What health care crisis Pt. 2
by Tim Collins
Posted on July 8, 2009
In the previous article I asked a simple question. What value do HEALTH insurance companies add to the delivery/availability of health care? And I proposed consideration of the possibility of providing Health Insurance through a mutual or non-profit operating model. Let me begin by answering the question first.
What value do HEALTH insurance companies add to the delivery/availability of health care?
The question may be simple, but it grows complex when you try and answer it from the perspective of the different stakeholders: Health Care Professionals (Doctors); Health Care Provider Companies (Hospitals); Government Agencies (State and Federal), and last but not least, Patients.
If you ask any of the Health Care Professional groups you would get a mixed answer to the question. After reading numerous annual reports and 10K filings for Health Care Companies (Medical Facilities, and Pharmacy), I have found that all provide the same basic answer regarding the value Health Insurance companies provide. Health Insurance companies do deliver the health consumers – patients, but at a cost that is becoming unbearable – smaller and smaller levels of reimbursement.
If you read all the press about what Government representatives think of the value of Health Insurance – the answer is clear. Health Insurance is failing. It is failing because too many are without it due to costs. It is failing because it has too many exclusions and too high co-pays and/or deductibles when it is purchased. It is failing because profit is put above care. It is failing because it “rates” to many people out of coverage. It is failing because it is not portable. It is failing because…you get the picture.
The perspective of any of the above stakeholders could fill a book, so in the interest of brevity I’ll limit my discussion to what I know best, my own perspective as a “patient” and health insurance purchaser.
What about the patients? I cannot speak for all, but I think my own situation is typical of those with a private health insurance plan. My health insurance brings no value.
In short, the cost of the insurance has reached the point that I am financially better off saving the premium dollars and rolling the dice on my family’s health. I’ve done the math (more people should do this) the cost of my health insurance exceeds the “benefit” received by anywhere between $135 and $405 per month depending on the actions I take other than simply dropping the health insurance. (You can see “the math” here)
It appears I have a pretty good financial incentive to roll the dice and drop my family health insurance. This is actually a reflection of how blessed I am. I have this choice. Far too many in our society are looking at a different and harder decision – how do I pay for the medical care I need and still afford a roof or food or clothing. If I choose to skip meals in favor of receiving medical care – will the care be available without “proof of insurance”?
Why move to a mutual or non-profit model for health insurance?
Normally I’m a pretty analytical kind of guy. I try to rein in the emotions and approach subjects such as this from an objective, by the numbers perspective. In this case however, I find it impossible to detach the emotions.
Let me begin with the emotional reasons for proposing a mutual or non-profit model as an alternative.
Quite simply, making a profit from something as fundamental to human life as medical care seems morally wrong to me. Especially when the profit comes not from providing actual care, but solely from facilitating the financing of that care.
I cannot say that medical care is an individual right. It is not. But I have no problem at all stating that providing medical care as needed is a moral obligation of a just society. Our current private health insurance system does not contribute to fulfilling this obligation. Its sole reason for existence is profit.
You do not have to take my word for this, simply read any of the major health insurance company’s annual proxy statements. Pay particular attention to the sections that discuss their executive compensation philosophy and methodology. Here is just one sample:
“Our overall compensation philosophy seeks to establish a strong relationship between executive pay and Company performance based on the achievement of enterprise, business unit and individual goals. We endeavor to closely align these goals with shareholder interests by defining expected business, customer and employee outcomes that create shareholder value over the longer term.”
Notice how the word “patient” never appears, the closest you come is “customer.”
How lucrative is this philosophy for “named” executives in this industry? The CEO of the largest health insurance company was paid $5,029,838 in 2007 in salary, bonus and other cash compensation. This does not include the value of actual stock shares granted, or stock options. Many of the firms I examined have a requirement that the “named” executives own stock in the company valued at a stated percentage of their compensation. They now have a double incentive to push profits: drive profits get a bonus and gain on the value of the stock you own.
What has this focus on profits produced? Besides ever increasing premium costs and all the follow on problems that has caused, there has been no shortage of legal cases against health insurance companies, such as this:
“A series of big acquisitions have proved a bitter pill to swallow for some of the insurer's plan members, who have voiced complaints about denied claims, poor service and rising costs.
The company is currently facing a potential $1.3 billion fine for allegedly failing to pay claims at its PacifiCare unit. In December, CEO William McGuire agreed to return $618 million in executive pay to settle claims brought by shareholders and the SEC over backdated stock options, bringing a massive scandal to a close. The company was forced to restate its earnings by $1.5 billion and announced a $55 million settlement with the IRS. “ [link]
Look at the stated charges: denied claims, poor service, rising costs, backdated stock options. What other purpose but increasing personal compensation and corporate profitability for these acts can there be?
Feel free to dismiss all of the preceding as the emotional rants of someone philosophically opposed to private enterprise making a profit. I won’t be offended because I a big fan of profits, just not when it comes to health care insurance, and potentially a selected few other industries.
Will a mutual or non-profit organization model eliminate the risk of fraud or abuse? No, but it will certainly limit the opportunities just by not having stocks or stock options to manipulate. With a focus on patient care rather than profitable performance measures for compensation, the quality of care should also increase. There would be much less motive to deny services or claims.
What about the objective reasons to move to a mutual or non-profit model?
Reduced insurance premium cost to the insured (patients). The current model, where health insurance companies stand apart as separate, for profit entities, from health providers by necessity increases cost to the patient. Just creating profit from premiums, and increasing those profits by squeezing reimbursements to providers add costs added to the whole cycle of health care delivery. Fundamentally I am suggesting that eliminating the middleman makes more funds available for the delivery of care, and reduces the cost of premiums.
Patient oversight and personal responsibility for effective health care delivery. Let’s face it most stock owners are passive investors, by design. They have no interest in getting involved with the day-to-day management decisions of the company in which they have invested. At most they track the stock price or wait for their dividend payment.
Patients however are intimately involved in the day-to-day “operations” of their health care. When the insurance premiums paid are directly linked to the service provided, you can bet your last dollar the mutual owners will be vocal about the services they receive. The management will also more likely to be more responsive to the patient’s concerns as the measurements of their performance will be directly linked to patient satisfaction, along with other care related measurements.
Increased community needs focus. It is easy to dismiss the failings of our current system to provide for those without insurance when the decision to do so resides somewhere far removed from the community in which you reside. When the “owners” of the company live next door to those in need, ignoring them is much harder.
The bottom line for me is that a mutual or non-profit health insurance model, integrated with, rather than apart from the health care provider system, will deliver a higher quality of care to a broader base of patients, at a lower cost than the current system.
How do we make this transition?
Not through the plans being pushed in Washington, DC. The proposals being discussed right now are aimed at retaining separate health insurance and health delivery systems. The plans for a nationally run “universal” health care program will deliver more of the same – despite our politician’s assurances.
According to The Washington Post on March 8, 2009, “The health-care sector has long ranked with financial services and energy interests as one of the most powerful political forces in Washington, and it spent nearly $1 billion on lobbying in the past two years alone.” The same article reports that President Obama has proposed a $634 billion dollar reserve fund to BEGIN the process of expanding the number of Americans covered by health insurance. Notice the focus is on providing health insurance coverage – not providing care.
Our national government is currently operating on afterburners. They are acting so quickly to solve all the challenges we face that they are not even reading the major and costly bills they are passing. The “health care crisis” has been with us for decades, do we really need to slap together a solution without considering other alternatives? We did so with the stimulus package, we appear to be doing so with cap and trade. Shouldn’t we tell our government to slow down and at least read what they are signing, especially on an issue so far reaching as health care reform?
No the solution does not reside in Washington, DC alone. The solution belongs at the state level, and with new thinking, not just reinventing the current model with new payers. Honestly, given the admitted financial difficulties funding Medicare and Medicaid, do you really think our career politicians, addicted as they are to the campaign contributions and lobbying dollars the insurance industry showers on them are going to look out for your interests?
In the next installment I will attempt to paint a broad stroke picture of an alternative solution using the existing health care delivery infrastructure within each state.
Tim Collins is a business development manager, and calls himself a fiscal conservative and social liberal Independent voter who proudly has called El Paso home since 1999.
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