Are Health Insurance Profits Really A Problem?
I often read that health insurance company profits are the major problem in the system and if only insurance was run by an entity without profit motive then things would be OK. This is uh, not the case at all.
As NPR notes, insurance profits make up approximately 1% of total health expenditures. By contrast, health cost inflation is averaging 5-8% a year. This means that eliminating insurance profits would give us a one time savings of approximately 2 months of inflation. Talk about a drop in the bucket.
Now, I’ve been reading many testimonials from doctors and looking at stats, and insurance is a major problem — one of the top ones — but it’s not the profits, it’s the wasted time dealing with the bureaucracy to get reimbursed. Similarly, a lot of the socialized medicine countries save tons of money not because of lack of profit motive, but because they have standardization of technology and practices across the system. Our IT in health care is a complete mess and RAND projects that simple adoption of technology will save upwards of $80 billion per year. [And that's with current technology, as it improves and becomes more powerful that number will increase greatly.]
The same goes for mandating insurance, although this topic is trickier to address because it is very heterogeneous in its effects. While there will be money saved through mandates, it will pale in comparison to overall cost inflation, while exacting a huge political toll.
16 Responses to “Are Health Insurance Profits Really A Problem?”
The Profit argument is used, also with the Marketing argument, but it would seem to me the biggest problem is the Capital outlay/Benefit argument that is most troubling. We spend 16% of GDP on Helath Care, the next closest is canada at 10%, and were around 40th in developed countries on all lists of Quality of care, including Mortality rates, life expectancy, etc. As a principle, I do think that like Police, Fire and other basic services Health Care doesn't need tobe concerned with profit. I'm not saying it shouldn't be efficient. I just don't see why profit must be a motivating factor.
“it's not the profits, it's the wasted time dealing with the beaurocracy to get reimbursed.” Huge savings can be achieved through “standardization of technology and practices across the system.” “money saved through mandates…will pale in comparison to overall cost inflation…”
Yes. Yes. And, yes. Succinctly and accurately put. Thank you.
Mikkel, it's easy (and common) for these companies to show low “profit.” The more relevant number is “overhead + profit”. The easiest and most egregious example of how low “profit” hides extreme costs is $28 million salaries for top execs. The AVERAGE is $14 million, and the CEO of United Health received one of every $700 spent on health care. That's obscene. Add to that the cost of lobbying, advertising and sales, underwriting, corporate offices, jets, cars and bloated “claim denial” departments and the amount *allocated* to profit is meaningless.
By the insurance industry's own reckoning, their overhead plus profit is 16.7%. The overhead of Medicare is 3.3%. Additionally, because insurance companies work on a “cost plus” basis, they apparently don't try too hard to negotiate decent rates with providers. Medicare pays 19% less for doctors and 25% less for hospitals. Add the 12% difference in overhead to the 22% overpayment by private providers, and you have 34% cost difference between profit and nonprofit systems. Name me ANY other strategy that can yield a 1/3 cost savings.
Conservatives love to harp on “tort reform”, but malpractice is only 0.5% of health care cost. Even if 100% of malpractice claims were frivolous or fraudulent (obviously they are not), the savings there is trivial. Even if I were heartless enough to say 'tough luck' to all those harmed by negligence, fraud, incompetence or error, there simply isn't a meaningful reduction of cost in that.
Someone show me how private insurance can cut even 10% of health care cost. You'll still be 24% short of the savings you could have TOMORROW through a Medicare-for-all program.
If we force all the health insurance companies to do everything the same way, then what value is there in having private insurance companies? At that point, any profit is a complete waste. Insurance companies aren't offering anything of value in return.
Also, the profit motive, while not necessarily profits themselves, lead to lovely industry practices like recission,
GreenDreams, those are good points, but that's not the argument. I've written several posts about how the main reason for massive costs is due to the culture of health care providers, and how that is what needs to be tackled. “Medicare” to most people focuses on how payments are dispersed, and honestly, if we all went to a Medicare system right now the entire thing would collapse because the payments would be too low. Socialized medicine in other countries is more about the culture of how things are run from beginning to end and — while they have many problems primarily due to demographics — that's going to take a long time to implement here even if there were the will.
Yes you're right chris, and I think that it is a shame that the two points are talked about together.
The “moral” component of our health system like recission, denying preexisting conditions, the number of uninsured, etc. is a different issue than aggregate cost.
The proponents say that having more preventative medicine and everyone insured will save costs. While this is true on the individual level, it's not true on the system level. However, as I've noted before, the cost of actually insuring everyone and giving more preventative medicine is rather negligible. Those two components will greatly increase quality of life and make our expenditures more efficient from that perspective.
As for the insurance companies, I personally feel that no insurance company offers anything of value. If it were up to me all insurance in any field would be completely non-profit, and feel the artificial stratification of policies leads to gross inefficiencies.
“…it's not the profits, it’s the wasted time dealing with the bureaucracy to get reimbursed.”
Yes, and how much of that bureaucracy is in place to ensure that the insurance company doesn't pay out a cent more than necessary to protect profits?
Profits themselves may be small, but there's a lot of money being spent on protecting and maximizing those profits.
National healthcare would be less expensive.
Why do you libs feel you have to go through an “middleman” (private or public) anyway? I pay most providers I see with my own check. I'm 100% sure they will take yours as well.
co, you could easily incur, and probably will, medical costs that are beyond the reach of your bank account. If I understand your thinking, you'd like everyone to pay out of pocket, presumably with some kind of catastrophic coverage for those big unexpected costs. The problem with that is that catastrophic insurance policies are no bargain either. Seems the insurance companies would rather pay for a few office visits than to only be involved when there's a major problem.
co — lucky you to never have had a real disease; I certainly hope for a continuation of that luck, even if it does not come to all of us. My mom's tamoxafin (spelling?) cost $75 every day for 5 years, and that was the cheapest part of her cancer treatment.
You make a very good argument, Green. A very good argument indeed.
I still think that we should give other options a shot PRIOR to a rushed passage of something that is not a smashing success in Europe or Canada.
To me healthcare could be seen as a something the government is responsible for ensuring (not providing).
The bills currently going through Congress aren't even close. Baucus is a joke, and the House versions are just short of Soviet health care. There just has to be something out there that makes us both happy.
Jefferson, I believe we have given the private market plenty of time to show us their best efforts. We've seen their whole playbook. And a part of that playbook is misrepresenting the facts about other systems. Have a look at this article and see if perhaps some of your impressions of the Canadian system, for example, may be more talking point than fact:
http://www.denverpost.com/opinion/ci_12523427
some highlights (please read the whole article):
“Average after-tax income of Canadian workers is equal to about 82 percent of their gross pay. In the U.S., that average is 81.9 percent. (no higher taxes)
The provincial single-payer system in Canada operates with just a 1 percent overhead.
Ten percent of Canada's GDP is spent on health care for 100 percent of the population. The U.S. spends 17 percent of its GDP to cover 85 percent of its population
In Canada, the government has absolutely no say in who gets care or how they get it. Medical decisions are left entirely up to doctors, as they should be.
There are no requirements for pre-authorization whatsoever. If your family doctor says you need an MRI, you get one. In the U.S., if an insurance administrator says you are not getting an MRI, you don't get one no matter what your doctor thinks”
“By the insurance industry's own reckoning, their overhead plus profit is 16.7%.” That's about 2 years worth of increases. The biggest cost drivers are still out of the insurance companies' control. To target only one cost of many is a recipe for disaster.
“Medicare pays 19% less for doctors and 25% less for hospitals. Add the 12% difference in overhead to the 22% overpayment by private providers, and you have 34% cost difference between profit and nonprofit systems. Name me ANY other strategy that can yield a 1/3 cost savings.” Beautiful way to use cost-shifting against private insurance. Eliminate the private market, and you'll have no one left to shift those costs onto. You're also forgetting that part of that “overhead” is in the form of taxes, which Medicare doesn't pay.
The insurance companies COULD make it easier for the doctors/patients to receive their reimbursement or to bill the insurance company. Why don't they? Why have they made it more and more complicated?
Reimbursement is made intentionally complex and difficult to both the doctor and the patient in the hopes that either everyone will give up and go away or a time limit will expire. It costs the doctor in additional staff to manage the insurance claims and the patient in time/money, effort and stress in trying to be reimbursed or to get the insurance company to pay for what they have agreed to pay.
Why do they do this? profit. Why don't they change and fix what their 'customers' and the 'health care providers' have been requesting for years/decades? The insurance companies have absolutely no reason to fix it.
We end up paying for insurance specialists that work with doctors/hospitals as part of our 'health care cost'. They, like the insurance companies, add no value to actual health care.
I suspect the only way to fix this across the board is for the govt to mandate a billing system that all insurers/providers must adhere to.
how much would be saved if this one problem were fixed?
I lived in Australia for about 12 years. The only staff my GP had was a front office/receptionist that also managed the payments and scheduling for the patients. It was a bus practice with several GPs working there. Medical records were kept online and I received a copy of all lab reports/x-rays/etc.
I'm not so sure about that, Green.
No private enterprise will improve itself unless it has to. If they can keep the profits soaring, they'll do nothing.
That's where the government comes in. FORCE changes in those sectors (healthcare, pharmaceutical, insurance). That's the regulation that has been lacking. Too many politicians (of both parties) are bought and paid for by those industries. If enough pressure were to come from the citizenry, change could happen. REAL change in the system, without the need for socialized healthcare.
What do you think?