Health insurers are the latest punching bag

February 26, 2010

Click for full-sized image. Source: US Centers for Medicare and Medicaid Services

For health insurers doing business in California, this is the worst of times, politically speaking. The national movement toward health reform is coinciding with an election year in which several key California players are running for higher office, and they are all eager to put the industry in the spotlight. Combine that with rising costs (and profits), and you have a recipe for a political free-for-all. It is almost starting to feel as if health insurance is becoming the next tobacco industry — a political pariah for whom polite people simply wouldn’t work.


Attorney General Jerry Brown, a Democrat presumed to be running for governor, has issued subpoenas calling on health insurers and managed care plans demanding records to support what he says are “possibly illegal” rate increases.

Insurance Commissioner Steve Poizner, a Republican running for governor, pressured Anthem Blue Cross into postponing a planned rate increase while his department, plus the Legislature and even Congress, investigate the company, its profit margin and its administrative costs.

Assembly Health Committee Chairman Dave Jones of Sacramento, a Democrat running for insurance commissioner, has held a special hearing to examine Anthem Blue Cross’s planned rate increase, at one point asking the firm’s CEO, “Have you no shame?”

All of this is entertaining, to a point. And some of it might actually produce information relevant to the health care debate. But we should keep in mind that each of these politicians knows, or should know, that health insurance company profits and administrative costs remain a relatively small factor in driving the cost of coverage skyward.

The biggest reason that health insurance is getting more expensive is that health care is getting more expensive. Our population is aging, and as we age we demand, and get, more care. Most signs also suggest we are not as healthy a population as we used to be. Just look at the rates of obesity and diabetes, among other ailments. And when we get sick, we want the best doctors and nurses, the newest and cleanest offices and hospitals, and the best drugs and technology in the world, all available on a moment’s notice. We want titanium knees that cost tens of thousands of dollars and electronic heart monitors read in real time by a technician who calls us when there are signs of an impending problem.

There’s nothing wrong with that, but it all costs money. And it is going to cost money, whether the evil health insurers are managing the system or the government is in charge. You could, in theory, instantly reduce the cost of the system by eliminating the private insurers and their profits and marketing costs. That would be a one-time savings. But then what? All of the other costs in the system would continue to climb at the same rate they are now, unless the government used its power to force down physician and nurses salaries, drug company reimbursements and hospital costs, or took actions to limit our access to medicine, tests, drugs and technology. There is a reason that the health care sector is the one of the few in the current economy that is still adding jobs. (And most of them are pretty good jobs, with healthy salaries and good benefits.)

According to the most recent figures from the federal government, Americans spent $2.3 trillion on health care in 2008. Of that, about 7 percent, or $159 billion, went to private insurers after deducting all the costs they pass through to the doctors, hospitals and other health care providers. Overall, health care costs nearly doubled between 1998 and 2008, increasing by 96 percent. If we had eliminated private insurance companies in 1998, and assuming they provide no benefit in managing costs, health spending still would have increased by 83 percent during that decade, according to the numbers from the Centers for Medicare and Medicaid Services.

I’ve got no love for health insurance companies. I’ve had my own run-ins with them (ironically over their attempts to limit the cost of my family’s care). But when this election year is over and the current political bash-fest comes to an end, the core costs of health care will still be there, and chances are they will still be rising. If that’s a problem, at some point we as a state or nation will have to address it. For real.

–Daniel Weintraub

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4 Responses to Health insurers are the latest punching bag

  1. wonker

    February 26, 2010 at 4:40 pm

    You’ve got it right, Dan. Insurers are a convenient target. Nobody wants to take on the real cost drivers–docs, hospitals, pharma and our own bad habits.

  2. jskdn

    February 27, 2010 at 10:59 am

    Given the record low approval rate of state legislators and congress, they must welcome an opportunity to shift the focus to an alternative target of public derision. I’m watching a rebroadcast of the Congressional hearing now and seeing many legislators behaving badly.

    However I’m not sure where you derive your pie chart figures. I looked at the “Nation’s health dollar – where it came from, where it went” pie chart at the webpage you linked to and it put “Program Administration and Net Cost” for the nation’s spending at a whole as a whole at 7%. The “National Health Expenditures by type of service and source of funds, CY 1960-2008″ spreadsheet file from that webpage put the 2008 private insurance spending on premiums at $783,157 billion and benefits paid at $691,179 billion, which I calculate comes to a 88.26% average loss ratio. But that includes all lines of private insurance that includes private group insurance, which doesn’t have the underwriting, administrative and marketing costs of the individual market.

    Loss ratios are important because they represent the amount spent on the actual provision of health care services of the premium dollars we pay to insurance companies. It’s been reported that the regulatory minimum in California is 70%. That’s 30% in overhead and profits compared to an overall average of 11.74% in all private health insurance. That’s a big difference.

    In the congressional hearing, a Wellpoint representative said it was at 82.6% enterprise wide which would put them almost 50% below the national average for all companies. I recall that during the recent failed California healthcare legislation effort, almost all insurance companies were accepting of the loss ratio mandates, which I believe were 85%, except Blue Cross.

    But there’s also a difference between loss ratios in the aggregate for a company and those of individual lines and in different places. I assume that each line in California must have must have the minimum 70% regulatory loss ratio. But I would like to know how the various lines rate in that regard individually. I say that not only as an individual policyholder in Blue Cross for a quarter of a century but as a way of understanding the policy implications it might reveal. Is this kind of information submitted to the insurance regulator subject to public disclosure?

    As for the loss ratio difference across areas, Wellpoint said that losses in the individual market in Maine exceeded the premiums received and that most carriers had abandoned that market. Maine has guarantee issue but no effective mandate that people carry insurance. New York and New Jersey have similar rules so I wonder if those states also are paying a disproportionately low share of the company’s total overhead and profit. And when some pay less than their share that means some are paying more. Is it policyholders in California that are paying more?

    All this about insurance companies does mean that your premise about the greatest source of increasing costs lie elsewhere. Health policy is composed of many parts and getting it right means looking at all of them and giving them their proper context and weight. Unfortunately I see little of that. People choose their narratives about health care those narratives drives their thinking, not the facts.

  3. Dave Wiltsee

    March 2, 2010 at 1:38 pm

    First things first, welcome back, Daniel Weintraub. Your clear thinking and to-the-point prose contribute much to public policy. Nowhere are they needed more than in the health care arena.

    Having followed the health care reform machinations since the late-1980’s, I sadly concede that it is, once again, time to go back to the drawing board. This time, however, let’s handle it somewhat differently. First, let’s bring the participants to the table, and let them point fingers at one another, rather than hiding behind their hired guns of the respective policitical parties. Second, let’s limit the discussion to a select few major topics, all of which must be addressed, resulting in some sort of model consensus legislation: universal care; costs; federal and state involvement; and others as appropriate. Rather than watch Republicans and Democrats square off yet again, let’s let the major players (providers, pharma, insurance, hospitals, users) come up with a comprehensive solution, sans the predictable posturing of the political parties.

    Naive as this approach might seem, the prospect of even modest improvement depends on “re-inventing” the process.

  4. Pingback: Bashing Insurance Companies May Be Fun, But Avoids the Real Issue |

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