Friday, February 26, 2010

Oh! Those Insurance Sharks!

Jay Rockefeller (D-WV) loves to call insurers "sharks." He derided the "rapacious industry" during the Health Care Summit, one of the main goals of which was to "provide adequate protection against abuses by the insurance industry."
Supporting data is ample. Henry Waxman (D-CA) noted that Wellpoint Athena gouged policyholders with a 39% premium increase for 2009 while paying 39 executives over $1 million in salary. In 2007 and 2008 combined, Wellpoint spent $27 million on retreats and has projected a 38% rate increase for 2010. Even worse, the profits of the five largest US insurers increased by a whopping 56% in 2009.

Meanwhile, Anthem requested approval for a 23% increase in Maine and in Michigan, Blue Cross asked regulators for a 56% increase.

Shark steaks are starting to sound tasty! But one thing bothered me about all of this. If insurers are attacked daily for excess premiums and profits, why not back off a bit until things cool down? Are their executives that nearsighted and greedy? Or is it something else? I decided to dig deeper.

For 2009, the top 15 Healthcare Plans had an average net profit of 3.4 per cent. See the chart here: In fact, they only rank 88th among all industries.
This is up 56% from 2.2 % in 2008.

There's that pesky 56%. But how does that affect your premiums? According to the Kaiser Foundation, the average annual employer provided family health premium in 2009 was $13,375. See here:

Assuming your employer pays half, your share would be $557.29 monthly . If the entire insurance company net profit of 3.4% was used to reduce premiums, your savings would be a whopping $18.92 a month.

Rate increases
While congress' rate examples are legitimate, they are not representative of the health insurance industry as a whole. Again, the Kaiser Foundation shows that, on average, family health premiums increased 5% during 2009.

Compare this to Medicare whose costs during the same period increased by 15%.

Excessive executive pay, perks and waste
Spending $27 million on retreats, at the least looks bad and the worst could be used to cover some uninsured. But, do Washington DC politicians do better?

What looks more suspect than the 61% owner of GM, humiliating competitor Toyota in a series of televised investigations? Does "conflict of interest" come to mind?

In 2009 the combined excesses of the entire insurance industry pale in comparison to the estimated $1.1 trillion of overpayments, miscalculations, pork, unexpected results and sheer waste rendered by the Federal Government.

EX. The 2010 Census alone costs $11 billion more than in 2000.

Meanwhile, the original $787 billion dollar stimulus quietly added $75 billion in unforseen costs as the result of an estimating goof. We're now up to $862 billion and counting. (Bet you thought Bernie Madoff was bad.) And these are only 2 line items!

The real reason for healthcare cost increases
• According to Price Waterhouse Coopers, the costs of medicines, treatments, equipment, devices, procedures, mandates and litigation are all rising rapidly. Because most people pay premiums to an insurer they are insulated from the reality of health costs and have only insurers to blame.

• When hospitals treat Medicare and Medicaid patients, the government reimbursements don't cover actual costs. Resultantly, they are then shifted onto private policy holders.

• In addition, the elderly and the disabled are insured by the government which in turn draws from current workers payroll taxes placing a double burden on them to pay for government health programs as well as their own healthcare premiums.

• State regulations drive up the cost of insurance. While well-intended, attempts to control costs generally force them upwards.

• The US has better healthcare than other countries and we pay for it. Yes, it's true. That much quoted 2000 WHO survey that ranked the US 37th, was based primarily on access to providers, not the quality of care. (You probably don't know too many folks going to Cyprus or Malta for a heart valve replacement.)

The current characterization of insurers as key causes of the healthcare crises are extreme and unsupported. Generally, their profits and compensation are in line with, if not below the average for other industries. It is disingenuous for lawmakers and the administration to imply otherwise.

Real reform must begin with the government trimming their own waste and excesses. Fraud in Medicare and Medicaid can be reduced using existing laws and save Americans billions of dollars. The government needs to provide more accurate data to the CBO to enable better forecasting.

Most importantly, congress should scrap the current House and Senate healthcare proposals. Much of the initiative has been fueled by creating an undeserved depiction of insurers and obscures identification of the real issues.

On the private side, allow insurers to operate across state lines to lower costs and give insured's more choices. Implement tort reforms. Meanwhile create a series of summits between providers and representatives of the insured's to identify ways to lower costs and expand coverage to specific uninsured.

The sooner government acknowledges that insurers are not the enemy, the faster the nation can come together behind effective healthcare solutions.


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