No Defending Private Health Insurance

No Defending Private Health Insurance

I was talking with a friend recently about health care reform and how it has divided the public. Both of us understand the concerns about government control. However, we can't understand how our country could do worse than the private insurance "system". As my friend put it, private insurers "add no value". An insurance company wants a return on its money greatly exceeding its administrative costs. And the industry has done whatever it takes to get those returns: slow-pay on claims, denying coverage, excessive paperwork that frustrates physicians and patients alike.

If other companies ran their businesses with this kind of attitude, they'd be out of business. And legitimate businesses suffer along with families. Every year, they go shopping for new health plans because of double digit rate hikes. Insurers have no incentive to keep customers; indeed, they thrive on this turnover. They get to underwrite newer and less comprehensive policies, based on latest medical histories. By the time they even bother to send out the new identification cards, and employees learn to navigate the chaos, it's February. What a way to generate cash flow.

About the only other enterprises that benefit from this cynical game are ones that also leech off its complexity: benefits consultants who help companies shop for policies; and banks and financial services firms who administer tax-deferred spending accounts (FSA's and HSA's) and get to play with the deposits. Yes, some of the same folks whose gambles brought down Wall Street are now in charge of our medical savings accounts. They vacuum off as much as 25% of the premiums paid by employers.

You couldn't design a worse demonstration of capitalism than U.S. private health insurance. The parts of American medicine that one might brag about compared with other countries -- technology, high-end care, operations without waiting lists -- don't depend on perpetuating private insurance as the consumer's only option. In fact, insurers often inhibit these services in their policies and practices. Their goal is to spend as little of your premiums on care as possible. What they can't outright deny, they're going to make difficult to get.

Moreover, the efficiencies that insurers claim are based on false economies. It's easy to pay claims when you're cherry picking from the national workforce, leaving government to pay for the old, the indigent, the unemployed and underemployed. If the insurance market serves only the part of the population least in need of medical care, on top of expensive and indifferent administration, then what's the value of the industry to us all? Government has left them alone for too long. They've prospered for themselves and failed to deliver. The national conversation shouldn't be about competing with them. It should be about replacing them.

It's clear that private insurance doesn't serve the public good – whether you judge it by business standards or social justice.. Would a national health insurance program improve things much? I'll cover that in a future article.