11 February 2010

Insurers behaving badly

I get lots of press releases and the like in my email. Much of it is off-topic for an EM blog, much of it is spam and link-trolling, and most of it gets deleted out of hand. But I was surprised to see an email from a PR flack with the email address of cms.hhs.gov. Really? I'm getting PR spam from Medicare and HHS now? My goodness, they are really scraping the bottom of the proverbial barrel, aren't they.

As it turned out, this was one of the few releases that was actually of some interest to me, regarding Wellpoint/Anthem's staggering 39% premium hike in California, and Secretary Sebelius' Sternly Worded Letter [tm] in response. And I see that Waxman has decided to haul the Wellpoint execs before the House healthcare committee for some public humiliation

Now, I'm not going to comment on the dems making a little political hay out of an insurer behaving badly, except to say "it's a bit late for that, innit?"

But the over-arching point here is important and should not be missed: the problems facing the crumbling US health care system will not be going away if or when Obamacare finally is taken off the respirator.

Jon Cohn has an informed and fair take on the situation for Wellpoint. To summarize, he suspects that this is due to the adverse selection death spiral of individual policies in a climate of declining enrollment (due to the recession) and rising costs. That actually makes sense to me, and he explains how insurers actually manage individual policies, which I previously didn't know. It's worth a read.

While the prices may have gone up by two-fifths in certain (less desirable) segments of the market, according to Cohn, costs overall for Wellpoint only (only!) went up 9% in 2009. You see the general trend of major insurers like Wellpoint and Aetna racking up huge increases on some policies, forcing others out of their systems altogether. You see overall health care costs continue to increase. You see the number of uninsured Americans increase to 52 million. The looming catastrophe in the system is not going to abate without intervention.

Many on the right, and many spooked moderates, will cheer if the health care reform bill does die. I hold out hope that it will be resurrected, but maybe it's a fool's hope. It's a pity that the opponents of the reform efforts have in many cases become so caught up in the imperfections of the bill or their ideological hang-ups about the mechanics of the bill or the insanely-divorced-from-reality rhetoric about the bill that they have managed to lose sight of this simple fact:

If there is no reform this year, we're not just back where we started, but actually continuing to lose ground as American health care collapses in on itself. We will get further and further behind the eight-ball the longer we let it go without intervention.

If health care dies, there political reality is that there will be no further attempts at comprehensive health care reform for another generation. And matters will get worse and worse as a result. Let's hope that the congressional democrats can see this clearly enough that they can break away from their mutual self-immolation pact and pass the damn bill.


  1. For the year, Wellpoint made $4.7B insuring 34M people.

    That's $138 per person.

    They are there every day to answer your questions with a person, they have nurses on staff that can help you decide how serious something might be, they have a website that lets you see bills, treatment options, etc.

    Pretty reasonable, actually. How much do you think all that is worth?

  2. The services you cite are accounted for out of the expenses, not the profit. The accounting for that is not out of the $138 profit per person but out of the $57 billion in operating expenses. Not that I'm questioning your numbers, BTW, but using your 34 million lives covered number yields an unrealistic $1675 per insured. Maybe that is right -- it seems much much lower than the typical per person premium -- but someone would have to explain to me how that works.

    But using your model, the calculation implies an 8% profit margin -- pretty darn good! Of course that reflects their efficiency as a business, and the part of their business that makes them money is denying care and refusing payment for care already provided -- and Wellpoint is famous for that. They are among the most aggressive of carriers on that front.

    My point however, was not that the insurance industry should be nationalized, but that the adverse selection death spirals and the exponential cost increase will continue and worsen if the reform bill is allowed to die.

  3. That $138 is the PROFIT they receive for answering questions, covering treatment options, finding someone else in the neighborhood to do it cheaper...

    But note their net was almost 2X the normal figure becuase of a business sale. Take that out and their profit was $85 per person. And historically it's been about that.

    My objection really is to you looking at the big fat 'billions' number as if they were doing something wrong there, when the profit per person is quite small for what they do.

    If you ask most people how much their insurance company makes off them, the'd think it was thousands.

    Now, I'll bet today you charged a patient some outrageous fee for gauze and tape. Perhaps $24 for two aspirin. My daughter paid $600 for a splint from the emergency room.

    Can you explain how you can charge that much for stuff that is available down the street for 1/10th of that?

    Who's really screwing the patient here? Your employer, or the insurance company???


  4. It's not as though the right will be completely untouched politically:

    "What if we win the healthcare fight?":

  5. If you ask most people how much their insurance company makes off them, the'd think it was thousands.

    You ask most people what's in the health care bill and they'd think it was death panels. Which is also beside the point. You're attacking me for something I didn't say. There's a fair debate whether insurers should be non-profit, but that was not my point, and I never even referenced Wellpoint's profitability. The point is that the huge increases in certain premiums, well beyond the overall increase in costs, are due to adverse selection, as insurers try to rid themselves of the most expensive patients by actuarially pricing them out of the market. And that if health care reform dies, this problem, which is particularly difficult in the individual market, will continue to accelerate. Reform will do a great deal to prevent adverse selection, if it passes.

  6. I don't mean to attack you specifically, as I really enjoy your writing.

    But with a post titled "INsurers behaving badly" text including "staggering 39% premium hike" and "racking up huge increases" and "forcing others out"....you cannot stand by now and claim you were not using charged words.

    My point is this: The hospital--your employer--is more of a bad guy for the filthy prices they charge for the most basic supplies such as aspirin and Kleenex, and yes, your time.

    The insurers are responding EXACTLY the same way as if you or I were stuck into the position as CEO. You can say "I can promise you I certainly wouldn't do XYZ", but remember, you are already complicit in the practice of charging someone $24 for two aspirin that I could get at Safeway for $0.02. So your moral leg has already been severed.

    The insurers dont' make dick in terms of money. Yeah, their net has a lot of zeros at the end, but so do their costs.

    We already have non-profit insurers, and its called medicare and medicaid. Call them to discuss treatment option for glaucoma and tell me how that goes. Night and day difference.

    And that is because one entity is fighting like hell to earn their $84 in profit, and the other just doesn't give a crap--they get paid whether you are happy or not.

    Summary: Be fair in the fight to reform this mess. There are a lot of people that believe your skills are worth $120K year, and that a union worker salary + benefits package is worth $71K/year at a big auto maker. If they get their way, you are hosed, and then I am hosed when I need you.


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