costs (given by Samuelson, and Wikipedia). So why ostracize and penalize insurers? They're just the middlemen. What am I missing?

My belief is that a lack of cost/value/benefit feedback is the basic problem. There is no pricing-pushback from the consumer, so the prices escalate without control. (you ever see the prices for toothbrush, toothpaste, or slippers in a hospital stay?) We've seen similar problems with higher education where financial aid covered "any" gap between ability to pay, and the amount requested, so the schools simply requested more.

So why all the rhetoric against insurers? Removing all of their profit will reduce overall health care purchasing by less than one percent. It appears they are a scapegoat, to be blamed in lieu of proper analysis and approaches at reducing health care costs.

1 comment:

Ed Marshall said...

Hi Greg. ;)

You called out the problem: the lack of a cost/value/benefit feedback loop. But going a bit farther, consider why that's missing.

Risk and reward are the two cornerstones of a free market. In the medical industry, we have reward, as we always do with business. But where's the risk? Patients have medical insurance, and don't have to worry about the cost of services they need. Practitioners carry liability insurance, and don't have to worry about malpractice suits when something goes wrong. We've created an insurance-driven industry, devoid of business risk; perhaps not an entirely bad thing when one is talking about their health, but the implications are important.

The patient, who in other industries would be one of the most important decision makers because of their vested interest in the outcome, has almost no voice at the negotiating table: price (and often available services) are between their insurance carrier and the practitioner's office. Similarly, the practitioner, who in other industries could choose to differentiate themselves from other practitioners in a dozen different ways, ends up providing a service that jives with what insurance providers will pay out for, and in turn adjusts their operations to suit guidelines provided by the insurer. When this becomes too much of a hassle to deal with, the good doctor joins a larger medical association, who then handles the ugly bits of insurance dealings for them. So, neither the doctor providing the service, nor the patient receiving it, are typically involved in the actual exchange of money anymore. (I suspect this is where you were going with your reference?)

The layers involved make it easy to point fingers back and forth, and worse, steal an enormous amount of momentum. In any other industry, the result would be a bland taste; think investment banking. In medicine, it means mediocre care; not so bad that you can call it out as such, but almost repugnant when you know how much better it could be for the money being spent.

That doesn't make the insurers the bad guys, directly; they're providing a service that people wanted, and there's no malice in that. But I do consider their influence on our medical system to be a problem; I don't think we can have a serious discussion about medical care in the U.S. without first taking insurance out of the picture, and then focusing on simplifying what remains.

$2.472 trillion on medical spend in this country is a disgusting number. 16% of our GDP goes to health spending, and considerably more per person than any other country. I think we're getting a terrible return on our investment.