TIME GOES BY | Gray Matters: Health Insurance Companies

By Saul Friedman - Pulitzer Prize-winning journalist Saul Friedman writes the weekly Gray Matters column which appears in Time Goes By each Saturday. His Reflections column, in which he comments on news, politics and social issues from his perspective as one of the younger members of the greatest generation, appears at Time Goes By twice each month.

Now that we’ve heard all the horror stories of coverage denials and soaring profits, I propose that we stop beating up on the health insurance companies and consider a more fundamental issue: Do we need health insurance companies at all?

This is a rhetorical question, of course, to which you can guess my reply, but bear with me.

The United States is unique in that we have a for-profit health insurance industry which has not done very well in providing health care. In France and Switzerland, such insurance companies are non-profit and tightly regulated. But almost everywhere else where there is a form of national health insurance, there are no such things as companies that make profits based on a person’s health – and no one is without access to health care.

I am not opposed to profit-making insurance. But the insurance we take for granted suggests what’s wrong with health insurance. Homeowners’ insurance works well because people tend to take care of their homes and the risk for the insurer is reasonable. But some companies won’t cover a house a few miles from the shore because of hurricane possibilities. They won’t insure homes that really need protection.

Similarly, most states mandate auto insurance coverage and even subsidize it with “no fault” coverage for people who can’t pay. But the prices of policies generally reflect risk factors that protect most careful drivers as well as the companies from excessive losses.

Life insurance may no longer be a good investment, but the companies' actuaries are pretty good at figuring life spans and take a modest risk that not every policy holder will die at the same time.

Here is my point: Life span is generally predictable; cars and homes may be replaced, and not everyone is in an accident or suffers a home fire or burglary. But everyone one gets sick, many seriously, even catastrophically. And our health and that of our families is unpredictable, out of anyone’s control, and may be a matter of life or death.

But health insurers can stay in business (without the present government subsidies) only if

1. we don’t get sick, or
2. if we do, they can avoid and minimize coverage, or
3. we die quickly

Perhaps that’s harsh. But health insurance is an absurd conflict of interests, the patient’s versus the insurance company’s bottom line; this is a market system, after all. This essential problem with private health insurance was first pointed out to me by one of my heroes in the health reform battles – Dr. Marcia Angell, a pathologist who ten years ago became the first woman editor-in-chief of the prestigious New England Journal of Medicine.

In that position, she guided the journal towards critically examining the American health care system along with its papers and studies on medical advances. She analyzed the inherent conflicts in employer-based health insurance in which one’s health coverage is dependent on the employer’s financial health. And she was among the first to suggest gradually opening Medicare to persons of all ages – a belief she still holds.

In 2003, after she became a senior lecturer at Harvard’s medical school, Angell co-authored a paper which was a breakthrough for the staid and conservative Journal of the American Medical Association. The paper, endorsed by 7,800 doctors and medical students, was entitled a “Proposal of the Physicians’ Working Group for Single-Payer National Health Insurance.” The other writers were Drs. Steffie Woolhandler and David Himmelstein, both of Harvard’s Cambridge Hospital, and Dr. Quentin Young, a founder of Physicians for a National Health Program.

Critics of the current health reform proposals say health care is best left to the market system, but that’s where it has been for decades. Here’s how Angell characterized private health insurance:

“The United States alone treats health care as a commodity distributed according to ability to pay, rather than as a social service to be distributed according to medical need. In this market driven system, insurers and providers compete not so much by increasing quality or lowering costs, but by avoiding unprofitable patients and shifting costs back to patients or other payers.

“This creates the paradox of a health care system based on avoiding the sick. It generates huge administrative costs that along with profits, divert resources from clinical care to the demands of business. In addition, burgeoning satellite businesses such as consulting firms and marketing companies, consume an increasing fraction of the health care dollar.”

Each of these satellite businesses, with their telephone answering bureaucrats to explain health coverage denials, add not one pill to a patient’s well-being. And by the very nature of our market system, insurance companies, which pay their executives multi-million dollar salaries, are beholden less to patients than to shareholders and Wall Street analysts who demand higher profits for each quarter. (Humana just reported a 65 percent rise in profits in the third quarter of this year on top of a 37 percent increase in the second quarter.) Angell said on another occasion,

“We are the only nation in the world with a health care system based on dodging sick people. These practices add greatly to overhead costs because they require a mountain of paperwork...Private insurers regularly skim off the top a substantial fraction of the premium – from 10 to 25 percent – for their administrative costs, marketing and profits. The remainder is then passed along a veritable gauntlet of satellite businesses that feed off the health industry, including brokers...disease management companies, drug-management companies, legal services, marketing companies, billing agencies...”

Congressional analysts estimate the five largest health insurers spend 73 to 84 percent of premiums on health care claims. The rest, as Angell says, goes to marketing, administration and profits.

According to The New York Times, a Commonwealth Fund survey found, not surprisingly, that

“73 percent of adults who tried to buy insurance on the open market over three-year period never bought a plan because they could not afford it, could not find a plan that met their needs, or were turned down.”

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