Peggy Salvatore, HealthSystemEd.com
When I turned 18, my parents did what all my friends’ parents did: they cut us loose to start paying for our own stuff. Even those of us who went to college were
supposed to kick in and help carry the load – we got jobs on weekends and in the summer to help out with expenses.
I paid my first health insurance bill for myself before my 20th summer. The bill from Blue Cross and Blue Shield was for $59.60 a month. My parents had always been self-employed and paid our family health insurance premium every month, “just like our mortgage. It wasn’t anything we even thought about, it wasn’t optional. You have to have health insurance,” my mom said.
Having grown up with that kind of thinking, I paid my own health insurance every month.
When I had kids, health maintenance organizations (HMO) became popular and I could take all my babies for their doctor visits for $5, shots included. I lost some of the choice of providers I had back with Blue Cross and Blue Shield, but the HMO was good, solid coverage. When a baby had to go to the hospital, it was covered. When a child needed surgery, it was covered. And those trips to the emergency room for stitches from falls, they were covered, too. We had comprehensive coverage from a strong corporation that gave my husband good union benefits. We had great suburban providers near our home.
Insurance companies charged us, or our employers, what they needed to charge us to cover the cost of care, including whatever shots and drugs we needed, and to make enough to cover administrative overhead. The money they spend on care for their members is called the Medical Loss Ratio (MLR); from an insurer’s perspective, when you have to pay out, it is a loss.
Typically, insurance companies paid about 80% to 85% of their premiums in MLR and the rest to administration. Health insurance companies charged rates based on the profile of the customer, so when I was young and healthy, my rates were low. When we had a family, rates went up. And as we are getting older, our premiums are rising. It makes sense; those things are determined by actuaries who do underwriting and determine the likelihood that you will draw on your insurance for care.
Back in the day, employers paid benefits to attract and keep good workers, and the coverage was good. Private sector coverage was distinguished from public sector coverage such as government-subsidized Medicaid plans. Medicaid was available to people who were seriously ill and indigent, and you had to meet very strict income and asset limits to qualify.
Where We Are Going:
Today, with all health insurance coming under federal regulations, the distinctions are blurred between private and public coverage. Under the provisions of the new health reform law that fully kicks in next year, health insurers are required to take all comers, and charge premiums for mandated packages. Actuarial tables be damned, Scarlett! Insurers must cover mandated populations with mandated packages and deliver mandated services in ways that are friendly to the population. Premiums will be subsidized with public funds based on income according to a sliding scale. And by the way, remember that MLR where insurers’ liabilities determine what percentage goes for overhead and administration? That percentage is mandated now, too.
When insurance is mandated for everyone, when packages are written according to law and not according to what is logical according to age and utilization, when the amount you can spend for administrative expenses is mandated, the basis for the whole concept of insurance is undermined. It’s like defying the laws of gravity.
When health insurance is written while ignoring the logic of actuarial tables and underwriting principles, it isn’t really insurance anymore. The government is just mandating that a private, third party pay for healthcare for its citizens, and premiums will be subsidized by the government for those who can’t pay. The third party becomes an extension of carrying out the government rules for who is covered, what they get, and even whether they get it.
Yes, those of us who have been watching managed care since the mid-90s have certainly seen that insurance companies have been “rationing” care under depth and breadth of coverage in contracts with employers and private individuals all along. However, it is a rationing system that the purchasers have agreed to within those private contracts. If I get denied coverage, the insurance company can point to the plan that I bought (i.e., the private contract which I entered into with them) and show me that benefit wasn’t included in the coverage I purchased from them.
Within that private contract framework, the insurance companies had discretion regarding the customers with whom they entered into contracts. Some health insurance companies chose to deal in the private insurance market and contract mostly with large employers. Others became specialists in government-subsidized programs like Medicare or Medicaid. They built their premium pricing structure and contracts around their selected markets and the amount of risk they chose to assume with certain populations.
Under health reform, insurance companies are regulated so they have to write packages according to federal regulations, offer insurance to mandated groups, and charge rates that under normal underwriting rules defy the laws of simple arithmetic. Some interest groups would have us believe that insurance companies are evil entities that should not be in the business of healthcare; that they are profiting from premiums and denying care because they are the third party standing between the patient and the provider.
In reality, they have assumed the lion’s share of the responsibility in case you have a catastrophic illness, and they also cover preventive care like vaccines because, if for no other reason than simple good business sense for them, it is cheaper to prevent a disease than to treat it. Based on that logic, most health insurance companies are concerned about keeping their members healthy. And when they are mandated to cover certain populations and conditions, they are going to be even more concerned about keeping those populations healthy.
When I was paying $59.60 a month for Blue Cross and Blue Shield, it was wholly voluntary on my part and theirs. I chose them as an insurer and they agreed to write coverage for me. I went to the doctor when I was sick and they held up their end of the deal and paid 80% of my bills. I’m not sure what the business model is going to look like when that contractual arrangement is no longer voluntary by either the patients or the insurance company. I suspect it will get expensive for both parties, as the covered populations will not be chosen by the insurance company as part of their business strategy, and the members will be getting a mandated package of services that they will be required to pay for.
It doesn’t sound exactly like a government-run healthcare system, but then again it doesn’t not sound like a government-run healthcare system, either. And it makes me wonder, armchair health economist* that I am, at what point we just cut out the middle man and eliminate the charade.
*For the record, even though I am a self-declared armchair health economist, I have had the privilege to watch this from a professional perch for awhile. In one particular meeting in the late 90s, academics and government think-tankers gathered to figure out how to rewrite the tax laws to encourage coverage within the free market system. If you are looking for a mental image, think Upton Sinclair’s The Jungle.