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The inconvenient truth

The Los Angeles Times ran a great series last week called "Shedding Risk" in which it detailed through compelling human stories the erosion of the health insurance market. It’s definitely worth finding the time to read.

Matthew has talked about this eroding model for a while, including in a speech about three inconvenient truths that he gave to health plan executives in March.

Here are four key paragraphs from the first article in The Times‘ series to give you a sense of the articles:

At the heart of the problem is the clash between the cost of medical care and insurers’ need to turn a profit.Today, four publicly traded corporations — WellPoint Inc., UnitedHealth Group, Aetna Inc. and Cigna Corp. — dominate the market, covering more than 85 million people, or almost half of all Americans with private insurance.On Wall Street, they showcase their efforts to hold down expenses and maximize shareholder returns by excluding customers likely to need expensive care, including those with chronic diseases such as asthma and diabetes. The companies lobby governments to take over responsibility for their sickest customers so they can reserve the healthiest (and most profitable) for themselves.Meanwhile, insurance premiums are becoming a heavier burden on employers, many of which say that rising healthcare costs cut into their ability to compete and, in some cases, to survive.

Here are Matthew’s three inconvenient truths to the insurance execs:

First, you’ve done very, very well for the past several years. But
the chances that you will be able to keep running your businesses in
the same manner in a decade or so are very low. In fact if you keep
running your businesses the same way the chances are good that you
won’t be in business. That may not matter to those of you close to
retirement, but it probably does matter to everybody else.

Second the world is changing under your feet, and if you intend to
be a health insurance company that contributes value to society, you
have to understand the changes that are happening in that wider
society.  I’m not just talking about American Idol and the ability to
track minute by minute developments in the life of Lindsay Lohan,
although of course that’s a crucial component of societal change. I’m
talking about the significant advances in technology and business
leading to significant changes in the way we purchase, consume
and—yes–produce health-care services.

Third, I’ll tell you some potentially good news.  Although I’m
essentially on the same speaking circuit as the Liberals who think that
Hillary Clinton is too right wing, I’m here to tell you that there is a
role for an intermediary between the consumer and the healthcare
system, and that intermediary need not be the government. That’s
because, if the right incentives are created, healthcare organizations
— on both sides of the payor – provider divide — can substantially
add value to society, by improving the healthcare delivered and the
health outcomes produced at a substantially lower cost.  But this is
only good news if you’re prepared to fundamentally change your
organizations, so that, when society finally demands better performance
from its healthcare system, you are ready.

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DougPeterjdLisa EmrichDoug Hessel Recent comment authors
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Peter
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Peter

Doug, we only need tap into their employees not their bureaucracies. Deron, single-pay isn’t a health magic bullet. It can only control costs while delivering universal access, not cure society. But when the taxpayer gets to see the true cost of providing for the culture that creates illness, then we will change our approach to health and sickness. Right now we can sweep the causes of illness under the carpet of 16%+ of GDP spending while ignoring the results of how lack of access is centered on those least able to pay. How can we expect people to hold jobs… Read more »

jd
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jd

Deron, Peter is pretty good at sticking up for himself but I can’t help jumping in here. Yes, Medicare has a lower admin cost ratio in part because it has a higher total expense per member. However, when you compare Medicare Advantage plans with traditional Medicare, the traditional program still comes out with lower admin costs per person. Not by a huge amount, and certainly not by enough to make a big dent in our total costs from admin alone if we were to switch to single payer. As Peter understands (and Matt was the first person I heard say… Read more »

Deron S.
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Peter – I think you completely missed my point about the Medicare per beneficiary costs. Medicare administrative costs are figured as a percentage of total costs, which includes claims paid. If claims paid per insured is double that of private insurers, of course the admin cost % of the total is going to be lower. You mention things like cost controls and budgets and greater efficiencies. Those things sound great, but how are you going to pull it off? The bottom line for me is this: If single payer proponents can add a little more substance to their argument, I… Read more »

Doug
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Doug

Lisa, Your situation with sub-Rx coverage is rotten to say the least. In California, insurers do not cap the Rx coverage (except under Medicare supplements), they do limit or exclude certain drugs. If I am in your shoes, the current system is dysfunctional. However, how easy is this to fix? Very. I hope you have a solution soon once the Kennedy plan is enacted. Peter – I agree no underwriting profit for insurers, however I do think we can build on their administrative systems (UHC, Anthem) rather than re-invent the wheel. The insurers should be allowed to make a small… Read more »

Peter
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Peter

“The medical costs per Medicare beneficiary are double what the costs are per private insured member.” Could that be because Medicare’s patients are the sickest (no insurer will take them) and by definition, the oldest in the population? Single-pay is NOT massages, infertility, cosmetic surgery, etc. It is universal budgets, cost control and the best use of evidence based medicine with the efficiency of less paper work and with payment oversight – along with coverage for all. Why do many think the country owns insurance companies a profit, or even a health business? Is it because they do a better… Read more »

jd
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jd

Adding to Matt’s inconvenient truths to the insurance industry, there are a number of inconvenient truths to the reform “industry.” Some of those that would help the discussion in this thread: 1.Almost no advanced nation is pure single payer or pure private payer, and models that emphasize either end of the spectrum are perfectly fine. Most nations have a government run component to health coverage and also allow for private companies. One extreme is Canada, which still outlaws private payers in some (all?) provinces, and on the other extreme are Switzerland and Holland, which have universal health care systems purely… Read more »

Lisa Emrich
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Doug: “Bottom line, the single payor people and free market people need to sit down, realizing they both are somewhat delusional and get real, we can’t let the current system continue and we can’t afford a cadillac cradle to grave plan for everyone that includes unlimited infertility coverage, back massages, cosmetic surgery and care that isn’t evidence based.” I understand your point, but wonder what your suggested solution might be to the following situation. I have an underwritten policy as a self-employed person, obtained years before developing MS. Since I live just outside DC and must purchase insurance on the… Read more »

Deron S.
Guest

Mark – I don’t want to get too caught up in a back and forth about single payer. I talk about it extensively in my blog and in previous posts here. I would just be interested in hearing you address the point I made about the fact that we screwed something else up and now we’re expecting the government to step in once again. If you think our healthcare problems are caused by Republicans or insurance companies alone, you clearly don’t understand the complexity of the problem at hand. You’re simply reciting political talking points. Doug – I agree with… Read more »

Doug Hessel
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Doug Hessel

Sarah, your points to the insurance execs are right on, and I am from the insurance industry. The good news is there is a huge opportunity to improve our current system, however people on the insurance company bashing side need to understand that over 50% of current health expenditures are from government plans (Medicare, Medicaid etc.). Medicare may have lower administrative costs (some do to cost shifts to the private sector) but it is a program that is in trouble, big trouble and most politicians don’t want to discuss it. The single payor people are also guilty of “magical thinking”,… Read more »

Mark
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Mark

Deron: Making insurance companies non-profit will not eliminate the problems of selecting only healthy insureds and then denying them benefits. Non-profits still need to compete on price and to stay solvent so these practices will continue. On Cost: How is it that other developed countries manage to provide health care for everyone while spending only half (per capita) of what the US spends to cover only part of our population with poor quality coverage and care? Look at the excess profits and expenses of the insurance companies, hospitals, pharma, and everyone else in the food chain then add in the… Read more »

Deron S.
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Sarah – Great post. I agree with Matthew that insurance companies are going to need to take a more responsible, system-wide view of things if they want to continue on. However, I think the needs of society are not always in sync with the needs of shareholders, even though we’re all citizens in the end. That’s not an argument for single-payer, but it might be an argument for making all health insurance companies not-for-profit like many of the Blues are. Mark – Couple questions: How much will it cost to implement single-payer and how long will it take? What will… Read more »

Mark
Guest
Mark

Interesting that Sarah correctly identifies the problem but still thinks that ‘the free market’ can fix itself and (somehow) become the progressive socialist force that is needed.
This is ‘magical thinking’. We need single payer health insurance run by the government. The health insurance industry has shown complete ‘market failure’ for health care and it is time for it to go away. They have only succeeded in producing excessive profits for themselves while bankrupting the country.