Friday, November 02, 2012

So what do they do for us?

A recent blog post by Sarah Kliff on Ezra Klein's Workblog sets forth the strategy and plan of the nation's insurance companies to lobby Congress after the election. The purpose:

Moving into a potential debate over deficit reduction, health insurers want to carve out a different role in Washington. Namely, they don’t want to be the bad guys anymore. To that end, they’ll soon start arming their lobbyists with data that argues that other health care sectors are actually the ones to blame.

Check out the charts.  You will be pleased to know that the rate of growth in insurance premiums lovingly tracks the rate of growth in medical costs in the country.  In the 2010s, for example, medical costs rose 54.61% and premiums rose 56.09%.  What that is supposed to tell us, I don't know.

Is it meant to tell us that insurance costs as a percentage of overall health care costs have stayed roughly constant?  I guess so, as seen in this chart:

So, let's think this through.  As health care costs have soared over the decades, the insurance companies' share of the costs have stayed about the same.  That means that they have been unable to implement the kind of technological and operational efficiencies of other sectors in the financial services industries.  Such is certainly the case in Massachusetts, something I noted a couple of years ago:

Golly, we see an average annual increase in the administrative costs of Massachusetts insurers of 9.3%. How can this be the case? In other financial services industries, unit costs of transactions have gone down, not up. What is it about health care that suggests the opposite should be the case? 

But let's go further. The lobbyists plan to use a chart showing the overall growth in US health care expenditures.  Here it is:

I don't know the purpose of this.  I think it shows that those in the industry are tacitly admitting their failure to contain prices--if one accepts that is part of their function.  But is it?  Actually--as I have just noted--if their share of the health care budget has stayed constant, they have had an interest in watching the total number of dollars go up.

What's the next phase?  Well, if the Massachusetts experience is prologue, the insurance companies will next want to shift risk as much as possible from them to the providers, doctors and hospitals.  As I have noted about Blue Cross Blue Shield of MA:

Think of it.  The firm, in the face of little or no empirical proof, has persuaded an entire state to adopt a rate-making approach whose main value is to shift risk from it, the dominant insurance company.  Now, risk does not disappear.  Usually in society, we pay people to assume more risk.  Also, people from whom risk is shifted usually expect a lower return.  Here, the risk is shifted, but the insurance company gives up nothing.  Indeed, it is secure in pricing its product because it knows exactly how much money it will pay out in medical claims.  Meanwhile, the percent of premiums it collects to cover administrative costs remains remarkably constant, even as revenue grows.  The capital reserves that it has accumulated over the years to cover actuarial risk remain untouched, even though the degree of risk assigned to it has fallen.

There may be an odd result from this lobbying campaign:  Insurance companies will have destroyed every argument for them to exist.  They will have demonstrated that they have had no impact on overall health costs.  They will have demonstrated that they are a constant tax on the growing health care budget.  Meanwhile, they will no longer be insurers, having shifted risk away from them and on to other parts of the sector.

In short, they will have done everything possible to justify a single payer health system.


Anonymous said...

Insurance companies have a golden opportunity to morph into patient advocate/navigator type companies, not only on the basis of cost but quality and safety. This is the true definition of value - outcomes per dollar spent. Too long have they concentrated on dollar spent and ignored outcomes, but they have the chance to offer value of their own. Will they step up to the plate? Not with their current leadership, which is consumed with the traditional focus on loss ratios and risk as Paul indicates. Mr. Bertolini of Aetna is beginning to see the light perhaps, but few others.

nonlocal MD

Unknown said...

The patient advocate/navigator should be the patient's physician, NOT the insurance company. It is redundant for a patient to pay a Doctor to be the advocate for their health and then also pay an insurance company to do the same thing. If the system is to complicated for the physician's office and the patient to navigate, I believe the answer is to simplify the system, NOT add another industry to navigate the system which in turn just adds more costs.

jonmcrawford said...

Paul & Trevor, your post/comment seem to be assuming too much malice here. There are insurers who simply need to increase premiums in order to cover the rising costs of services, and the insurance companies can't decide by themselves to change how the system works, they'll just get providers terming from their networks. In addition, your comment that "Here, the risk is shifted, but the insurance company gives up nothing. Indeed, it is secure in pricing its product because it knows exactly how much money it will pay out in medical claims. " is untrue, because while insurance companies hire actuaries to GUESS how much will be paid out, you cannot accurately predict someone getting hit by a bus, contracting meningitis, having a catastrophic bypass surgery, etc. NICU babies are some of the most expensive claims in the business, and you can't control that utilization at all, other than begging mothers to get prenatal care and hoping.

Is the system complex? Yes. Is that all the insurance companies' fault? No. Blame is shared on all sides, there are a) patients that don't do their due diligence and expect their medical professionals to always make the right choices so they don't have to think, as well as those that simply refuse to follow recommendations from providers; b) providers that don't bill correctly or accurately, or intentionally try to inflate their claims; c) insurance companies that try to steer patients to services or deny services in such a way as to make more profit. This does not in any way mean that all patients/providers/insurance companies do this, or that fixing any one side of that triangle will fix the rest. There are also outside influences, which you have discussed Paul, such as the RVU calculations that set rates, the fact that we pay per service for healthcare, etc.

Keith said...


You are spot on as usual (or at least since you left your post at BIDMC) This will be a repeat of the HMO era, and what will be important is for providers to remember what happened during that period. Insurance companies passed off as much of their risk as possible onto IPAs and other provider organizations. These groups had to build infrastructure to manage utilization and negotiate contracts with their providers (something the insurer usually did) but did not provide adequate resources for these responsibilities. The result; they got to decrease their expenses, reduce their risk, and have a guaranteed profit margin. Not a bad deal for them!

If all they will be doing is ultimately selling insurance policies and little else, then they need to be netting much less. Makes you wonder if they realized this when they agreed to have their administrative fees capped under the new law Now that 15-20% sounds pretty good when they shove all the additional risk and cost of administrative management onto the backs of providers.

Provider organizations will need to realize this and make sure they don't do the same thing again. Otherwise we will have a bunch of bankrupt providers much like we did with the last go around.