Health Insurance - Show Me the Money

Insurance companies and the politicians they employ (did I say that out loud?) are throwing an enormous hissy fit over the possibility that a "public option" will be included in whatever health care reform eventually occurs.

They have every reason to be concerned, since having a lower-priced, competition-driven, dare-I-say free market alternative to the legacy insurance offerings that have thus far been part of the problem is singularly the largest threat to the profitability and survival of the health insurance industry.

There are several arguments being tossed about like over-inflated beach balls at a 4th of July picnic. One is that a public option is tantamount to government wresting control of health insurance away from the private sector, with all the usual doom and gloom associated with federal intervention into, well, anything.

A public option, say the doom-and-gloomers, will put the private insurance industry out of business because they can't compete with a government-subsidized program. D&G-ers also claim that employers will end their practice of providing private health insurance and shift workers to the public plan, saving millions of dollars at the expense of the poor insurance biz.

Health insurers have yet been unable to adequately reconcile these claims with the other concept they are floating, which is that government is ineffective and unable to do anything right, which if true should be advantage private health insurers over time.

Let's face it - insurance is nothing more than risk analysis and playing the actuarial odds. When I buy life insurance, I'm betting that I'll die sooner than most men, and the insurance company is betting that I won't. If I have risk factors such as family history, high blood pressure, jumping out of airplanes, or racing motorcycles, my insurance rates will be sky-high, if I can get insured at all.

Similarly, if I'm a good driver, the insurance company wants to keep me as a customer, because I constantly pay into the kitty and never submit a claim. Slap a couple of speeding tickets, a DUI conviction, or a traffic accident every two years onto my record, and suddenly I'm not the meal ticket I once was.

It's the same with health insurers. Their profit model only works if they insure mostly healthy people who pay in a lot more than they take out in claims. That's why the industry relies on a medical-loss ratio, or how much they take in from customers versus claims payments, to determine how much is left over for administrative costs, salaries, and yes, profit. The best way to tilt the ratio in their favor is to not insure sick people. Illness costs money.

So you have an industry predicated on not spending money to keep folks healthy, because it cuts into their profits. Are people surprised that they deny coverage or toss you out for pre-existing conditions, or raise the rates to such an astronomical level that you are effectively purged from their system, leaving them with their base of basically healthy, profitable clients? They shouldn't be.

There's no way for health care reform to be meaningful unless some component addresses this dysfunctional relationship of patient to profit. By its very nature, health insurance is something that everyone will need to use at some point, and the fear is that once the 46 million or so uninsured get some sort of policy, they will actually begin to use medical services, which throws the whole equation out of whack.

The American Medical Association, which currently represents only 19% of physicians, doesn't support the public option, which on the surface seems strange when you think that doctors should welcome the chance to heal and positively impact such a large population of previously underserved patients. Given the fact that the AMA has opposed virtually all public plans, from Harry Truman's plan in the 50s to Medicare and Medicaid in the early 60s, it's not that surprising, but it does cause some head-scratching about whose side the AMA is on - and the answer is clearly that they are on the side of the insurance industry.

As long as profit is the key factor in health insurance, private insurance will never deliver on a model of quality care at a lower price. It's not in their business model, and don't expect them to add it, because they are accountable to their shareholders, not to patients. There are only two other options that make sense - a single payer system, which neither side really embraces, or this hybrid model of public and private insurance, where we rely on the time-honored spirit of competition to drive down costs.

Health insurance co-ops will never catch on, because they don't effectively address the root cause of the problem. Remember when HMOs first hit the scene, and we were told that the solution was funneling everything through primary care physicians, so they could treat patients at a lower cost and serve as a tollgate before more specialized (and costly) care was approved? How did that work out for us?

Support the public option. Unless you think you're going to win this high stakes game by going all in with a pair of 2s.